While completing a business plan clarifies and outlines your goals and objectives for the future, the key to making sure you are achieving your goals is to effectively measure and monitor your performance. We like to think all Businesses, regardless of size or industry have a Business Plan (and if you don’t then now is a great time to work on one!).
Following the disruptions experienced earlier this year, if you haven’t already then now is an ideal time to review this plan to ensure that it is still fit for purpose.
Review your Balance Sheet and Profit and Loss
By reviewing your balance sheet, you are provided with a clear overview of the current position of your business including the value of your assets and how much you owe. Consideration of your profit and loss will identify if your product/service pricing and sale volumes are providing enough gross profit to cover your overheads and provide a return to owners. This also allows you to calculate your breakeven point which is especially important in the current environment of inflation and interest rate increases. This review will also give you insight into what trading results you need to generate to reach the goals outlined in your business plan or provide you with the information necessary to alter your goals to better suit your current economic market/situation.
Utilise cashflow and forecast reports effectively Used correctly this is a great tool for breaking down exactly how you will achieve your financial business goals and will act as a check to ensure you are staying on track. In terms of the financial aspects of your business, you should be reporting regularly – for some businesses this needs to be daily, or weekly but at a minimum it should be monthly. Compare current results with your year-to-date data and review these figures against the business budget as well as previous years comparative figures, highlighting any variances or unexpected fluctuations for further investigation. Following the cyclone in February and the recession we are now officially in; we are seeing more and more businesses seeking guidance on how to rectify or account for the ‘variances’ so many are experiencing – and a cashflow forecast will allow for this.
Make Time to Reassess
Ensure you schedule regular timeslots to review the above. In our experience, we find that business owners rate strategy as hugely important (even more so in the current economic climate) but often don’t have the time, skills, or knowledge to implement meaningful strategies in their own businesses. This often stems from business owners being subject
to the ‘tyranny of urgent’ – meaning everyday tasks often take precedence over the more valuable and highly necessary big-picture requirement of taking stock of the strategic direction of the business.
Business success and future stability depends on the effective measurement and management of critical resources along with financial metrics. Once you have an overview of the financial position of your business, ask yourself how important are your different key resources to achieving your overall business goals? How strong are your existing resources and how can you possibly use them more effectively?
If your existing resources are meeting your needs, what gaps do you need to fill? Similarly, what resources have you previously relied on that are no longer required or meeting their objective? Have you considered your overall operating landscape, competitive position, benchmarks, and any market data? While these questions can seem daunting, they can often ensure that you stop and take the time to become aware of possible opportunities within your industry that you may not have otherwise been aware of.
Ultimately, this suggested process of measuring and monitoring will not only give you the necessary tools to keep on track with achieving your business goals but will more importantly allow you compete in this challenging marketplace.
About the author: Emma Cook is an Associate with BDO. She has extensive experience assisting both small and medium sized entities with a wide range of advisory services. BDO Hawke’s Bay are Chartered Accountants and Business Advisors. The firm is an independent member of BDO New Zealand and part of the global BDO network. www.bdo.nz