We all know that a barometer is an instrument used to measure atmospheric pressure. Another definition of a barometer is something that reflects changes in circumstances and opinions. A good business barometer could be an annual review of that business to determine current trends and can also be used to forecast the future, and thus, to revise a strategic business plan.
An annual check-up is as good an idea for a business as it is for a human being. Most successful businesses spend time frequently and regularly evaluating progress toward strategic goals. Sometimes, even those strategic goals need an update.
Owners of established businesses may want to use the annual review as a sort of barometer to identify how to make the most of the market position already attained and decide where to take the business next.
Reviewing progress will be particularly important when an owner feels uncertain about the future and which direction to take. An annual review can refocus and give new direction as a new year of operations begins.
When setting a new direction, questions to be addressed might include these:
- Where should the business be in 3-5 years?
- Are there new markets to pursue?
- How can the business perform better than the competition?
- What skills, assets, relationships, technical competence will be needed?
- Are there new or different key measures of performance that should be adopted?
When assessing the core activities of the business, these questions may be helpful:
- Are any products or services not performing well? Should or could they be discontinued?
- What are factors making some products more successful?
- In both cases, how can products be improved or are there complimentary products or services that should be offered?
- Do products and services still solve customer problems and meet their needs?
- Are there any rising costs that have made certain products or services unprofitable?
When assessing the efficiencies of the business, consider these questions:
- Does it still make sense to own or lease physical space? Is the current space still meeting the needs of the business?
- Is it time to consider a new location for the sake of convenience to the trade area, for better support of updated technology, capacity issues, potential cost savings, etc.?
When assessing human resources, consider these questions:
- Is there significant turnover? What is causing it?
- Is current staff adequately trained to do the required job, or is additional training necessary? Are additional skills needed?
- Is the leadership team effective?
When reviewing your finances, ask these questions:
- Is gross margin going up or going down? What are the causes of that movement and does the trend present an advantage or are adjustments needed?
- Have working capital needs changed?
- Are there cash flow challenges?
- Is financing debt becoming too costly?
Conduct a fresh competitor analysis by taking these actions:
- Determine if there are any new competitors and identify what they offer.
- What do they say about themselves?
- What do customers say about them?
- Conduct a revised SWOT analysis
A fresh market analysis might be in order. Consider these factors:
- Changes in your market or trade area
- Changes in customer needs
- New technological developments
- Customer feedback on your products or services
- Other analysis tools such as Porter’s Five Forces or STEEPLE analysis, in addition to the SWOT analysis already mentioned.
Reviewing these seven areas of a business each year will go a long way in uncovering potential problems as well as opportunities for improvements. By examining these areas in depth, the business owner will regain certainty and will become focused on key activities that will assure a higher probability of success.
NaperLaunch will be hosting a SCORE Fox Valley workshop on December 5, at 8:00 a.m. in the Nichols Library Community Room. Join us for more guidance on year-end analysis.