Like many owner managers, it’s time to be introspective about my own business. The first part is easy – figuring out how you did. The second part – determining how to be better – takes more thought.
Reviewing the past year means more though, than just top and bottom line numbers. Yes, determining revenue and profitability growth or loss is important, but too many people stop there. I’m going to spend the rest of this post discussing what you should review, before getting into getting better, because your review should expose those areas of concern. We’ll look at how to deal with these next time – for now focus on identification of key issues.
1) Cash flow. Do you have considerable spikes, either from lack of receivables, or from capital or operational outlay? Capital expenditures can be planned (I refurnished my office) or responsive (Alex’s laptop died). A line of credit can remove the risk here, but adds operational cost, and it’s those operational costs which can choke your cash flow. How timely was your invoicing and collection? Do you have significant outstanding receivables or bad debt? What does your typical billing cycle look like, and where is you cost concentrated in this?
2) Business Development. Do you have a pipeline of planned work for the next quarter or beyond? Did you add new customers, and if so, did you meet your targets for this? If your business requires proposals to acquire new business, what kind of close rate did you achieve? How was your customer retention?
3) Gross Margin. By product or service. It’s fine to know how the business did as a whole, but to understand the internal levers, you need to know what makes you money, and what is a loss leader. And which resources are tied up with each product – because resource planning allows you to drive both revenue and profitability.
4) Business Goals. In your most recent business plan, you will have laid out goals for the year – not all of them financial. Some may have included building processes and infrastructure to make business more replicable and reduce risk. Some will have included implementing growth, expansion or reduction initiatives. Sometimes you just tried out new things to see if they have an impact – e.g. Social Media. How did you track against achieving these goals?
For the sake of transparency, here’s how Growth Path did.
Cash Flow: excellent through most of the year, then stressed when I opted to make too many capital improvements. Looks to be back on an even keel by January, when it becomes important to accrue for HST and tax season.
Business Development: Pipeline stellar thru end of 2012. Exceeded new customer goals, retention 100%, added back three past clients for new work. It would be truly embarrasing if we didn’t do well here. Whew!
Gross Margin by service: finally managed to make business plans marginally profitable through process improvements. They continue to enable subsequent projects. Added new packages which require little of my time, and more of the team’s specialized resources (writing, project management, etc).
Business Goals: controlled growth for first seven months while closely managing resources. Added fulltime staff. Comfortable with the team’s abilities, opened to new business in August with excellent results. Moved office, and shifted operational spend to offset personal expenditures. Created new service packages. Cemented several co-dependant strategic alliances. Didn’t miss any non-financial goals. Again – whew!
Despite being a good year, there are several obvious ways to be better, and we’ll discuss these in general, and specific next blog.