4.1b Performance Analysis and Review Archives

We all are in business to make money unless you are a non-profit organization, but profit is not a manageable activity, it’s a “Result”.

Certain activities are directly linked to profitability like Sales and Expenses. Performing these activities more effectively leads to greater profit.

The accounting system is the historical “System of Record” that captures all physical transactions. Geared primarily around financial criteria, profit, cash flow, assets & liabilities. Measuring profits only is imperfect and influenced by many variables like inventory, sales cycles, timing issues and more. It is historical and therefore purely retrospective.

There is a better way, switching from past tense management to current and future-facing management. Here are the three Stages of Management:

What happened (Accounting View – Financial KPI)
What is happening (Real Time KPI)
What’s going to happen (Future Facing Management – Leading KPI)

Weather forecasters are using radar to predict the short-term weather changes (we all knew when and where the hurricane would make landfall and could prepare in time). Leading KPI’s are like a Radar for your business. You can see the changes coming and prepare in time.

What leading indicators are critical in your business? Share your experience.

Before Selling or Exiting

Most business owners hope to exit at some point. Typically, this means you, as the owner (President, CEO), are no longer there or are not there as often. Whether you plan to sell, pass it on to the next generation, or be a helicopter-CEO, there are seven things you need to do before you step away. The bad news is that you should have started this process from day one. Yes. From the day you started the business.

The good news: you are actually reading this and thinking about the steps. Your mindset (1) is the first step. If you only work ‘in’ your business and never work ‘on’ your business, then you are the business. In this scenario, when you step away, the business loses its greatest asset: You.

You have this great idea (a business), now what? If you step back and think about how you direct others, the answer is clear: processes (2) and procedures (3). Your people need some rules to play by and it is your job to provide that direction with constraints. If you fast forward to your ‘exit’, you may know exactly how everything in your business works, but you won’t be around to ensure that same outcome. Now is the time to provide guidance.

Once you actually have some traction, you will need to continually build efficiencies (4). Hopefully, you are focusing on what to improve and how to make it happen. When you’re gone, will this continue to happen?

Now that you have a business that is focused and improving, it is critical that you have the right team (5) to keep the business growing. Remember, you will be gone at some point. You’re better off building and testing your team when you’re around, and gradually step away. As your team develops, you can work from home, take a day off, and maybe even take a vacation.

As you can imagine, business owners expect profit (over time) and they don’t like surprises. Any prospective buyer (or CEO) will look at your finances (6). This is more than your balance sheet and P&L. Buyers will want to peel back the layers and look around corners.

While you may have guessed the last item, we encourage you to be diligent (after all, you will encounter due diligence) and read the full white paper.

If you are really serious, answer 20 simple questions to assess: is your business ready to be sold?