Why Evaluating Your Business Is The Most Important Thing You Can Do In 2019
Evaluating your business, auditing it, giving it a health check, popping the bonnet under the hood of your business, whatever you want to call it. All businesses need to be analyzed and evaluated on a regular basis to ensure that they remain healthy, competitive, and heading in the direction that the owners intend.
A business evaluation has often been a task that is overlooked by business owners as most of their time is spent working in the business and managing the daily tasks.
Not much has been written on the subject of business evaluations and the importance of business owners stepping back periodically and taking a good look at their business from the outside.
Below are the top seven reasons why evaluating your business is vital with business changing at such a rapid rate.
1. Evaluating your business can identify risks, problems, and issues before they occur.
On average, over 60% of businesses are profitable before they go into receivership or bankruptcy. This means that some of these businesses are “good businesses,” but still manage to fail.
Most businesses that go under, don’t go under because of some catastrophic event, but because there have been many tasks that they have, or have not been doing over an extended period of time.
By completing an evaluation and taking the time to step back and have a look at your business, you can often identify problems and issues before they get out of control.
The old saying of “you can’t manage what you don’t measure” rings true. If you don’t evaluate your business, it can be hard to put the finger on what the issues are.
2. You have blind spots!
As the saying goes, you can’t proof your own work. It’s very hard for people to objectively look at their business and fairly recognize the holes and mistakes that they might have and inadequacy within the business.
This is especially true if you have been involved in the industry or business for a very long time.
This is the main reason why people get business advisors and business coaches involved. They want someone from the outside to help them with their business that’s coming at it from a different angle.
3. You don’t know what you don’t know. So, ask and find out!
As a business advisor, you come across many interesting people.
I had a discussion with a guy one day, and I asked him a question, “How do you quote on your jobs?
”He proceeded to explain in great detail how he priced his jobs. To my amazement, he had been misquoting his work for the last 25 years.
Now, I don’t mean he quoted differently, I mean incorrectly!
He was under-pricing his work substantially in relation to industry averages. He didn’t know what his competitors were charging; he was in a race to the bottom all by himself.
This practice over a period of 25 years had him losing money (leaving money on the table) on every job.
Now, if we take a figure of $15,000 per year (loss), and we span that out over 25 years, we could say that this person lost $375,000 in revenue.
For a solo operator, that’s a chunk of change.
The lesson here is having a deep understanding of your industry, and make sure you know everything there is to know about it.
4. Know the key areas of your business.
A solid evaluation should cover the following areas (see list below).
Examining these key areas will ensure the greatest chance of success and reduce your business risk.
Leadership & Wellbeing
Accounting & Finance
5. You have limited resources. Identifying what to focus on is vital.
Most small businesses don’t have an endless supply of funds, time, and resources to achieve their goals.
This brings me to my next point of identifying and focusing on the key tasks that are going to drive your business forward. But in order to get to that point, you first have to understand your business; what’s going on and what are the things that are going to generate the greatest impact.
One lesson SME’s can learn from private equity and venture capital firms is; when working for a company, they identify what the industry’s 3-5 must-wins are.
They focus on the key things that drive a business forward. What this does is that it creates a laser-like focus on the activities that are going to produce the greatest results for the least amount of resources possible, thus maximizing their return.
What solo, small, and medium businesses can take from this is that once you have evaluated your business and you’ve identified your must-wins, you can then allocate the required resources to achieve those tasks and disregard other tasks that have little or no value.
Below is an example of a chart that shows the different pain points within the business. You can see which initiatives are the most important based on Impact and Priority.
Click below to download your free “Business Pain Points” chart:
6. Evaluating your business helps with planning your business strategy and tactics moving forward.
In terms of business planning and strategy, as discussed earlier, businesses have limited resources for achieving initiatives.
Evaluating your business and identifying the areas that you need to work on helps with the business planning process. It enables business owners to focus on tasks that need to be completed over three months, six months, and 12-month periods.
This type of planning enables team members to concentrate on tasks that are going to have a direct impact on the profitability and competitiveness of the company.
Typically, after an evaluation has been completed, business owners can break tasks up into:
- 100-day Plan
- 6-month Target
- 12-month Target
- 18-month Target
This can also be supplemented with monthly reporting and adjusting your KPI’s accordingly.
7. Give your advisors and team a higher learning curve position.
We should all strive to buy a high learning curve position; i.e., we want to gain the greatest amount of information in the shortest time possible so that we can make better-informed decisions.
This also applies when utilizing the resources of a business advisor. Business advisors, like many other service providers, want to provide the highest value possible to their clients.
To do this, they need to have a deep understanding of your business. The more they know about your business, the better, and higher value information they can provide. There is nothing worse for an advisor to find out several months after the initial engagement that crucial pieces of information have been undiscovered.
Do yourself and your advisor a favor by giving your business a full evaluation before you engage in their services. Give your advisor a strong starting point. You want your business advisor to be thinking of ways to double or triple your business in the next 12 months.
You want them to be focusing on things, such as scaling your product, creating leverage, joint ventures, and alliances. Things that are really going to grow your sales. You don’t want them working on tasks that are not going to directly drive growth.
No matter what stage or size of your business, by conducting a business evaluation you will better identify opportunities to create growth and sustainability.
After identifying these growth initiatives, you’ll reduce mistakes and gain a better return on your time.
Business evaluations give owners a helicopter view of the business that allows them to analyze key areas of their business in one concise document.
Below is an example of the overview page from the Strategy States Business Evaluation:
Like to find out more about how you can evaluate your business and take things to the next level?