It’s time to take stock. At the beginning of our 10 Steps to Grow Your Business, we start by walking you through a reality check. We’ll help you build an accurate and complete understanding of your business’ current status. So armed with these tools to build your business, you can then formulate strategies to realize your vision of success.
HERE ARE THE FIRST STEPS TO TAKE:
- Establish Key Metrics
- Understand Your Financials - Review Margins, Cash Flow
- Review the Competitive Landscape
- Consider Customer Surveys
- Use Online Analytics
- Revisit Assumptions from Your Business Plan
Establish Key Metrics
The very first thing to do before plotting a course for growth is to set up the key metrics of your business. “Metrics” are basically crucial statistics by which you can measure how well your business is performing.
Among the key metrics to consider are money-related metrics, customer-related metrics, product development-related metrics and team- and operations-related metrics.
For example, a customer-related metric might be, “Conversion rate of Web site visitors to purchasers.” Is 5 percent satisfactory or do you need a higher number like 15 percent to generate the revenue you’re seeking? Knowing this metric may enable you to make adjustments to your online strategy that could be very powerful to your business.
A financial metric might be something like, “Monthly cash flow.” You may need to achieve and maintain monthly profitability by end of Q2, for example, and if you don’t, you may have to reduce your spending until the situation is rectified.
Or how about an operational metric, focusing on inventory turns? This is all about how quickly you move product out the door. Knowing this will help you understand how long you can expect your money to be sunk in merchandise instead of being available for other business activities, like meeting payroll.
Critical aspects of creating key metrics include:
- Choosing those things that have a significant ripple effect on the performance of your business.
- Ensuring that the metrics are measured over time.
- Having quantifiable measurability so you can be sure you understand whether or not you’re performing.
Understand Your Financials
We used to view our financials as one of the most dreaded aspects of our business. But that all changed as we realized that there was not only sanity, but opportunity waiting to be uncovered inside those financials.
The sanity comes from being so in tune with your business that virtually nothing takes you by surprise. You’re always able to see where you’ve been, where you are and where you expect to go according to cold, hard data.
The opportunity comes from knowing when and where it’s possible for you to spend more to make more, or to spend differently to make more, or maybe even to spend less to make more.
A great way to use financials is to always compare your actual performance during any given month to your projected performance. Having those two numbers side by side is always a sobering experience.
Additionally, here are some key things to know (and be sure you establish) in your financials:
- Your highest margin activities.
- Your primary triggers for cash flow problems.
- A deliberate classification of variable vs. fixed expenses.
- Any cyclicality in your business.
- Any major expenditures you see on the horizon.
After this analysis, if you hear yourself saying, “Uh-oh, I’m going to need to find some money,” visit Step 7, where raising money is covered in more detail.