This is the time of year that many business owners are scrambling to put together their receipts and paperwork together so that they can file their income taxes before the April deadline.
Unfortunately, for many owners, a once a year tax return is only formal performance evaluation they receive. If the profit is large, the owner likely thinks they had a good year, if not, they had one that was less so.
Running a business is about the numbers, but it is not only about having great numbers. Many companies have had horrible years where profits were nonexistent or minuscule followed by solid years because those in charge took the time to step out of their business and set a course for change. What those leaders did was to set aside the focus on the money and instead look at evaluating their skills so that they business would be on more solid footing going forward.
In order to be successful for the long term, it is essential to have competencies in more than just one functional area, it is necessary to understand all aspects of what a business entails. Here are the five key areas that every owner should formally evaluate themselves to improve their business for the long term:
Strategy
Do you have a written three to five year plan that defines the direction of the business? Does your company have a BHAG (big, hairy, audacious goal)? Is there a written mission statement? Are the values of your company visible for clients, vendors and employees? Do you have in place a one year operational plan, a sales plan and a marketing plan? Rate yourself on a scale of 1 to 10, one being poor and 10 being great.
Sales and marketing
How do you rate your skills in marketing to your core targets? How comfortable are you selling face to face? What have you done to create a successful marketing plan? What are your current revenue streams and are they profitable? Rate yourself on a scale of 1 to 10, one being poor and 10 being great. What about Website Marketing?
Financial management
Do you know the difference between cash flow, profit and loss and the balance sheet? What are your daily, weekly, and monthly breakeven numbers? Are your financial statements issued in a timely manner? What have you done to reduce costs? What can you do to increase profitability? Do you have a credit and collections policy to maximize cash flow and minimize risk? Rate yourself on a scale of 1 to 10, one being poor and 10 being great.
Operations
Do you have policies and procedures in place for daily, routine activities? Is your organization current and in compliance with all governmental regulations, including those related to human resources? Is there a quality control plan in check? Rate yourself on a scale of 1 to 10, one being poor and 10 being great.
People
Do job descriptions exist for every position in the company? Are the job descriptions tied to measurable, tangible results? Is there a formal performance evaluation system in place? Is every employee formally evaluated on a regular basis? Does every employee have the tools they need to do their job right? Are managers evaluated by their employees as well as their supervisors? Rate yourself on a scale of 1 to 10, one being poor and 10 being great.
If your total score of these five critical areas was between 40 and 50 points, chances are you are doing all the right things; whether or not you are doing them right is another question.
If your total score was between 30 and 39 points, it is likely that one area is weak and more focus needs to be spent there in the year ahead.
If your total score was less than 29 points, you need to prioritize the area that was weakest and focus on that area. Consideration might be given to taking a workshop on this topic to gain a better understanding of it or consider finding a vendor that can perform the task for the company.
An excellent book on business management worth reading is “Taking Your Business to the Next Level” by Michael Kind and Mitch Evans. It addresses many of the topics in this article.
Here is an “extra point” question for you: What is one thing that, if implemented, would make a significant, immediate positive impact on your organization?
