End of the year is an important time for firms and individuals. It is time to take stock of inventories and evaluate performance.
It is time to reflect and compare actual performance against planned and set targets.
Unfortunately, many firms and individuals are not able to carry out this exercise comprehensively due to lack of two crucial things in the evaluation process — clear plan and well kept records for both the current and previous years.
For evaluation to be complete and helpful you need to make a comparison between what was planned and actual performance.
You also need the previous year’s records to track developments. Firms that operate without a written plan and well-kept records cannot do evaluation well. As a result it is not easy to know which direction the firm is taking.
If you desire to build a profitable business but you don’t have a written plan, you are dreaming and my advice is that you stop dreaming and start planning.
Planning is the foundation of any success. Like any building, the stability and success of your firm depends on its foundation.
Planning for your business need not be complicated or expensive.
You can start listing the things you want to accomplish in a given period.
Then develop spreadsheet or table in excel with targets and performance indicators.
List all key items such as sales target, profit to be made, cash flow forecasts, customer retention or acquisition, production budget, operations and marketing allocation and so on. Planning is challenging for the first time because you have nothing to compare with, it become easier over the years.
If you keep records of all transactions budgeting becomes easy because you have something to compare and benchmark against.
Proper record keeping also helps you to know whether you are making profit or losses.
As a matter of fact most small firms and entrepreneurs make losses or underpay themselves but do not know due to poor book keeping.
Putting your planned items and targets in excel helps you to enter actual results and show variations at the end of the year.
The most important reason for evaluating or taking stock of your performance is to make the right choices.
It is therefore important to examine variations and find out what went wrong and how it can be corrected.
Variations may be caused by bad planning, poor execution of plans or external factors beyond your control.
They provide strong hints on the areas to make changes in order to get different results. It could be changing staff or marketing strategies, products range or your leadership style.
Essentially you should not go to next year with the same mentality, the same products, employees, customers and style of doing things and expect different results.
If anything, things will get worse because the market is changing and you are not.