Everything needs a check-up from time to time, whether it’s your own health check or a yearly car inspection. The same is true for your business. Your business needs to be evaluated on a regular basis, in order to make sure it’s growing or sustaining its success.
When the majority of your time is spent on actually running your business and seeing to the day-to-day tasks, it’s easy to forget that you need to have your business evaluated.
Unfortunately, there isn’t a whole lot of information regarding the subject of business evaluations. This can make it hard for business owners to even realize that they should be taking a step back and looking at their business from an objective POV.
Check out our list below to see the top reasons why it’s absolutely necessary to evaluate your business to keep up with changing trends.
1. Evaluate your business to identify risks and issues before they even happen
It’s important to know that even businesses that seem healthy are still completely at risk of failing. Want to know a scary statistic? Over 60% of businesses are turning a profit before they go into bankruptcy or receivership.
Unlike what most people think, these businesses aren’t failing due to some huge event, but rather the fact that day-to-day tasks just aren’t being consistently completed.
Evaluating your business, and looking at it from an outside perspective, allows you to find any issues you couldn’t see before. If you solve these issues now, they won’t be able to cause a future failure.
That old quote, “you can’t see the forest for the trees” is especially true here. You may be so involved in the details of your business, that you can’t see it as a whole, to identify the issues.
2. Everyone has blind spots!
Let’s be honest with ourselves here. It’s very difficult to see our own faults and our own areas of weakness. When it comes to your business, it’s easy to think you’re doing everything right, especially if you have years of experience.
But if we weren’t making mistakes, there would be no need for the plethora of business advisors and coaches out there. There’s a reason that industry has done nothing but boom in the last few years; people are realizing they need an objective view of their business, to make sure there’s nothing going on in those blind spots.
3. You don’t know what you don’t know. So, ask and find out!
From my experience as a business advisor, you always come across business owners who are amazing at what they do, while some are held together with duct tape.
I remember speaking to a business owner one day, and I asked her. “when was the last time you raised your prices?” To my amazement, she told me she had never raised her prices since buying the business 10 years ago.
She went on to say that if she did raise her prices, she thought that she would lose all her customers.
As a result of incorrectly pricing her work in relation to the industry average, as well as not knowing what her competitors were charging; she was underpricing her services and was in a race to the bottom.
This practice over a period of 10 years had her losing money and operating on tiny margins. By not reviewing her pricing strategy, this error had cost her over $1,000 in profit each month, which over a 10yrs period equates to $120,000 in lost profits.
The lesson from this story shows the importance of having a deep understanding of your business, and your industry.
4. Identify your business’s key areas
The list below covers the main areas you’ll definitely want to have evaluated.
To reduce business risk, you’ll need to have these key areas examined. Doing so will ensure you’re on the best possible track towards success.
5. Don’t waste resources on non-vital tasks
Do you have an endless supply of money, resources, and time to invest in your business? No? Then you’re just like most small businesses.
That’s why it’s important to figure out which key tasks are the most essential for growth. This is a difficult task unless you understand everything about your business and which tasks will have the most impact.
Small and medium sized enterprises can learn a lot from private equity and venture capital firms, such as how to identify an industry’s 3-5 must-wins.
They’re able to do this by focusing on the key things that keep a business moving forward. This creates a hyper-focused view of the tasks that produce the greatest possible return on investment (ROI).
What SMEs can learn from this is that it’s necessary to evaluate your business, identify your must-wins, and then invest in these if you want to create the most growth with the least resources.
The below chart details different pain points within a business, this can be used to identify what initiatives take priority.
6. Evaluating your business now allows you to plan for the future, by helping you to create a business strategy
When it comes to business planning and strategy, you may already have limited resources.
When you evaluate your business and determine which key areas you need to focus on, this will help with your business planning. You can now easily decide which tasks need to be done over strategic amounts of time, such as over 3, 6, and 12 month periods.
Such detailed planning allows your team to focus on the tasks that will lead directly to the growth in profits and competitiveness of your business.
A typical strategic plan after an evaluation allows business owners to separate tasks into:
- 100-day Plans
- 6-month Plan
- 12-month Plan
- 18-month Plan
This can also be supplemented with monthly reporting and adjusting your KPI’s accordingly.
7. Steep learning curves are essential for your teams and advisors
Making better-informed decisions should be a high priority for businesses. This is why it’s important to give your team a steep learning curve position. You want them to be able to quickly gain a lot of knowledge, so they can make profitable decisions.
Similarly, business advisors aim to provide value to their clients and this can only be done if they are very familiar with your business. The more information they have, the more capable they’re able to help you. Not informing your advisor of important information can lead to disaster.
Evaluating your business before you begin working with a business advisor allows them to approach your business from an informed place. This will make things easier for you, and them. The aim here is to help them immediately think of solutions to 2x or 3x your business in the next year.
If they’re not informed, they’ll work on tasks that aren’t directly leading to business growth. You want them focusing on areas that’ll improve your sales, such as scaling your product, joint ventures, and creating leverage.
Businesses in all stages and of all sizes will only benefit from a business evaluation. They’ll be able to identify how to create a more sustainable and profitable business.
Once these initiatives have been discovered, it’s much easier to avoid mistakes and use resources more effectively.
Evaluating your business allows you to see it from a birds-eye view, allowing you to scrutinize key areas that should be focused on.