It is pointless setting out detailed budgetary plans and cash flow forecasts, or establishing and publishing statements of quality standards for a business, if the achievement of those financial plans and quality standards cannot be objectively assessed or measured. It is necessary, therefore, to have some mechanisms in place to carry out the monitoring process.
7.1 Plans for monitoring the quality of goods and services Some methods of monitoring will be determined by legisla- tion or by industry standards, e.g. the safe temperatures at which food can be stored, the types of thermometers to be used and the records which must be used to ensure safe storage.
Others will need to be designed for the specific goods or services which the business is offering, such as the use of customer feedback questionnaires, the monitoring of the frequency of complaints or the return of unsatisfactory goods.
Customer turnover or retention rates can also act as a yard- stick to monitor levels of satisfaction. This subsection requires you to answer the question ‘How will I ensure that my goods or services meet the necessary quality standards?’ and to describe or give examples of suitable methods.
7.2 Budgetary control
Regular monitoring of planned levels of income and expendi- ture in comparison with the levels which are actually being achieved, is imperative if you are to keep control of the finances of the business. Any discrepancies which arise as a result of the comparison of actual and planned figures should immedi- ately act as an alarm system, prompting questions as to the cause of the discrepancies and the actions necessary to remedy the situation. Monitoring should be carried out at least once a 1111
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month, and as close as possible to the end of the previous month so that precious time is not wasted if problems do occur.
It is surprising how many small firms do not realize that they have financial problems until they get their books back from their accountant three months after the end of their financial year, by which time they may already have lost too much money for the business to be able to recover or survive.
7.3 Financial control systems
Alongside the budgetary control system it is necessary to have a more basic set of day-to-day financial controls. A good double-entry book-keeping system should be maintained, using income and expenditure headings that correspond to the budget headings. The accounts should be kept up to date on a daily, or at least weekly, basis so that the cash and bank balances shown therein can be checked or reconciled against actual petty cash and bank statements. If credit is given or received it will also be necessary to maintain customer accounts and generate regular statements, particularly for money owed to the busi- ness. The aged debtors analysis will show the sums owing to the business and the length of time each has been outstanding, so that action can be taken promptly when payments are overdue.
7.4 Customer records
All businesses need to keep data and records of their customers, and if this is held on computer the information may be subject to the rules of the Data Protection Act. In addition to basic names, addresses and telephone numbers, the records may cover sales volumes of various products, financial transactions and payments, terms and conditions of contracts of supply etc. In some cases, such as the complementary therapist, the infor- mation may be much more personal, with details of medical
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conditions, treatments etc., and where client confidentiality is a major consideration.
A number of questions arise which will need to be answered:
what records will your business need to hold and why? Are these records confidential? How will they be stored and who will be able to, access them? How often will they be updated?
How secure is the method of storage?
7.5 Feedback from customers
In order to monitor the standards and quality of your goods and services, you will almost certainly have to design some means of obtaining customer feedback. The obvious way to do this is by asking your customers to complete questionnaires, or by interviewing selected samples of customers at regular intervals. Even then, it is sometimes hard to ensure that they are being totally honest and objective rather than being polite.
It is often necessary, therefore, to examine other ways of assessing your performance or of verifying the usefulness of the feedback you have been given. One way is to ask new customers how they have found out about you, e.g. via sales activity or advertisements or as a result of recommendation from other existing customers. The frequency of recommen- dations will be a basic means of determining levels of customer satisfaction. Alternatively, if you are in the type of business which involves trading with customers on a regular basis, it may be more valuable to monitor rates of customer turnover.
There will always be some degree of natural wastage as people move, retire or even die, but the retention of customers and their subsequent loyalty to your business can provide a firm indication of the quality of your goods or services or, in some cases, the apparent lack of it.
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7.6 How will the success of the business will be measured?
The obvious answer to this question is simple – by how much profit the business is making. But the achievement of the busi- ness can be measured in more ways than that, for example, by:
● Assessing the quality of goods or services as described in customer feedback, against established quality standards.
● Measuring rates of growth of the business as a whole, or the growth of its various constituent parts, in com- parison with previous years, or forecast figures.
● Comparing actual with planned income and expenditure for each period.
● Measuring customer retention rates with past per- formance.
● Assessing growth of sales in relation to promotional activities and expenditure.
● Comparing the relative sales levels of individual goods or services.
● Monitoring profit margins by product or service.
● Monitoring overall cash profit, and profit margins, to ensure solvency.
● Analysis of aged debtors and creditors, payment terms etc., to ensure liquidity.
It is important to identify which of these alternatives, or combi- nations thereof, are appropriate to your type of business and to define the ways in which you will use them to measure your success.
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