The first month of the New Year can be slow for a small business, particularly seasonal businesses. While you may be glad for a chance to take a break after the holiday rush, now is a good time to take stock of several key aspects of your business.
There’s more to running and growing a successful business than keeping the lights on, but many small business owners get so wrapped up in daily operations that they don’t have time to analyze their business. If business has slowed in the first month of 2020, here’s everything that you should evaluate before going into the new year.
Actuals versus Budget
If you didn’t get around to it when preparing your 2020 budget, you should look at your actuals versus budget in the last year. A comparison of what you thought your cashflows would be to what they were can be enlightening.
Most businesses compare actuals to budget monthly. This can help you identify cash flow gaps, such as when bills came due, but customers hadn’t paid their invoices. Use the information gleaned from this comparison to budget better for the coming year. It can also help with planning for collections activities, allocating employee resources, and future inventory needs.
Product Lines and Service Offerings
Dig deeper into your financial performance. Did a product line perform unexpectedly well? Did something consistently sell out? This could indicate that you need to adjust inventory reorder levels, or perhaps shift your business to carry more related products.
Analyzing product sales, inventory turnover, and profit margins identifies growth opportunities. It also tells you where you might need to drop a product line. Maybe something sat on the shelf or in inventory twice as long as other items. Or, sales of a formerly bestselling item have now slowed considerably. This could be due to lack of demand, or perhaps your sales associates have stopped mentioning it to customers.
If you’re a service-based business, you can do the same. Do you offer a service that customers aren’t utilizing? Or, have customer surveys indicated that they’d like you to add something? You might need to expand your services, or cut some, or market others more. Digging deep into the data behind your sales can provide direction and cost savings for the coming year.
Evaluate Employee Performance
Even if you have a formal employee evaluation process, it’s a good idea to look at employee performance as it relates to your sales, revenues, and last year’s budget.
As mentioned above, a dip in product sales doesn’t always correlate to a lack of customer demand. Did your salespeople neglect to sell a product? Why? Maybe they don’t understand it and aren’t sure how to sell it. Or, perhaps, you need to adjust your incentives to align more with your sales goals.
An analysis of employee performance when compared to revenues and budget could indicate a need for more training, an employee who needs to be replaced or put on probation, or one causing budget overruns in their department. It could also help, when laid alongside your budget and growth plans for 2020, to reveal where you might need to hire more staff. Consider outsourcing and automating some tasks.
Communicating the results of your analysis to employees could help them do their jobs better but use discretion. You don’t want to scare key employees into leaving, but learning about how sales stacked up to predictions, and which of their services were most in demand, could help them set their professional goals.
While employees bring more to your business than numbers, and offer intangible benefits, taking stock of how they contributed financially in the last year can provide direction going forward.
Re-Evaluate Contracts for Savings
The slow season is a great time to re-evaluate all insurance policies and vendor contracts for savings. Ideally, business owners should look at these policies on an annual basis, but if they come up for renewal when you’re busy, you might have just signed on the dotted line without reading the details.
If it’s been a while since you reviewed out your business liability insurance, worker’s compensation insurance, or other insurance policy, pull them out and start reading. Your business needs could have changed, but your policy stayed the same. For example, perhaps you have fewer or more employees now and need different worker’s compensation coverage.
Compare vendor contracts against actual invoices. Did the vendor agree to waive a charge, but their bookkeeper forget and have been billing you for it? Now is the time to identify any discrepancies or any services that you could cut. Maybe you paid for something you ended up not using and could drop it the next time the contract comes up for renewal.
Even if your policies and contracts don’t come up for renewal for months, you can solicit quotes from competitors and compare them now. That way, you’ll be prepared and ready to make a change or negotiate with current providers in the future.
Put Together Goals for the New Year
All of the data you’ve just gathered and analyzed will feed naturally into goal setting. Where do you want to be in a year? Are you happy with the direction you’ve been going? Analyzing products and services might have shown you where you need to cut or expand, but what concrete steps will you take to get there?
Goals should be actionable and informed by data. Ask yourself what the sales, product, and services data you just looked at told you, and use that information when writing goals.
If pulling together and analyzing data isn’t your strength, talk to your accountant. Enlist their help in either calculating or explaining the numbers that underlie your business. They can be a greater resource than simply preparing your taxes and are likely eager to help you succeed.
While you should definitely give yourself time to recharge in the slow season, it would be a mistake to neglect the opportunity to take stock of your company’s situation and decide where to make changes.