Running a small business is no easy feat. It takes dedication and effort to turn an idea into a successful enterprise. But how do we know if a small business is successful? Is it just a feeling you get one day, or is it the usual “x percent” increase in profit? How do we measure growth?
Success can mean different things to different people. So, let’s start with a key question, “What do we hope to achieve?”. Once we have that figured out, we can then use the tools at our disposal to see how far along the road we are. Let’s dive deeper to see what that looks like.
Set Your Goals
Before you start to look for success in the nooks and corners of your business figures it is important to know what to look for. Firstly, set up a clear vision of the goals you want to work towards. You don’t need to confine yourself to financial goals like profit or revenue, they can be anything you can think of and quantify. Want to sell twenty more lattes per day? Go for it! Want to reduce product cost by $3? For sure! One quick tip though, to make sure if your goals are well stated, make sure to check if they are SMART (Specific, Measurable, Achievable, Realistic, and Timely). Check out this SMART goals guide from Forbes.
Review Operational Measurements
Once your goals are clear, see what you’ll need to keep track of. These measurements are what we call “KPIs” or “Key Performance Indicators”. For example: gross profit margin, products sold, new customers acquired, etc.
For all the short-term measurements, you can use performance indicators that are measured on an operational level i.e. day-to-day stuff. These are more detailed and can help you keep track of more specific elements of your business. For example: average delivery time, product cost, weekly raw material expenses, etc.
Use Your Financial Statements
At the end of every financial year, a business’s financial statements are created for accounting purposes, but who says they can only be used for taxes. If analyzed intently, these financial documents can help you dive deep into the inner workings of a business. And no, you don’t need to be an accountant to understand them. Below is a list of few primary financial statements and what they measure:
- Profit/loss Statement: Shows all your yearly incomes and expenditures in one place.
- Balance Sheet: Gives you a snapshot of your business at a particular point in time with all assets and liabilities listed.
- Cash Flow Statement: Keeps track of all cash coming in and out of your business. (More profit doesn’t always mean more cash)
- Accounting Ratios and Margins: Derived from financial statements, these metrics are designed to give you insights into specific elements of your business. Moreover, they really come in handy for tracking progress and making quick comparisons. For example: Debt ratio, Current Ratio, Inventory Turnover Ratio, and many more. These names might sound complicated, but they are very simple to understand. Check out our article about these to learn more.
Customers and Employees Matter
It is easy to get blinded by all these measurements and numbers in the race towards your goals. Don’t forget to take care of your employees and clients. Listen to what they have to say and adapt accordingly. Employee satisfaction and customer response are great indicators to see whether your plan is working in the real world. Online reviews, direct feedback and surveys are some great ways to know what people think.
Compare Your Performance with Your Goals
The final and most important step of measuring your performance is analysis and comparison. Compare your measurements with your set standards and expectations to get a clear idea of where the business stands and formulate the corrective measures to be taken.
Comparing with others in the industry is also a great way to understand your business’s strengths and weaknesses.
Here to Help
No matter what stage of your business journey you’re at, Small Business BC has the resources you need to succeed. Check out our range of business webinars, on-demand E-Learning Education, our Talk to an Expert Advisories, or browse our selection of business articles.