Numbers are relative

Most numbers aren’t good or bad 

Many of my projects are designed to help folks improve certain metrics.   It’s key to remember that whether a number is good or bad depends on the business. I had a client take on a big project to reduce inventory because a large consulting firm said that was important. (The client had been purchased by private equity.) 

A lot of money was spent. They couldn’t ship accurately. They lost customers. And inventory wound up going up when folks panicked and tried to get orders out to customers. 

That’s an extreme case. However, I believe there’s only one absolutely better number. That’s the amount of cash that can be taken out by ownership while the business is sustainable. 

Beyond that, it gets trickier. 

For example, I like having a very low outstanding accounts receivable. All my clients pay on time and some even pay in advance. Which is how I like to run my business.   

However, I do know companies that work with major hospitals. Hospitals which are notorious for paying in six months. At best. 

It can be a profitable business. But to be in that business, you can’t have my A/R expectations. So, I’ve never pursued opportunities in that area.   

But again, this is not good or bad. Or perhaps to say that a bad A/R is the price to pay for working with hospitals.  

This is key to remember. Sure, some numbers are good, some ratios are good, but some businesses operate well even if their numbers in these areas are not ideal. 

And having a consultant tell you to improve a certain number isn’t a good reason to start a project.