The following Business Assessment Tip Checklist is designed to help small businesses identify areas where they could improve their performance. The hope is that the tips will help you evaluate your current situation, determine your future, and provide suggestions on improving your company's financial standing, performance and value.
According to John Warrillow, who wrote the book "Built to Sell," " You should run a company as if you were going to sell it tomorrow." We took part in one of his programs, and this thought has resonated with me since it makes great sense. If one starts and runs a business as if they will sell it and ensure a profit, then the business owner would ensure they have what they need to manage their business and make it successful.
This article does not include every tip to help you improve performance in your business but provides small business owners with a good start.
Tip #1 - Do You Have a Clear Mission and Vision
Your mission defines who you are as a business, and your vision explains what success looks like for your business and what you want to accomplish. It would be best if you articulated to your clients who you are and what you do, and your employees need to understand who you are and your direction. Employees should have goals and objectives that align with the business vision. Otherwise, it isn't easy to achieve the vision alone.
It is best to develop a strategic plan every 3-5 years. The fallacy is that a strategic plan remains stagnate. The plan should be updated each year as your business changes. Your mission and vision may change as your business grows, and your goals and objectives to reach them have to change along with them.
Tip #2 - De-risk Your Business
De-risking your business can help improve your business performance and value. The value of your business goes down, the more risk in the company. Risk can also cause your business to be financially unstable.
Ensure that most of your revenue is not attributed to one or two clients. You never know when you could lose a client due to them changing vendors or going out of business themselves. If this happens, it can have a devastating effect on your business.
You, as the owner, should not be the business. A business should be able to survive if the owner is not around for a while. If it cannot, the owner becomes a business, reducing the business's value. The owner should spend more time working on versus in the business.
Small businesses should hire people with expertise in the areas you need to run your business and involve them in your business strategy. An owner cannot be expected to know everything. The owner needs to be able to let go and delegate when needed.
Reliance on one or two suppliers can become an issue as well. It would be best if you had multiple supplier options for several reasons. If one supplier goes out of business or increases their prices dramatically, you need to have a backup to avoid adversely affecting your business.
Make sure you conform to all of the standards related to your business, such as industry regulations and employment standards for your jurisdiction. Not doing so can have adverse effects financially as well as from a reputation point of view.
Make sure to stay current on all your filings and payments to the CRA. Many businesses make the mistake of using payroll or HST money to cover shortfalls, which can end up financially ruining you in fines and interest. The money collected is not your money. You are collecting it on behalf of the government.
Ensure have contracts are developed or, at minimum, reviewed by a lawyer. You may see this as unnecessary until an employee or vendor files a lawsuit, and the contract you downloaded off the internet did not cover your business.
Tip #3 - Understand Your Financials
Financial management is an area where many business owners struggle, as we are not all accountants. You don't need to be an accountant, as that is why you have an accountant on staff or retainer for your business, but you, as the owner, need to understand what your financials are telling you once you receive them.
Ensure you can read and understand the financial statements that your accountant prepares for you each year. Financial statements provide a picture of the past. This is usually a good predictor of the future if changes are not made.
Your financial books need to be up to date and should be kept by someone that has knowledge and experience in bookkeeping. A good bookkeeper can save you money in accounting fees at the end of the year. If your books are not up to date, you are not aware of what is going on in your business.
You need to budget annually. There is nothing worse than hearing a business owner say that they spend based on what is in their bank account. If you are looking at what is in your bank account, you most likely are spending money allocated to bills that may not have been paid yet. Budgeting and forecasting help you keep a handle on your financials. Budgets and forecasts need to be updated as your business requirements change and need to be monitored monthly.
Business owners need to calculate and understand their business's financial metrics to help better manage the business. For example, suppose you are looking for financing or investment. In that case, these metrics will be looked at by those providing the funding, so knowing what the metrics are prior is highly advisable. Applying for a loan when your metrics do not align with the standard for your business or industry could hurt your credit rating by being turned down. A few example metrics:
Gross Margin
Net Working Capital
Return on Revenue
Average Collection Period
Days Payable Outstanding
Debt to Equity Ratio
Each business needs to have financial processes and procedures in place. The ones you have may be very dependent on your business. For example, if you collect your revenue for your products and services at the time of sale, the business may not need a credit process.
Business owners should review financial reports from their financial accounting system monthly so they can catch any issues before they become more significant problems.
Tip #4 - Choose the Right Marketing For Your Business
As crucial as enough spending money on marketing is utilizing the proper marketing for your business. To do this, you must measure the success of your marketing efforts. If you are not getting a return on your investment for the money you are spending, money is being spent in the wrong place and not helping you in generating revenue for your business.
Every small business should set a marketing budget and have a marketing plan that is based on the revenue goal. Spending money adhoc on marketing does not work long-term.
Hand in hand with the proper marketing and spending is appropriately tracking the leads you get from marketing efforts and timely follow-up. When a business receives leads from their website, advertising campaigns, events, or even through networking, it needs to be ensured that these need tracking in a system such as a CRM. If a business is not following up on contacts or leads they receive within 48 business hours, there is a good chance the business will lose the contact/lead to the competition.
Tip #5 - Proper Management of Your Human Capital
Employees for a business are one of its most important assets. Companies that have high employee engagement and satisfaction are usually well-run businesses. If there is high turnover in a business or discord, this usually can be traced back to the company not providing the employees with what they need. Employees not being appropriately treated leads to low productivity and efficiency, which profoundly affects the business's bottom line. Outlined is a list of items that can help with employee satisfaction and engagement.
Hire the right employees for the skills required by having a defined hiring process and ensuring those interviewing candidates know what questions to ask and what to look for in the candidate. Have a job description based on the position and skills that need to be filled. Checking references is also essential.
Have the proper onboarding process for every employee. They should get an overview of the company, have the appropriate training if required for the position, be given an employee handbook outlining the policies and procedures of the business.
Have defined job descriptions for each employee and perform an annual performance review based on goals and objectives given to them at a minimum. Employees should know where they stand and not be surprised at their reviews. The "position" job description may be outdated with the employee's current role, so ensure it aligns with the job the employee is performing now.
Make sure each employee has one manager whom they receive overall direction. An employee can have a dotted line reporting structure where someone has provided input, but having multiple people try to manage an employee can be confusing, as individual managers usually have diverging goals and management styles.
Ensure that employees understand the direction and goals of the business and are kept in the loop, as this helps improve employee engagement and helps with teamwork and collaboration.
Before laying off or firing an employee, check with an employment lawyer. Doing so ensures that you have dotted all the i's and crossed all of the t's. There needs to be documentation when terminating an employee. If you do not have documented employee contracts or policies and procedures, this can become very costly if the employee hires a lawyer. You want to ensure that you have followed proper protocol and the laws in your province, as employee standards can differ.
Summary
This article provides you with 5 Tips to help you improve your business and financial performance. If you want a more in-depth understanding, we invite you to take our Complimentary Online Business Performance Assessment. This assessment gives you a view of 8 different areas of your business. We provide you with a score and a one-page report outlining areas of improvement based on your answers. The assessment will take about 15-20 minutes, and you will receive your business score and report within 72 business hours.
We provide a Business Assessment Engagement if you would like a more in-depth look at your business. If you want help improving your business performance based on your complimentary or in-depth assessment, we provide this help through our Business Coaching.