Micro-Indicators: The Keys to Making Informed Business Decisions

We at SalesFirst Recruiting don’t spend too much time talking about finance with our constituents, but we have recently fielded questions from our clients about when they should be investing in sales and when they should hold back. To learn more, we reached out to Mason Brady, owner of Brady CFO. Brady CFO is a strategic business finance partner to small business owners and provides part-time/fractional CFO services to businesses with $1-$30M in annual revenues. During our talk, Brady shared his insights on the importance of micro-indicators and how they can help businesses navigate today's rapidly changing business landscape.

Here are some of the important tips he shared with SalesFirst Recruiting.

Don't Rely on Gut Feelings

Small business owners should be watching for indicators to make informed decisions instead of relying on their gut. Understanding the economic environment is crucial, such as where layoffs are happening and where employment growth is trending. If you’re reading the news, you might be surprised to learn that the last US Federal Government's unemployment numbers showed a gain in jobs for February. Just because something is hurting the tech industry does not necessarily mean it will hurt other industries.

Join Industry Associations and Subscribe to Industry-Specific Newsletters

Joining industry associations and subscribing to industry-specific newsletters can be extremely helpful for businesses to stay informed about the latest news, trends, and challenges that are specific to their industry. This is because not all industries are affected by macroeconomic trends in the same way. During a recession, for instance, industries such as healthcare, utilities, and education tend to be less affected as these are essential services that people continue to need regardless of the economic climate. Similarly, in the food industry, businesses that sell essential food items such as rice, flour, and canned goods tend to be less affected than those that sell luxury items like fine dining restaurants.

Look beyond the macro-indicators

Focus on micro-indicators that can provide more tailored insights. While macro-indicators such as GDP, unemployment rates, and stock market performance can be helpful, they often don't reflect the specific challenges and opportunities facing individual businesses.

For example, a business owner might be tempted to make decisions based on national employment trends or the latest headlines in major publications. However, this approach can be misleading, as these broad-based measures don't always reflect the realities of a particular industry or market segment.

Instead, it's essential to pay attention to the news that comes out from industry associations, which provides better-tailored material to help businesses make decisions. By tracking micro-indicators like customer sentiment, supply chain disruptions, and industry-specific regulatory changes, businesses can gain a deeper understanding of the factors that drive their success.

Accept Reality

When it comes to making personnel decisions, businesses need to strike a balance between being proactive and realistic. While it's important to plan for growth and make careful informed decisions, it's equally important not to be too hard on yourself when things don't go as planned. The truth is, there are always going to be unforeseen circumstances and events that are outside of your control.

The COVID-19 pandemic is a prime example of this. In December 2019, few people could have predicted the scale and impact of the pandemic that would hit just a few months later, forcing businesses around the world to shut down and causing widespread economic disruption.

That being said, it's still important for businesses to plan for growth and make personnel adjustments as needed. By keeping a close eye on key performance indicators, monitoring market trends, and staying informed about industry developments, businesses can position themselves for success while also being prepared for unexpected challenges. At the end of the day, it's all about finding the right balance between being proactive and flexible.

Align Hiring with Revenue Generation

Bringing on new staff members can be a significant investment for a business, and it's essential to ensure that this investment will ultimately result in a positive return.

One way to evaluate the potential return on investment for a new hire is to consider their impact on the company's revenue. The goal of any hire should be to bring in an incremental amount of revenue that exceeds the cost of hiring, so that the business can continue to grow and thrive.

To achieve this, businesses need to carefully consider their revenue forecast and factor in the cost of hiring when making decisions about new staff. If the revenue forecast does not exceed the cost of hiring, it's time to take a step back and rethink the decision to bring on new employees.

This doesn't mean that businesses should always expect immediate and significant returns on their hires, as it often takes time for new employees to become fully integrated and productive. However, it does mean that there should be a clear expectation that the new hire will ultimately contribute to the company's growth and profitability.

Conduct a SWOT Analysis

Market research is the essential first step in understanding your competitive landscape and identifying opportunities for growth. By gathering data on market size, consumer demographics, and purchasing behavior, businesses can make informed decisions about their products and services. This research should then be used to conduct a SWOT analysis.

A SWOT analysis is a great way to identify threats to your business. For example, the COVID-19 pandemic had a significant impact on the agricultural industry. During the pandemic, businesses selling direct to retailers thrived while those selling to food-service/restaurant segments suffered.

Tailor Your Response to Your Business Model

A business's response to these microeconomic trends is crucial because there is no one-size-fits-all approach. Each company must carefully evaluate its specific circumstances and adjust its strategy accordingly.

For example, companies with federal or state contracts may be less impacted by recessions because these contracts provide a steady stream of revenue even during economic downturns. In contrast, businesses that rely heavily on consumer spending may suffer more during recessions as consumers cut back on discretionary spending.

Similarly, the impact of inflation on businesses can vary widely depending on the industry-specific costs that each company incurs. For example, businesses that rely heavily on raw materials or energy may be hit harder by inflation than businesses that have more flexibility in their cost structures.

Have a Scorecard with Key Metrics

Having a scorecard with the top 5 to 7 metrics that you should be watching is a great way to keep track of your business's health. These metrics could include revenue, cash, and margins, among others that are specific to your industry or business. By having a scorecard with these metrics, you can easily monitor the progress of your business and quickly identify areas that need improvement.

It's important to watch the scorecard on a weekly basis to understand if something is off and react appropriately. This will allow you to make any necessary adjustments to keep your business on track. For example, if revenue is not meeting expectations, you may need to adjust your marketing strategy, explore new revenue streams, or even make personnel adjustments.

SalesFirst Recruiting and Brady CFO

SalesFirst Recruiting is here help you find the best sales talent for your business. Contact us today to learn more about our services and how we can help you take your business to the next level. Reach out to us at www.salesfirstrecruiting.com.

 If you are a business owner with $1M-$30M in annual revenues in backbone industries (construction, food/ag, distributions/logistics, and service providers) and interested in learning more about Brady CFO’s risk free financial clarity assessment for your business, you can reach out to Mason at mason@bradycfo.com or head on over to bradycfo.com.