Elevate Your Financial Crystal Ball With KPI’s
Jared Sanders
Partner, Lightheart Sanders
Elevate Your Financial Crystal Ball With KPI’s
Chris Linford:
Jared, it’s awesome to have you back.
Jared Sanders:
Oh man, I’m so excited to be back. Appreciate the invite for talking and all of the stretching of my bio to make me look important and smart.
Chris Linford:
Well, we’re excited to hear from you and you’re an expert. I know a lot of people know you and trust you, so no pressure here.
Jared Sanders:
Hey, I appreciate it. Let me pull up my PowerPoint and we’ll get started. First and foremost, I just want to throw out there in the chat, we’re going to talk about KPIs, key performance indicators. And I’m just wondering, I know after seeing the giveaway, there are a lot of people that can participate in the chat. I know that people don’t like to really chat with CPAs, but I’m just wondering if you’ll throw in there, do you use KPIs? So if you do hit yes, if you don’t hit no, just want to see where we’re at in terms of how many people are keying into these key moments.
All right, I love it. Eat them for breakfasts from Oozle Media. Good, so we got a good mix. So let me first start by just talking about what exactly a KPI is.
What Is A KPI?
Okay, so it’s a percentage or a number point that’s used basically to define success without getting drowned in the details. So if you can imagine, I know that a lot of people and your CPA, you submit all of your information to them and they produce these balance sheets and income statements and maybe a cash flow and bank reconciliation reports and all this stuff. You can get really easily lost in the numbers. And a KPI is basically taking a high level view, pulling out key measurable points that can tell the story of what’s going on with your school without having to jump in and get lost. I recognize that most of you when you look at numbers, you have a lot of varying degrees of responses to seeing that.
And we have for years talked about pulling out specific numbers that you can use that make sense to you. Probably about 10 years ago, I did a presentation that talked about just budgeting from the process of really figuring out how many hours your students need to put in each week for you to break even or to pay the bills. So that you could just look at that one number and know whether or not your school is being profitable. Because attendance is something that we all can understand. Profitability becomes a much more difficult thing to understand, especially when you start throwing into it accrual accounting and adjusting for receivables and deferred, and I’ve got cash, but do I not have cash? Or my accountant says I’m doing really well and I’m paying a lot of taxes, but I’m not seeing the cash in the bank and I’m not bringing it home, So where’s it going?
It’s really easy to get lost in those. And so a key performance indicator is a great way to manage your business without having to spend the time and getting into the details or really understanding those finer points.
Using KPI’s to Elevate Your Management Time
Now what it allows you to do is, you can set specific goals. Choosing the right KPIs helps you identify and hone in on the areas that you need to from a school perspective. And then setting benchmarks, knowing, hey, if that KPI is dripping down to a particular point, then we need to spend a little time and a little focus in that particular area, as well as to monitor performance, monitor where your students are at, are they engaged? Are they getting through the program? Are my numbers slipping and that’s why cash isn’t coming in or I’m not being as profitable?
And then most importantly, with anything related to counting or management, it’s all about being able to take action. And so we spent a lot of time today talking about AI. We’re talking about marketing, and you’ve also got to run a school. You’ve got to keep students happy. Hiring a professor or teachers and stuff like that. You’ve got a hundred different hats going on you and KPIs really allow you to say, “You know what? These are the key points that I’m going to look at from an information standpoint, this is where I want to be with each one of those points.” And then monitoring to make sure that you’re hitting those points and taking action to make sure that if it’s dipping or if you’re off, that you adjust your focus to bring those up. So you want to make sure that you define your goals, make sure that you, you’re setting those specific things.
It’s not good to just say, “Okay, here’s the 10 numbers I want each week.” And then not really know what those numbers are. How did they relate within the industry? What does that mean with our business? So you do want to spend some time saying, “Okay, how am I going to use this information?”
Common Beauty School Goals
So some common beauty school goals. We want to be profitable, we want to have decent cash flow, we want to be able to map out our future plans, whether it’s growth with additional campuses, maybe it’s buying your building, maybe it’s tax planning, maybe it’s just meeting composite score. All of those things fly into our financial goals.
There’s also meeting our compliance standards, graduation rates, placement rates, licensure rates, being able to make sure that we’re within compliance, meeting those. And then our student life aspect of things in terms of attendance percentages. And then the salon and spa side of things, our clinic health, making sure that we’re teaching these things to our students as well. And so that they understand, hey, you know, don’t necessarily have to become an expert at financials, but if you can keep track of these key metrics for yourself or for your salon, then we’ll see a lot more in terms of being profitable as you become a professional and get into the business.
The Right KPIs
So choosing the right KPIs is critical, and for every business, the way you run your business, stuff like that, that’s going to flavor a little bit of which KPIs you may want to focus on. One is just from a goal perspective of why are you in business? And I know most of us say we’re in business because we love changing lives. We want to give back to the industry. This industry has been amazing to us. So I want to teach that to the next generation. I want to give people an opportunity to elevate their social status or their economic status. I want to give people an opportunity to be in a business that gives them that flexibility. I mean, all the things that we love about this industry, our goals could be, hey, I’m running a business and I’m trying to provide for my family and I want to make sure that I can provide for my teachers and stuff.
And by doing that means I have to have a profitable business so that we can grow and provide the tools and the benefits that we want the people around us. KPIs need to be measurable though. You need to be able to say, “Okay, this is how it’s calculated. These are the points in time that they’re calculated.” So that I can look at it, I can track it across time. I know exactly what it means and it needs to provide actionable insight. So it needs to give you information that allows you to make a decision or to make choices on, Hey, this is what’s going on with my particular business. So we’ll get into some details specific to schools and what those specific KPIs mean in terms of what the number is. And then what does that mean in terms of what actions you need to do or to consider when you’re doing your review of it.
We’ll Help You Set Benchmarks
So setting the right benchmarks, we want to set a benchmark with each of your KPIs. You want it to be realistic, meaning that you don’t want to just say, “Okay, hey, I want to have a 98% attendance percentage. That’s my KPI P that I’m doing.” And if you’re only requiring your students to be there 80% of the time, it’s probably not realistic that you’re going to see a 80% KPI on your attendance percentage. So making sure that your benchmark for your KPI is realistic in terms of the way that you’re running your business, the expectations that you have on people, make sure that it’s achievable. Don’t set a goal to say, you know what? I want to be at that 98% when you know that you’re not going to get there with the student body that you have or anything like that.
So making sure that your KPI benchmark is achievable eliminates that frustration. And we all set goals that we’re like, “Look, I still want to lose a whole bunch of weight, but I also know that I hate working out, and so do I really want to set that goal?” And then each month look at it, say, “Okay, yeah, I haven’t lost the weight yet. I don’t know why I keep thinking about this.” So you want to make sure that you’re setting goals that are achievable and maybe you step back and say, “Look, I would love to have a 95% attendance percentage. I’m sitting at 80, so I’m going to set my first benchmark of where I want to get to at 85%, and then I’m going to go make those decisions of what I’m going to change within the school to elevate that attendance percentage. And as I get up to 85, then I set a new goal.”
So you can take a long term and a short term approach and use those benchmarks to approve the efficiency of the school over time. But you do want to make sure that your KPIs are ambitious. If you set that goal of you’re cruising along at 80% attendance percentage, and you set your benchmark, as long as I’m at 77 or above, that’s not a lot of effort. And you’re going to continue to go along that and it’s not going to give you the positive actionable results that you’re hoping for.
So you want to make sure that they’re realistic, achievable, but ambitious in terms of challenging your business to continue to improve.
Together, We Monitor Performance
So last aspect of KPIs is to make sure that you monitor that performance, determine how you’re going to get the information out. And that’s probably one of the big things is a lot of the schools that we work with, they’re like, “Hey, I want this information. I need to get this information. I really should be looking at these numbers.” But there’s no plan on how you’re going to get those numbers. There’s nobody there. And sometimes it’s as simple as engaging somebody like us or your student information software and stuff like that to say, “You know what? This is the information I need. How can I get it? Who’s going to pull that information and when are they going to pull that information? When am I going to set aside time to look at this?” We love with all of our clients to make sure that we have a monthly meeting set up.
We say, “Okay, by this date, here’s our meeting. We got an hour.” It pushes us to make sure that we get the books finished and complete, prior month closed. We calculate the KPIs, we pull those other information off to, then we have a meeting where we go down, we sit down, we say, “Okay, hey, here’s where you were at this month.” And that meeting is 30 minutes. And it may not be that we necessarily say anything that’s magical, but it forces the process to complete itself. So going back to the weight loss analogy, if you’re not stepping on the scale consistently, then you never really know what’s going on, and most likely your efforts are going to fail. And so you want to make sure that you set up a system that works for you to be able to look at those. Some owners look at it weekly.
They have their little sheet, they have different people in the school that are pulling specific information. Somebody is pulling that information into a single sheet or a single page, and that information gets reviewed weekly or monthly. But you want to make sure that it’s simple. You don’t want to spend all your time and effort trying to gather up all this information that by the time you get the information, it’s late or it’s such a burden to get to it, that you create a burden on everybody, and then that ends up meaning that y’all fell in terms of getting to that point. Making sure that there’s a consistent review so that you can identify trends, you can use the areas for improvement, and then making informed decisions and then following up to see if those decisions that you made actually is reflective in the results. So if you say, “Hey, let’s focus on attendance. We’re going to do A, B and C.”
Doing A, B, and C after a few months that attendance is rising or is failing or if it’s staying the same, then we need to come up with the new game plan on how we’re going to meet the metrics or the benchmarks that we’ve set.
Time to Take Action
Lastly, after you’ve measured it, you’ve got it in there. You want to make sure that you take action. And there’s two aspects of that. You want to identify areas where performance is failing so that you can correct it, but also take a look at it. And if you’ve got areas that are going good, don’t just look at it and say, “Oh yeah, we’re doing great in this area, this area.” And go on with life. Step back and say, “You know what? Hey, why is our attendance percentage way above what our required is? What’s going on with the school?” Add those things and see if there’s ways that you can build on it.
You say, “Look we’re doing really well here. Can we utilize some of what’s successful in that area and apply it to these other benchmarks or these other areas that would then allow us to be more successful in the other areas that we maybe were struggling with.
So specific to schools, and this one’s interesting to me as I’ve been working with this and going over it, if you Google KPIs for salon and Spas, there’s a hundred million sites that come up. Different people have talked about different things as it relates to salon and spas, but nothing related to schools. So that meant, okay, I can’t cheat off of anybody. So we’ve just created our own specific metrics that we can think of in the different areas. But this is not an exhaustive list and you can go through, you add things. But we have found that when we talk to owners about driving down and understanding their numbers and stuff like that, and we say, “Okay, what numbers really drive the financials?” There’s an aspect of monitoring your expenses to make sure that they’re not out of whack.
But they can be fairly consistent month to month. What really drives successful schools is really understanding and focusing on the students section of things, the clinic section of things, and then just the overall financials. So within students and hours, we always look at attendance total, that is the driver for what your revenue is going to be. And then we look at attendance percentage to see what percent of scheduled hours versus actual, because that gives us an idea of where you’re at, where your students are at, are they progressing? Are they getting through the program fairly quickly? Your total scheduled hours reflects the total potential revenue that you can have in that month as it relates to tuition. And then we do look at grad licensure and placement. We do that on a monthly basis with our approach so that when it gets down to the time to actually submit that to NACAS or to your creditor or whoever, it’s not like, oh crap, I’ve got to go back and I got to pull a year’s worth of data.
Our goal is, and your goal should be to know that information as you’re leading into it, and most of our schools don’t have issues necessarily with meeting the grad licensure and placement rates that are required by creditors, but it’s the whole, well, I’m not exactly sure where my number is, but more importantly it’s, okay, I got to go get a year’s worth of data. Whereas instead, if we pull it into this, we’re looking at it throughout the year, that headache and frustration of having to set aside time, go back for an entire year and pull out information so that you can submit it really alleviates a lot of the stress impression. We also look at enrollment rate, which is the number of new students coming in each month compared to your student body. That gives us a great touchpoint in terms of how young your student body is.
Clinic, we’re looking at guest per professional, which is your students, your guest by rebook, your average ticket. And then we also look at average per hours, which is earnings per hour, which is taking the clinic revenue and comparing it to the number of hours that your students are there to really look at it and say, “What are they generating?” Because we don’t often think about it, but a lot of times their tuition is being slightly offset by the revenue that they’re generating on the clinic. If you had no clinic and you still want to maintain your profitability, maintain your student staff and stuff like that, you’d have to raise tuition. So getting that idea as well helps them to understand. And then from a financial statement, we look at revenue growth, we look at the tuition clinic ratio, and we also look at cost per student.
So we’re looking at our variable costs within the student side of things and looking at it to say, “Okay, hey, what is the student’s costing me to actually be in school and attending?”
What Does This Look Like in Practice?
So in practice, this is what it looks like. You have all of these different areas. I have here, how those are actually calculated. And if you have a question, I know my time’s short, I blew through it, I thought I’d have maybe a few minutes to talk. But if there’s a specific metric that you’re wondering, okay, what does that actually mean? Or how do you calculate that? I can expand on that. But they’re all here and you can have that to look at it and plan.
Want to Learn More About Your Schools KPIs? Talk to Jared!
With that, I just want to say thanks. I appreciate the opportunity to come in. If you need help with KPIs and setting it up and putting your system, y’all feel free to give me a call or an email, and I would love to help you become a better manager of your business without getting destroyed by looking at financial statements.
Chris Linford:
Awesome. As always, Jared, thank you so much for the great info, such important information. I know several people in the chat were like, “I needed this.” So yeah, sending you emails right now. Go check your inbox, help some schools out. Jared, thanks for being with us.
Jared Sanders:
Hey, no problem.