The only way to know if you are making progress in your business and/or if there are problems is by conducting regular business performance reviews, which shall be our subject today.
When I first started out on the path of entrepreneurship, I began with a computer parts import business even as I was a full-time private sector employee. In the small business, I was what you can call the ‘supply chain manager’ and the ‘accountant’. I had a freelance agent who was the ‘salesman’. Every last weekend of the month the two of us sat down to review the transactions of the month. We worked out the sales and profitability of the month’s transactions and when there was any loss, we immediately absorbed it and continued with our lives. I drew up the statement of affairs as at the end of the month, which showed me what we had in inventory, receivables, cash, any liabilities, etc. My salesman advised which items we should import next and what their selling prices in Lagos, Kano and Port Harcourt were. Based on those requirements I will buy my air ticket and fly to Singapore and/or Malaysia to buy the items over a weekend, hardly spending fourteen hours in Singapore or Kuala Lumpur as I ran between suppliers to get stock at good prices. With time, as we built great relationships in those two cities, the need for air travels reduced and I could just transfer funds and the items will be airfreighted to me in Lagos.
The monthly performance review exercise with my salesman was one of the most exciting things I was doing at that time. I could clearly see how the business was growing on a monthly basis. Problems were immediately resolved and opportunities are explored.
The point is, you can only know how well you are doing, what problems you will need to address and what opportunities you can seize further by reviewing your business performance regularly and diligently.
What is business performance review? Your business must have objectives, benchmarks and budgets against which you can compare with the actual performance of its various functional units and the overall performance of the business at the point of assessment as well as over past periods. A business performance review is the assessment of the actual commercial and non-commercial effectiveness and efficiency of a business as it strives to achieve pre-set desired objectives. This regular review of the state of the business is a fundamental responsibility of entrepreneurs that cannot be avoided, deferred, or delegated.
The importance of business performance review: It is easy to get bogged down by the daily grinds of running a business. The meetings with prospective clients, the meetings with financiers, the phone calls, etc. While these are necessary for the operational success of a business, an entrepreneur can get weighed down by them, leading to a loss of focus on strategic reviews, visioning, and re-planning.
A regular business performance review is required to ascertain the true health of the business as well as what strengths can be further leveraged on. A performance review will also bring out the weaknesses that may need to be addressed either urgently or gradually over a period. Performance review is not just about the performance of the business as a whole, but also the performance of component units and even individuals within the business. These details are required for improvement in individual, unit, and overall corporate performance.
Performance reviews make it possible for you to strengthen your plans and strategies going into the future. It helps you to identify specific areas that need improvements, such as increasing inventory turnover, lowering certain costs, delivering better customer services, etc. In-depth performance reviews will help you to optimise the allocation of resources and improve your business efficiency in the use of all resources. Ultimately, performance reviews, I would say, are about continuously enhancing your competitiveness through great value addition.
What are the components of a business performance review? Your review sessions are opportunities for you to further understand the details of your business as well as its operating environment. This suggests that your reviews will include:
• Understanding the macro-environment: Every business operates within some socio-economic and political environment. Your business is impacted by both global and local factors. Understanding the constraints and opportunities within these environments is necessary if you are to make a success of your business.
• Assess your business performance vis-a-vis your targets and objectives: You should always have a projection of what you want to achieve in sales revenue, gross profit margins, various ratios of sales to overhead accounts, productivity metrics for individual staff and units, etc. A periodic performance review will then make it possible for you to see how well you are doing in comparison to your own targets. This is required if you are to be able to take wise responsive actions as may be required.
• Assess your position in the competitive landscape: Your performance reviews will enable you to benchmark what you are achieving against industry averages and against major competitors. The result should help you further sharpen your strategies or alter them altogether. This is required if you are to be able to take proactive positioning measures.
• Regulation and CSR: I would always advise entrepreneurs to be alert and alive to their responsibilities to regulators as well as be socially responsive in the environment they operate. Periodic performance reviews should take a look at where the business is on compliance issues and what is being done in the community.
The schematic below shows some of the factors to take into consideration. It is by no means exhaustive as that will depend on your business, size, environment, objectives, and strategies, etc.
Today we have introduced what business performance review is, its benefits and its components. Next week, we will continue with what you check in a, as well as the process of business performance review.