One of the skills an experienced big mountain backcountry skier practices is testing the snowpack for avalanche risk. “I think it looks good,” won’t cut it. We have to pull out the shovel and test the pack to ensure we can venture down in a safe way. Otherwise, we risk life-threatening conditions and danger. “Where’d he go?”
It’s similar when it comes to your business. You can glide along thinking “I think it looks good,” but without regular testing and evaluating of the conditions, you can end up in an avalanche of trouble. So I encourage my clients to take the time to regularly assess and evaluate their business. Natural times for this include quarter-end and year-end, but you can even do monthly evaluations to some degree.
At regular intervals, I like to pause, reflect, and delve into data to evaluate the progress of the businesses I serve. I like to look at goals that were set at the beginning of the year (such as sales growth and EBITDA margin growth) and the list of initiatives and projects we’d hoped to have well underway. We face the facts and compare our expectations with reality.
It’s easy to fall into the trap of self-assurance, saying, “I think it looks good! This is a great year so far! We’ve been busier than ever.” But we also need to honestly assess four crucial elements to support or adapt our hopes that we are indeed, in good shape.
Here are some questions to ask yourself when you assess your business.
Just as they say in sports, “You are only as strong as your weakest player,” the same applies to business. Here are some questions we ask regularly:
- Are there any individuals on the team holding our business back?
- Are we as leaders unintentionally becoming a hindrance?
- Which team members (including those in leadership) need coaching to improve their performance?
- Are there any team members (including those in leadership) that need to be promoted, or conversely, helped into another career?
- Do all team members possess the necessary skills, resources, and attitudes to help us achieve victory in our industry?
- Has the competitive landscape shifted, demanding adjustments and recalibrations on our part?
- What strategies have worked for us?
- Which strategies should be changed (or even eliminated?)
It is astonishing how often struggling companies and overwhelmed owners have financials that are in disarray. Transactions are delayed, balance sheet accounts lack accuracy, and cost-of-sales accounts fluctuate without any apparent reason. Inaccurate data produces unreliable results. These questions will help:
- Are we consistently following a monthly close procedure?
- Is our staff able to keep our transactions and records current?
- Are our receivable days increasing?
- Are inventory turns slowing down?
- Did we gain or lose significant customers?
- Are our cost of goods sold numbers slipping?
- Is the average selling price (ASP) increasing?
- Are we able to make decisions on accurate and up-to-date numbers?
By measuring these primary financial drivers, we gain valuable insights into our business’s performance.
- Are we on track with our projections? If not, what do we need to change? (It might be uncomfortable to do this, but you are better off dealing with accurate results for goals set.)
- What changes would help our current situation align better with our goals?
Embrace these moments of reflection, evaluation, and adjustment. By examining our team, our strategies, our financials, and our projections, we can set ourselves up for a stronger future.
At Verbeck Associates, we can help with these evaluations. For example, we produce CFO reports for our clients, providing them with a comprehensive financial story that aids in decision-making. Contact me if I can help you in this evaluation process!