Assessing Your Business Successes and Failures for the Year
A successful businessman or businesswoman has had a good estimate for some time of their business’ financial results for 2014 and already has set their sights on 2015.
They probably have a written business plan in place, communicated the plan and goals to key personnel.
Where are you at in the process of wrapping up your year? As your business year comes to an end, spend some time evaluating what went right and what went wrong, and most importantly, what might have been done to mitigate issues or capitalize on opportunities.
As accountants, we see businesses in a particular industry that are enjoying revenue growth and making good profits at the same time others in the same industry are struggling and losing a substantial amount of money. We believe the difference is often attributable to capability, quality and attention of management.
And just because a business made a profit doesn’t mean it is well managed. Sometimes the question isn’t “how much money did the business make?” it is “how much money could it have made?”
To properly assess the results of the business year, begin by reviewing internal financial and management reports. How is the quality of that information? Is it timely? Accurate? If you are waiting for your tax preparer to tell you months from now the financial results of 2014, you don’t have the information needed to manage your business and intervene timely. Identify what needs to be done to remedy that. Successful business managers quickly react to opportunities and issues rather than leave the outcome to fate or less qualified or inexperienced personnel.
In reviewing internal reports, identify variances from planned revenue and expenses. Investigate high dollar and high percentage variations. Strategize on avoiding a repeat of any areas of poor performance. Bring key employees into discussions so they are aware of problem areas and achieve their “buy-in”, in other words acceptance and ownership, of the corrective strategies.
After reviewing internal reports and comparing performance for the year to the business plan and prior years, obtain applicable industry data from trade associations or other sources you are familiar with in your industry. Compare your company’s performance to the industry as a whole. Understand areas where your business exceeded or lagged in performance and keep informed of industry trends and forecasts.
Find yourself thinking you have done everything possible, revenue is strong, yet your business continues to lose money? Here are a couple of strategies to consider:
1) Review systems and internal controls in the business. Is a purchase order system in place? Are controls in place for approving expenditures before a transaction takes place? The old adage “watch the pennies and the dollars take care of themselves” really applies in business. As CPAs, we see successful businesses that are demanding of employees and strict (stingy) with expenditures. These businesses are also typically profitable and have long-term employees with good pay and benefits. We have seen companies implement improvements in internal controls and enjoy immediate, sometimes dramatic, results in the bottom line. The first employee to complain about implementation of tighter internal controls probably is the first one to be considered for termination.
2) Think of yourself as a “turn around” specialist, i.e. a consultant or a new business owner that takes a fresh approach to operating the business and makes significant changes in developing a plan to be profitable. There are no sacred cows, everything must be on the table for reconsideration: Employees, facilities, equipment, financing, relationships, etc. Perhaps an outside consultant is needed as making drastic changes is really difficult in small business from both an emotional as well as financial perspective. Perhaps there are too many owners for the business to support, or the owners are taking too much out of the business (employees notice owner(s)’ bad habits and practices resulting in a compounded detrimental impact).
If your business is struggling, take control and come up with a plan to turn it around before control is taken out of your hands. Consult with a CPA who is well qualified (beyond tax and financial reporting) in business structure and planning.
Hopefully you have had a successful year, and if so, don’t overlook taking advantage of an opportunity to celebrate your success!
Ken Meissner is a partner with Alegria & Company, PS.
He can be reached at email@example.com