Assessing Your Business Performance

image:cesim.com
culled from:www.ceoonline.com

A review of your business will identify any areas which are working really well - and any which may require you to take action. Being informed about the real drivers in your business is critical to achieving results and optimal utilisation of all your resources.
How are you going to assess your performance as a business owner? Are you getting any better? Are you improving your skills? Are your business results improving? Apart from sales revenue and profitability, how do you assess performance?
The only way to truly assess your performance is by the results you achieved in your business.
In a more competitive and demanding market, you need to get smart about minimising risks, identifying new opportunities and understanding what drives performance.
Ask yourself these important questions
•    Which product or service lines are most profitable and make the greatest contribution to your business?
•    Do you need to change the mix of your product/service portfolio in any way? (When assessing products or services, think about factors like length of sales cycle, volume of sales, profitability, how easy is it to sell your products or services, repeat sales, support revenue and costs, pricing, cross-sell and up-sell compatibility, etc.)
•    Do you acknowledge and nurture your best customers?
•    Where will your growth come from this year? Will it be from your core business and customers, or from somewhere new? (Where did it come from last year, and was it enough?)
•    Will you be able to fund your growth? What options do you have?
•    Where is the biggest exposure in your business? What needs to be done to address it?
•    Do you have the right systems and infrastructure in place to support your goals and priorities?
•    Do you know what the key measurements are to assess the overall progress and performance of your business, and can you report on that?
•    Do you have the right team? Do you have resource gaps?
•    What changes could I make (as the CEO) in what I do, to improve the performance of the business?
These questions give you somewhere to start as you progress through your report card. Then you need to look into your business and make assessments on what needs to be done to get you to your future goals. Changes may be needed, extra attention may be required in some areas, and you may not even have answers regarding some areas of your business.
Here's a quick report card checklist to assess whether or not you are worthy of an ‘A'! 
Report card checklist
This quick and easy report card will help you uncover the real status of operations and performance in these key areas:
•    Finance
•    Sales
•    Marketing and promotion
•    People
•    Products and services
•    Customers
•    Processes and systems / production
•    Planning and goal setting
For each area, draw up a form with a checklist like the one below (Table A), rating each area as ‘poor', ‘satisfactory', ‘needs work' or ‘good'. Using the above example, record your rating for each aspect identified for the sales area. From this, you should be able to see the most frequently scored rating, and make an overall assessment of the sales area.
Table A
Sales     Poor     Satisfactory     Needs work     Good
Sales revenue                        
Sales tools                        
Sales team use of time                        
Lead generation                        
Pipeline building                        
Forecasting accuracy                        
New customer acquisition                        
Relationship building                        

For example, 'sales revenue' may have come in under budget for the last 12 months (or 6 months, whatever basis you are working on). If it's just under budget, you may rate the sales revenue as ‘satisfactory'. If it came in well under budget you may rate it ‘poor'. If you made budget, but you know you could have achieved a better result, then a rating of ‘needs work' would probably be appropriate, and if you came in well over budget you'd definitely categorise the sales revenue result as ‘good'.
Be objective and very honest when you work through this for each area of your business, and make sure to use criteria that are appropriate for you.
For example, if you sell through a network of distributors, then ‘channel performance' or ‘channel' may be a criteria. If you sell both in your local market and in export markets, you may separate ‘sales revenue' into ‘sales - domestic' and ‘sales - export'.
How do you rate?
In conjunction with this assessment process, it is always a valuable exercise to survey your staff/customers/suppliers as appropriate. They ARE your business and you need to know how you are performing, from their perspective. It isn't necessary to conduct these surveys too often, but they are a useful benchmarking tool to use from time to time.
When you've been through all of the broad functions of the business (such as sales, finance, etc.), give each area an overall rating.  Again, draw up a chart with performance rating across the top, the operational area along the left axis (sales, finance, people, etc.), and tick your ratings in the right columns (Table B).
If an area is generally in pretty good shape, and scored mostly ‘good' ratings, but one or two aspects rated a lower score such as ‘poor' or ‘satisfactory', it would be worth your while to address those underperforming areas now, before they affect the good parts of the business or area that is working well. As they say, "Prevention is better than cure".
In our example, the sales area may have had the following results:
Sales     Poor     Satisfactory     Needs Work     Good
Sales revenue           a            
Sales tools                 a      
Sales team use of time     a                  
Lead generation     a                  
Pipeline follow through     a                  
Forecasting accuracy           a            
New customer acquisition     a                  
Relationship building                       a

From this you can see that new business development / pipeline building is a weakness in the business, but building relationships with existing clients is a strength. Sales tools are satisfactory, but could do with a bit of work to make them even better.
When you review each area of your business, put a score in the ‘summary' box for the number of aspects that are ‘poor' in each area. For example, the sales area of this business has 50% of its key drivers that are basically ineffective! This is a red flag area that requires urgent attention.
Report card summary
Table B
Categories     Poor     Satisfactory     Needs Work     Good     Summary
Sales     4     2     1     1     4/8 (50%)
Finance           5     1     3     0/9 (0%)
Marketing & Promotion     2     6     3     2     2/13 (15%)
People     7     4     0     0     7/11 (64%)
Products & Services     0     0     4     3     0 (0%)
Customers     5     5     7     1     5/18 (28%)
Processes/Production     8     3     1     2     8/14 (57%)
Planning & Goal Setting     3     0     1     2     3/6 (50%)

The other numbers above for the remaining areas of the business provide some insights as to what the business owner needs to focus on. The highlighted areas would be a priority. For example, 64% of the drivers behind how they measure the performance and effectiveness of their people, are in the ‘poor' category.
This report card is a direct reflection on business performance over the last year. Would you give the owner of our sample business an ‘A'?
When you've done your own report card you'll be able to see at a glance the overall status and performance of your business, and take the appropriate course of action:
•    No action required (big tick for your performance - or maybe you haven't been completely honest in your evaluation ...)
•    Identify priority areas which require attention
•    Decide what action needs to be taken
•    Implement improvements
•    Review progress in 1, 3, 6 or 12 months time as appropriate
The outcome of this process will tell you: 
•    The strategy required - which will focus you
•    What you then have to do - which will improve your operations
•    What you need to measure in the follow up review - with results as the outcome
•    It will have measured your performance as the driver of the business
•    Finally, if you are underperforming in any areas of your business, it will help you to make changes which result in improved performance
Monitor the vital signs
The most important indicators that you must constantly watch and attend to are:
•    Cashflow and available funds
•    Sales, and plenty in the pipeline
•    Overheads kept low - don't let them creep up
•    Know where you're going (have a plan)
•    Put systems and procedures in place as you go (so you can delegate as the business grows and maximise your return on current resources)
Source: www.bossgroup.com.au
How To Reach Your Business Targets
By Sue Hirst

There is an old saying: "If you aim at nothing, you will hit the target with amazing accuracy!"
We would all like a ‘silver bullet’ in our business that creates that wonderful profit we seek. The reality is that there isn’t one! There are lots of things that take up the attention of owners / managers in the effort to create a profitable and sustainable business. There are however a small number of key things that can have a big impact on any business’s bottom line.
The drivers to financial performance are ‘Key Performance Indicators’ or ‘KPIs’
Ask yourself - how do you currently track, monitor and drive the financial performance of your business? If you don’t currently use KPIs, you could be in for a real boost to your profit by focusing on this vital area of business management.
What are some of the ‘Key Drivers’ to financial performance?
Here are some examples:
•    Sales Company – Volume of Sales, Gross Margin %
•    Manufacturing – Number of Machine Hours Sold, Labour Sales $/machine hour, material margin %
•    Contractors – Number of Billable Hours, $ per billable hour, utilization %
Key Drivers vary from industry to industry, but ask yourself this question – If I was away from my business for a while, what are the five or six things I would want to know about the performance of my business? We are not talking here about the bottom line results but what impacts the bottom line results or more importantly the ‘top line’.
To see the value of managing KPIs it is worth calculating how much more profit you could make by improving them. This is called ‘Sensitivity Analysis’.
Here is an example of Sensitivity Analysis based on a manufacturing business with net profit of $80,000:  
This example illustrates that the most valuable impact is on ‘number of hours sold’, so this is the KPI that should receive maximum attention.
Steps for setting targets for ‘Key Drivers’
•    Set company targets for each Key Driver
•    Determine profitability from hitting Key Driver Targets
o    Are targets realistic?
o    Is profitability desired profitability
o    Realistic targets that result in a loss may mean your ‘Business Model’ needs to be changed
•    Determine actions / plans to achieve the targets and deadline dates
•    Set targets for staff who have influence on Key Drivers e.g. sales staff
•    Bonus / incentive scheme for achieving targets
Monitor Actual v Target
•    Monitor Actual v Target by month (or week) for each Key Driver
•    Determine $ impact on profitability of variances from target
•    For actual < target - what actions can be taken to improve?
In Summary
•    Every business needs to know what the key things (KPIs) are that need to happen to create a profitable level of sales
•    The impact on profit of improving the KPIs needs to be understood and calculated
•    Realistic targets need to be set for the company, divisions and team members who influence them. This helps to get staff 'buy-in' and ownership
•    Incentives are a great way to encourage staff to achieve targets
•    Actual versus target needs to be measured regularly to ensure they are met
•    Variances needs to be investigated and below target results acted upon. Above target results need to be also understood and what caused them repeated.