It is common among entrepreneurs to focus on the day-to-day operations of their business especially if they are just starting out. However, when the business has run smoothly for a while, it becomes imperative for the owner to continuously review the performance of his home business, measure its progress, and assess the potentials for growth and expansion.
If you are a home business owner, make it a practice to appraise your business performance at least quarterly and conduct a more in-depth evaluation yearly. The process allows you to compare how your home business actually fared to your business plan, identify areas that could be improved, and develop new strategies that can help you meet your goals.
The income statement is not meant only to satisfy the government’s requirements; you also need it to know how your business performed money-wise. In fact, you need a few other financial reports like the balance sheet, cash flow statement, and aging of receivables schedule. Don’t fret about the tediousness of preparing them because you can generate all those reports through your accounting software. You are using accounting software, right?
First, note if your operations yielded a profit or a loss. Gauge your gross profit margin and examine your cost base and pricing structure. Your costs should be well-covered in your selling price but do not pass on to your customers any inefficiencies on your part. Any decision to increase your prices should take into consideration the likely effect on the marketability of your products or services.
Next, look into the increase of your assets and your liabilities. Study your cash flow and review your working capital. Check your options for cheaper financing. Analyze the financial health and stability of your business. Compute the significant ratios like the current ratio, acid test ratio, and debt-to-worth ratio. Calculate your inventory turnover and days sales outstanding, and compare your figures to industry norms.
Knowing how you stand financially will help you look at how you can increase your profits further and improve your financials. It will also help you decide how much of your profit you should re-invest in your home business.
You should revisit your initial marketing plan that defined your target market and the specifics of your marketing thrust to know if you are in the right track with your present customer base and market positioning. Know how many customers you have had and try to measure your repeat business. Review your efforts in maintaining contact with your existing customers.
Go over your customer complaints. Even if you have fixed them, you should keep tab of your customers’ problems, noting what you did right and what you did wrong. Looking back over everything can help you to see the patterns not easily noticed while you are busy attending to the daily activities of your business. Feedback from your customers can point you to areas where you can make improvements on your products and services.
Know where you stand in the market alongside your competitors. Get to know who your competitors are and what they offer. Learn about their pricing. Profile their customers and estimate their share of the market. Know their competitive advantages and disadvantages then compare them with your own strengths and weaknesses.
Do not forget your Web analytics. Whether you are using your website as an online store or merely for informative purposes, you need to review your site’s traffic reports and other key Web performance indicators. For this purpose, you need to install Web analytics software on your site so you could collect relevant Internet data to measure and analyze the effectiveness of your site in helping you meet your business goals.
As you conduct your performance review, it is also important to look into the external factors affecting your business performance, particularly the economy and trends in technology. You should be aware of any changes in your market, in the needs of your customers, and in your competitors’ activities. This way, you will know how to adapt your home business to new and emerging services and all other developments in your business environment.
Increase your Net Promoter Score and Create Brand Advocates
Stand Head and Shoulders Above Your Competition
How to File a Formal Dispute with Canada Revenue Agency (CRA)
Kill Your Dream Faster with These Five Mistakes
Home Accessibility Expenses
Seven Things to Stop Doing Now to be More Productive
How to get being an Entrepreneur Right
Profit from Your Competitor’s Decline