The end of the year is a good time to reflect on your business performance and reset goals for the upcoming year. Given the financial hardships many small businesses experienced this past year, it is crucial to assess the areas in which your business was impacted by the economic recession and consider ways to bounce back in 2021. Small business owners should consider these strategies to gauge end-of-year performance.
It’s easy to get so wrapped up in the daily grind of running a company that you skip business performance reviews. But the goals you set for your business at the start of the year won’t do much good if you don’t check whether you’re meeting them at the end of the year.
Year-end is an ideal time to take stock of your company’s performance. Twelve months should offer ample data to assess whether your business bets for 2020 paid off and your financial forecasts were accurate—and what this means for 2021 planning. Taking into account learnings from 2020 and applying them to your long-term strategy—rather than a short-term survival mindset—can better prepare your business for the future.
Following are six best practices for gauging business performance:
MONITOR FINANCES VIGILANTLY
Levar Haffoney, a small business advisor based in New York City, advises staying in constant contact with your accountant and checking your financial reports, profit and loss statements, balance sheets, and cash flow statements as often as you can.
Reviewing your numbers two to four times a year is not enough. “You want to make sure that you’re measuring your progress at the very least on a monthly basis,” Haffoney says. That way, you can avoid getting blindsided by future downward trends and can work to increase earnings as soon as possible.
ANALYZE YEAR-TO-YEAR PERFORMANCE CAREFULLY
Bringing in more revenue last year compared to this year doesn’t necessarily mean your business is performing worse now. “Small businesses grow and shrink quickly,” says Drew Lyon, founder and managing partner of Focused Energy, a Denver-based business consultancy. This year has been challenging for most small businesses, but it shouldn’t define your overall performance. looking at midyear performance against a prior year’s performance, it is easy to be into thinking that the business is se that it Consider, Lyon explains, a service-based company that earned much higher revenues last year but only had two clients, putting the business at risk of losing all its income if neither client renewed its contract. Although this same hypothetical business is making less money this year, it’s amassed a larger roster of steady clients. Now, Lyon says, “the business is much more stable and poised for growth.”
FOCUS ON NEW SALES
Your business’ bank statements don’t tell the whole story. New sales from new customers are the most important metric, says business coach and strategist Martha Krejci. If new sales are growing, keep doing what you’re doing. If not, you need to figure out why and fix the problem immediately, she says.
“When we don’t focus on that new business number, there can be a lot of ‘smooth sailing’ that happens, followed by plowing into a brick wall when the company realizes they have just been coasting on old business,” Krejci explains.
WATCH INDUSTRY BENCHMARKS
Aside from keeping an eye on industry trends, many business advisors tell entrepreneurs not to obsess too heavily about how their competition fares throughout the year. That said, you absolutely should pay attention to industry benchmarks, Haffoney says.
A high-end women’s clothing designer, for instance, should familiarize themselves with industrywide profit margins. Knowing whether you’re overperforming or underperforming industry averages will help determine whether your business is on track or whether you need to make some adjustments, Haffoney explains.
POLL YOUR CUSTOMERS
Customers can offer a wealth of data about the health of your company. Yet many small businesses neglect to collect any customer feedback. This is a lost opportunity, Lyon says. “By understanding what customers are saying, companies can begin to understand some of the underlying reasons why their performance may be good or bad,” he explains.
Haffoney recommends setting up an online survey to solicit customer opinions. Doing so can yield invaluable details about product frustrations and flaws, packaging and shipping mishaps, and customer service shortcomings—all issues that could have hampered your business performance over the past year.
TALK TO YOUR EMPLOYEES
Staff who work directly with customers and vendors hold a treasure trove of information about how well your business is functioning. “Employees are going to give you possibly the best intelligence you’re going to receive,” Haffoney says. For example, he says, front line workers may be the first to identify business strengths and weaknesses that could save the company time and money in the long term.
Krejci agrees, noting that businesses need to encourage workers to share such feedback. “We have to listen to our employees,” she says. “An empowered staff will work the business as though it is their own.” Besides having insight into unmet customer desires, employees also will have a unique perspective on how well the leadership team is functioning.
It’s not enough to chart a course for where you want your business to go. You need to set realistic performance metrics and assess whether your business meets them throughout the year. Your numbers, employees and customers contain a goldmine of data on your company’s vitality. Be sure to put that information to good use when developing your 2021 business plan.
Readers should consult their own attorneys or other advisors regarding any financial or business strategies mentioned in this article. These materials are for informational purposes only and do not necessarily reflect the views or endorsement of Santander Bank.
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