5 Metrics to assess if your business is as successful as it needs to be!14th August 2017 | Posted in: Business Tax, Planning
Firstly, it is probably a “value judgement” as to whether your business is successful, as there are many ways of measuring success and everyone will have different goals. Achieving whatever is regarded as success, however, needs to be regularly put at the forefront for even the smallest of businesses, as success is the means to how we all achieve our goals.
Unfortunately, the one diminishing factor we all have is time and it is therefore incumbent upon us to recognise this limit and to use and develop our resources within identified timescales.
For many, the opportunity to create a degree of wealth within our working lives sufficient to meet and fund requirements for our post-working years, and to provide for family, represents the principal goal.
If this comment rings true, then one route to success would be by creating a framework where business financial targets are set to achieve timescale goals and thereafter actual performance is measured to track against these targets.
This is where the advent of cloud technology has driven down the costs of achieving goals and removed other barriers so that even small business can engage with their business advisor in longer term planning.
Here are 5 key measures that will apply for most businesses:
1. Sales: Actual Vs Forecast
This provides a good indicator of the “direction of travel” for each income stream generated by the business.
2. Client satisfaction
Repeat business is often vital and expectation of income adds value to the business. The cost of generating repeat business is often less after the initial cost. Therefore knowing customer satisfaction levels gives you confidence in your offer to the market.
Controlling the supply of labour tends to lead to stepped wage costs when staffing levels change. Generating sales efficiently from labour may require grading of labour correspondent to what the market is willing to pay. Accordingly, the mix of labour and labour utilisation is reflected in this percentage.
4. Return on Assets Vs Return on Excess Cash
Your return on assets employed in the business will give a net return (EBITDA) but excess cash retained in the business may not perform at this level and, subject to cashflow, should prompt a decision on how and where to invest surplus cash (internally or externally).
5. Profit Margins (Per Service)
The separation of different strands of business activity is important in understanding how overall profit is derived and helps identify areas for improvement.
Johnston Smillie can assist you bring the “look-forward” view to fruition by implementing appropriate Forecasting Systems that link, so that your data can be used interactively to project scenarios that lead towards business success.
To discuss this further, please contact us.