Just as you need an annual health check up, so does your business in order to head off any problems before they become serious. Now is the time when companies need to critically analyze their operations and put together a plan to position themselves to manage risks and capitalize on future opportunities. The following performance areas will help you evaluate your company's strengths and weaknesses and the general condition of your business so you can set realistic goals for the coming year. As you go through the four performance areas below, don't focus solely on survival or you will miss opportunities.
1. Financial Performance - Your history
The financial performance of your organization is available from your Income Statements (profit and loss) that show your budgeted sales and expenses for each month versus your actual performance. You need to receive your financial statements by the 15th day of the following month to be able to quickly compare actual performance with your expectations. The more detail you can have such as a comparison to your previous year by month and by quarter and how profitable you are by products/services and departments will help you drill down into details that will reveal the health of your business.
The goal in reviewing your financial performance is not just to know how much money you are making but, a) what is your return on investment, b) whether you are covering inflationary changes in sales pricing, materials/purchases costs and wages and c) your annual rate of return on your personal investments in money markets, stocks, and so on. A strong balance sheet can help a company capitalize on future opportunities.
A key indicator of your financial health is the measure of your cashflow, all income before non-cash items such as depreciation. Make sure it is safely above all your fixed monthly recurring costs. In the short run, even employee costs are fixed costs but this must be considered a variable cost that can and should be cut if your cash flow surplus is too small.
After identifying risks, areas for improvement and possible opportunities, call a meeting with managers and key operating employees to discuss your findings. Next, form a task force of individuals who are committed to developing and implementing a plan. This task force should include management and key operating employees as well as trusted advisers, e.g., bankers and CPAs.
Your plan should center around cash flow. Analyze assets that can be converted to cash, such as accounts receivables, dead or slow-moving inventory, and nonproducing property and equipment. Evaluate debt and, if needed, contact key creditors to begin working out extended payment schedules and terms for current purchases. Keep your lines of credit. While this may be challenging in today's banking environment take steps to preserve your lending relationship and share this plan with your banker.
Look for other signs of trouble in your company such as: increasing and longer aging of receivables, too much inventory, dwindling credit lines, declining debt/equity ratio, decreasing profit margins, diminishing sales and missed sales forecasts, lost clients and market share, increasing overhead costs, and more short-term liabilities than liquid assets.
The key to survival in tough times is through continuous measurement of your cash flow compared to your fixed and variable costs. The key to positioning yourself for the future is to implement a sound plan based on the results of your analysis.
2. Marketing Performance
Besides having your pulse on sales, there are many marketing issues and concerns that business owners need to be monitoring. Marketing is not just about the ways you market your business, it requires long-term business strategies that include your product/service, pricing, supply chain issues and competitive factors that are based on client knowledge and customer service. In addition, your company needs to be on top of why clients leave you, buy less or buy more and any other factors from your clients that are impacting your business.
Needless to say, it is important to evaluate your sales model to ensure a complete and appropriate plan to bring in revenue at a high enough margin to cover costs. The bottom line is that you and your employees must know what is happening in your business and your clients' businesses from a political, departmental, staffing and organizational changes perspective. This knowledge allows you to develop strategies and make improvements that will result in better financial performance.
3. Employee Performance
Employee performance is extremely important to all businesses, especially when there is an economic downturn. Employees need to take personal responsibility for their goals and go the extra mile. Businesses should have key performance indicators and measures in place that are regularly reviewed and acted upon.
Some months ago BlessingWhite conducted a multinational study that indicated sixty per cent of employees said they are not getting the coaching they need from their managers. This means missed opportunities which can happen as a result of lack of tools for effective coaching or lack of time by your managers. If you haven't measured the performance of your employees in the last few years it is a perfect time to do so when conducting your health check up.
Conduct a survey that queries your customers' opinions as well as asking peers, subordinates and supervisors to rate each other on their performance. This type of anonymous 360 degree survey can uncover challenges and opportunities for your company that will help you make improvements to ensure you meet your goals.
Another effective means of measuring employee performance is through soft skills assessments that allow many companies to look at personal skills in a new light. The picture of talent in today's workplace is becoming clearer than ever before because of these tools. Research in several areas of employee performance indicates that personal accountability is at the top on the list of ideal soft skills. In fact, employees who show strength in the skill of personal accountability will often times bring several other skills to the table, including:
- Decision Making
- Goal Orientation
- Conflict Management
Poor performers can cause stress on the organization because your diligent staff picks up the slack of underperformers causing the stress level to rise, communication to drop and territorialism to become rampant.
Setting goals for all employees, measuring results, and paying for performance will help you keep your fingers on the pulse of your organization.
4. Process Performance - The Key to Productivity Gains
All companies have managerial and operational business processes that help them deliver value to their customers. Many companies have found that identifying how well processes are working saves money by reducing time, and duplication of work. You can easily identify processes that are repeated over and over again in many areas of your business.
First, gather your employees together to break the process down into items. Focus on each item step-by-step by identifying the name of each item and then noting each time the item is moved, delayed, handled, altered or inspected. Link these items when they are added to, separated, affect one another or branch off, and if they rejoin later. Ask your employees why the task is being performed and what the expected results of each process are. This will focus attention on removing non-value added activities and gives employees a sense of purpose in their area of work. The idea is to see the opportunities for simplifying and improving tasks.
There is a lot to be gained from mapping your organization's core processes. Once you have mapped your key processes, they make excellent training resources. The process maps can also be used as the agreed baseline for ongoing process improvement that ensures your employees remain emotionally engaged with the organization and motivated to continue working towards common goals.
During these tough times the surviving and thriving companies are achieving double digit increases in productivity by managing the four performance areas outlined above. If you are not seeing these results you need to be more proactive in managing your business.
An annual health check up is the ideal way to ask some valuable questions about your business and how it is run. Like a personal health check up, there is no substitute for a business check up if you want your company to be positioned for future success.
Linda Hanson, CMC, is a certified management consultant and author of 10 Steps to Marketing Success. She writes, speaks and consults on marketing, management and customer service issues and can be contacted at www.llhenterprises.com. Sign up for her free newsletter "The Superior Performance Report."
Resources that build on the topics of this article:
Indicators of your financial health
Measuring employee performance
Mapping your organization's core processes
Working towards common goals