What does success look like for your business?
5th September 2017
As advisers we are often asked by clients to advise on how they can make their business more successful and what key financial goals and indicators they should look to monitor and manage.
In considering this it is firstly sensible for you to understand and define what success looks like for you and your business as personal goals vary with individual personalities.
Things to note
- Businesses with clear vision are more successful
- Leadership without clear vision often do not achieve success
- What is the purpose of your business, why does it exist?
- Have a clear strategy – don’t keep chasing vastly different strategies
- Take time to work out the market and what your customers actually want.
How to set financially practical goals for your business
- Set short term goals to achieve the long term goals
- Set the goals for yourself in mind not just your business- what do you want personally?
- Allot specific regular time to set financial goals and review progress on existing ones
- Make sure you understand where you are now
- Understand and measure your gross profit margin, this is key in evaluating the effect on profit of any increase/decrease in sales
- Make goals specific with a timescale – e.g. increase sales by 50% by end of year two.
- Understand cash/investment requirement in order to achieve goals
- Don’t be the busy fool – a doubling in sales but reduction in profit will not be worthwhile
- Compare yourself to competitors – ask a new (or lost) customer/prospect what competitors quoted to understand market margins
Set a detailed action plan
- Who is going to do what and by when? Follow through with the goal. Make sure you involve staff who can affect the plans and ensure they are accountable for delivery
- Make sure all goals and targets are measured and those responsible are held responsible
In deciding what key indicators you should use in your business it is advisable to identify the key drivers of your business first and then use whatever KPI’s are sensible to drive these
A Key Driver is something that has a key impact on the performance of your business and is critical to boosting profitability or your desired metric.
Every business is different but they normally have similar drivers the secret is to drill down to the detail of how your operation works.
To identify the key financial drivers you need to ask yourself what drives;
- Sales figures
For example, sales revenue is easy to monitor but that is actually not the driver of sales. The driver may be the number of sales calls made, the conversion rate, website traffic, customer retention, sales leads, enquiry levels, sales per product.
Key Performance Indicators (KPI’s)
The key is to focus on a handful of key indicators that are:
- Can be acted upon
- Reflect progress and performance of your business
- That can be compared to budget, last year, competitors.
If using KPI analysis for assessing managers/staff in your business make sure that KPI targets do not conflict with each other, such that, the achievement of one KPI will cause a negative reaction to another KPI and thus a detrimental effect on the business.
An example of this is if sales volume is targeted on its own, without regard to gross margins resulting in the detriment of overall company profit.
If you would like to speak to us on how you can implement a performance system please do not hesitate to contact Jamie Young on firstname.lastname@example.org