Could Facebook help you assess the performance of your business?
A simple SWOT analysis looking at the strengths, weaknesses, opportunities and threats to your operations could give you some very clear insight to which areas to focus on, and judge how your business is performing. Business performance needs to be assessed on two levels, for the whole business and for each team member.
Here at Jacobs Allen Chartered Accountants and Chartered Tax Advisers we recommend that you constantly review your cash flow and profitability while looking at the wider market to ensure you can spot the early signs of a shift in market conditions and react to them.
There are various tools and techniques to help you assess the performance of your company from listening to customer feedback to investing in your staff.
Market conditions have some inherent uncertainty at present as a result of the ongoing Brexit negotiations, and the recent rise in interest rates could also have an effect on your customers’ buying decisions. This means it is vital you know how your business is performing and react as swiftly as possible to changes.
The SWOT analysis is a good starting point, it will help you to see what you are doing right, what has changed since your last review and how you may need to adapt in the future.
At this stage it is advisable to look at the wider market and benchmark your company’s performance against that of your rivals, understand different approaches to achieve best practice and keep up with evolving market trends.
If your business is a member of a trade association you may be able to access industry-wide statistics or you could purchase benchmarking data from industry-related organisations.
Benchmarking will help you look at what is driving success in your sector. Is a rival offering more attractive prices? Is their customer service simply better? Or has a recent marketing campaign gained sufficient traction? By pinpointing these or other relevant factors, you can adapt to stay at the forefront of innovation.
Strategic benchmarking goes one step beyond, measuring your performance against the best-in-class or what is considered to be world-class performance. This involves looking at other industries to try and establish best practice, which can then be transferred to drive up standards in your sector.
We advise our clients to closely monitor their cash flow forecasts, looking at what money is flowing in and out throughout the month and year because if there is not enough cash to pay your expenses when they are due, the future of your business could be in jeopardy.
Increasing your profitability will help ease any cash flow concerns and is another measure of how well your business is performing.
To review your profitability you need to compare the following:
- Gross profit margin – the total amount made after sales but before tax
- Break-even – the volume of sales needed before you start turning a profit
- Net profits – the figure you are left with after all overheads, interest and taxes are deducted
- Return on assets – level of profit in relation to the value of your net assets
Having your break-even sales level and gross margin percentages at your fingertips will give you the ability to amend your pricing very quickly to react to changes in the market for your goods or services. Improvements to your gross margin by increasing prices or reducing costs can have a dramatic effect on profitability and cash flow.
Analysing these figures will allow you to identify areas of potential growth as well as the aspects of your business where you are underperforming.
Accounting ratios also need to be assessed regularly to ensure you are getting the most from your assets and building upon them.
You need to look at:
- Liquidity ratios – divide your current assets by your current liabilities to see if your business has sufficient assets to cover its liabilities at that specific time
- Efficiency ratios – these measure how well you are utilising your assets
- Gearing ratios – which measure your business’ financial leverage
It is not only the overall numbers you need to look at, we encourage our clients to review their customer base.
They should assess who are their loyal repeat customers and to what extent they are attracting new customers? Have they sought feedback from their customers? Are they meeting their demands and expectations? Are these changing?
Facebook and Twitter are ideal tools for gauging opinion from customers but you can also send out email questionnaires or offer comment cards.
If you do receive negative feedback you need to deal with that but also look at what improvements can be made to your products and services, staff or business procedures.
Don’t forget to analyse your sales data, as dissatisfied customers don’t always formally complain about bad service and instead vote with their feet.
It is important to look at staff performance in conjunction with looking at that of the business as a whole. Informal meetings, such as one-to-ones, and annual appraisals can offer practical ways to measure and monitor staff performance as well as an individual’s development aspirations. In turn this ensures your team members are all working efficiently and cohesively to achieve the business goals.
While monitoring their sales and marketing targets and productivity figures will show how well each individual staff member is performing, you should also consider how the team reflects the identity of your business, particularly if they are dealing with clients on a daily basis.
You need to look at whether they are resolving customer queries, meeting demands and delivering the service customers expect.
Using key performance indicators (KPIs) can help measure profitability, cash flow, benchmarking, customer feedback and staffing to gauge your business’ performance against key objectives. However, be warned: there are thousands of KPIs to choose from and it is vital you select the right one for the right task – or allow us to help you.
We recommend you limit the number of KPIs you focus on to those that are vital to your business achieving its goals.
To find out more about measuring the performance of your business contact us today and speak to one of our experienced team members for tailored advice.