In a previous post on planning, I considered the three areas that benefit greatly from planning and thus review:
• Financial
• Marketing
• Resources
There’s no point spending time creating plans for these areas of your business if you’re not going to review their status. This is your reminder to review, but where to start?
Start with your goals. What were your goals? How are they tracking? Perhaps you wanted to attract four new clients per month, launch a new product line or increase your average daily sale by $X amount. Whatever the goal, it must be tracked so that you can see its impact on the financials. Let’s take each of the theoretical goals just mentioned and discuss them further:
Goal to attract new clients
Goal = 4 new clients per month
Actual = 2 new clients per month
If you have a look at your sales revenue you should probably see an increase. If it is static or has reduced, there may be other contributing factors such as reduced fees, other clients lost or maybe an invoice has yet to be generated. Now if you hadn’t measured your goal and thus looked at the impact on your financials, you may never have realised that you had missed invoicing someone or the huge impact that lost client has had.
Goal to launch new product line
Goal = new product line launched by April 30th
Actual = delayed for 1 month due to supply issues
If you have a look at your profit and loss statement, you’ll obviously see that there is no revenue relating to that product. Your sales by product would indicate this as well. But what probably appears in the profit and loss are expenses associated with the development of this new product line (technically they could be assets but I won’t go there!). Now, as there is no revenue from that product yet, the results (although actual) are distorted due to this fact. Now you can see how analysis of those goals gives you vital information for the story behind your numbers.
Goal to increase average daily sales
Goal = increase average daily sales by $2 per day (large volume of transactions)
Actual = increased average daily sales by $2 for first week, but then dropped back.
Let’s start with the analysis of achieving the goal one week of the month. Perhaps you ran a promotion for one week to promote a particular product line. The effect was great, for a week at least, but then you stopped promoting that product for whatever reason. In other words, you dropped the ball and you undid all your great work!
In the profit and loss reports you may show a slight increase in expenses associated with this promotion. The extra revenue generated for the week will also appear, but it may not cover expenses incurred, which makes the promotion look like it did not work. This may not be a fair assessment. If you do not monitor and perhaps tweak any marketing or promotions for your business you will not see the translation into net profit. Enthusiasm, consistency and effort are major components of effective promotion and marketing.
As you can see, not only is reviewing your goals important from the stance of checking where you are on your journey but it also helps you read and understand the story behind your numbers. Unusual occurrences or nuances will come to light that you may not have discovered if you had not measured your goals and achievements.
You can also see the importance of “reading” your numbers and trying to understand them. Your tax accountant will probably not know about the internal occurrences relating to your goals and thus cannot interpret those results for you in that manner because they base it on the clear hard facts.
They may ask you questions to determine any factors affecting the accounts and this is where your responsibility lies. You need to understand how what you are doing (or achieving) in your business affects your financials. If you are unable to see and learn the connection between your actions and your financials, then ask for help. Speak to a management accountant or business coach. Speak to someone that can assist you to understand the story behind those black and white (and sometimes red!) numbers.
P.S. Want to learn more about planning?
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