As a business owner, you might be thinking that you have to grow in size or create a new product or service to gain more profits, however, often businesses can implement strategies to measure their business and identify a more efficient way to get superior results. A few ways to measure your business include benchmarking, Key Performance Indicators (KPIs), SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats), and reviewing your financial statements with your bookkeeping professional monthly. Think of it this way… if your house is drafty you might have a professional evaluate your house and tell you where the air is ‘seeping’ out of your house causing you to pay more to heat and cool it. Your business is no different. You have places in your business that just aren’t as ‘efficient’ as they could be, causing money literally or figuratively to ‘seep’ out of the business.
Benchmarking
Benchmarking is looking at your business compared to similar-sized businesses in your industry. It’s like if you and your best friend went to the same college at the same time, majored in the same field, and got similar jobs for similar companies but your friend made $50K more than you. You’d have to ask yourself “Why?” right? Benchmarking provides the answer to the why so you can focus on certain aspects of your business in regard to efficiencies. It provides you with data that you can analyze to determine areas of opportunity for your business. To be clear this is not like competitor research. Benchmarking focuses on best practices and identifies gaps in your company’s performance.
Key Performance Indicators (KPIs)
KPIs are measurements to determine if a business is achieving specific business objectives. KPIs are not just for big businesses, they are very important for small businesses to ‘move the needle’ on their profits and overall success of the organization. KPIs are a tracking mechanism to let you know if your efforts or focus on a certain area of your business are paying off. One KPI could be to increase revenue per customer (RPC) by 3% over the prior year. KPIs should include the steps involved in making that happen, who is responsible, and when each step should be completed. This accountability keeps the focus on the goal and allows you to measure the progress to success.
Strengths, Weaknesses, Opportunities, and Threats (SWOT)
A SWOT analysis is helpful to provide a concise visual of where you fit in your industry so that you can create and deploy strategies (and potentially money) against the areas of opportunity to improve your profitability. Many times businesses use it when starting a new venture, however, a smart business owner knows you must never be complacent about your place in the market, you must always inspect what you expect. Knowing your businesses’ strengths allows you to focus on them, and utilize those strengths to separate yourself from those in your market. It also allows you to see the top weaknesses, to either improve or eradicate them. The format is easy… it’s a 4 box grid, strengths and weaknesses in the top 2 boxes and opportunities and threats in the bottom 2 boxes. The goal is to take the top in each section, too many and it’s hard to decide where to start. As you continue to revise the grid, you can get deeper and deeper into your organization and identify additional opportunities.
Financial Statement Review
While there are many more ways to drive additional results simply, the one that’s most often overlooked is reviewing the Income Statement, Statement of Cash Flows, and Balance Sheet with your bookkeeping professional on a monthly basis. There is often an opportunity in these three statements that can grow your business a few inches or a few feet, and your bookkeeper should be able to identify trends that reveal efficiencies and opportunities. If you aren’t currently reviewing these reports then reach out immediately and request this of your bookkeeper, as this is a fundamental reason you have a bookkeeper. You might be afraid because you don’t know how to read them or decipher them, but that’s your bookkeeper’s job. They will break down the information in a way that is understandable so you can zero in on the areas with immediate impact or return.
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