With the start of a new year, many people run to the gym to get fit. They make their resolutions, pledging to eat healthier, exercise more and lose weight. Those that are most successful engage others to help them – a trainer, a coach, a friend – to provide greater support and accountability.
What’s good for you is good for your business. As you step in 2016, it’s time to check out your business health and develop a plan to get or stay fit. It won’t happen passively. You have to be active if you want a thriving business. Here is the first of 7 steps (Yes. We will be posting one a day, so keep coming back!) you should do this year to make sure your business stays healthy this year and for years to come:
STEP ONE: Perform a business health assessment.
When you decide to lose weight and go to a gym, the first thing you do is a health assessment. You have to know your starting point to identify reasonable goals and develop a plan for success. A trainer puts you through a series of tests to determine your fitness level. In short, the trainer wants to identify your numbers – your blood pressure, your body fat percentage, your physical limits.
A business health assessment is no different. You need to know your starting point. You need to know your numbers. What are the numbers you need to know? At this point, you don’t want you to worry about everything, just some basics:
- Revenue (monthly, year-to-date, year over year and by client) – The amount of money your business takes in over a set period of time, including any discounts or returns
- Margin (overall, by product and by client) – the net between a product’s / service’s selling price and cost of production
- Burn rate – the rate at which your business spends money (monthly expenses)
- Cash flow (positive or negative) – the amount of cash (or cash equivalents) coming into or out of your business
- Accounts Receivable Aging (overall and by client) – the length of time for which a receivable has remained uncollected
- Fixed Costs – recurring costs that are not impacted by the amount of products or services sold (ex. rent)
- Variable Costs – costs that rise and fall in relation to production volume (ex. contract labor)
- Utilization – the percentage of an employee’s time (within a specified time period) that can be billed to a client (# of hours billed /# of hours work)
- Employee Performance Levels – the degree to which an employee meets your established performance expectations
Knowing these business numbers will allow you to ask better questions, talk about your business in more meaningful ways and get you on your way to a healthier business in 2016.
The second part of your business health assessment is a review of your current practices. A trainer always asks you to discuss your exercise and eating habits. How often do you work out? What is your diet like? Do you do strength training, cardio, both? What’s your level of activity during the day? This is a trainer’s way of identifying and building upon good practices. At the same time, it lets the trainer know if there are bad habits that must be eliminated.
What you’ve been doing to date is what lead you to this point in your business, so it’s important to step back and look at what is working and what is not. The goal is to replicate what is working and stop doing the things that are not. Step one in this part of the process is to perform a SWOT analysis. This identifies internal strengths and weaknesses, as well as external opportunities and threats.
The second step is to research industry best practices and compare your own to them. These practices are identified because they are effective. They work. So, what can you learn from them? If necessary, how can you adapt them to use them in your company? What processes are you missing? A lot of people talk about continuous improvement. A review of best practices is a great way to begin to think about the areas in which your business can continue to improve.
Another approach is process mapping. If you want to continuously improve, you have to start by identifying your current process, and then examine ways in which you can make your process better. Some improvements might include making the process shorter, faster, less costly or easier. As a general rule, your process should only be a complicated as it needs to be to produce repeatable and predictable quality. Anything beyond that is unnecessary. If people stop using your identified process, it’s a good indicator that it can be improved. Start by asking your employees how they would make it better. It will inform your process development and get you on the right path to improvement.
If you need help with your business health assessment, give us a shout. We’ve got the expertise to help expedite your process and get you on your way to a better 2016.