Quick takeaways if you’re in a hurry
- Context your financial performance alongside both your short term targets and your long term goals.
- Take time to review all the market and economic factors that may impact your ability to grow and be profitable
- Your longer term targets should include your potential exit strategy: it’s as important to work towards this as it is to achieve individual financial goals.
Read on: The annual business review and why you should do one
(estimated reading time: 5 minutes)
In both your business and personal life, an annual review is a worthwhile investment in time and energy. Analysing your position creates the opportunity to review your performance; celebrate successes or targets achieved; and realign yourself where you may have gone off track. Here are five steps to completing an annual review of your business.
1. Review your financial goals
Whatever the financial targets were that you set for the year, this is your opportunity to review them. Take some time to assess how you performed and note down what worked well and what didn’t. You can use your successes and failures to support an understanding of how to be even better next year.
Your short term goals provide a pathway to achieving your long-term targets. These will need to be tweaked or adjusted as part of your review. If your long-term targets remain the same but your goals for the year have not been met, you may have to boost activity in the next 12 months to ensure you achieve your plans.
2. Watch the market
An important element of an annual business review is taking stock of your position in the market and reviewing any external factors that may change in the months ahead. A good starting point is to consider how your market has changed over the previous 12 months.
Has the market undergone growth or is it in decline? Take a look at the factors that have influenced market performance. These will provide valuable insights that you can use to plan for what lies ahead.
Take an objective look at your competitive position in the marketplace and consider how it has changed over the last 12 months. Has your position impacted the price you charge for your products and/or services? Should it? You should also take a look at those who are new to the market and those who have left. Use your understanding of what they have done well to fuel your performance.
3. Keep an eye on the economy
Wider economic influences may have impacted your ability to make money over the past year. Interest rate increases or decreases; strengthening or weakening currency, and government driven factors such as taxation rates can all have a dramatic impact on the net performance of your company. It’s also wise to keep your eyes open for any trade agreements that may impact your industry in the future.
Use any and all information you can get hold of to make some predictions about how your market could evolve over the next five years, and how your business will need to evolve to make the most of it.
Market research is a valuable tool that will allow you to understand consumer trends as they begin to unfold. It’s worthwhile paying particular attention to the advances in areas like technology that have the potential to completely change the nature of society.
4. Touch base with your exit plan
You may not be planning to exit your business within the next 12 months, but if you have thought out your exit strategy then it’s important that your business goals are leading you to this personal target.
If you haven’t built a plan around funding your retirement you should also work through the details now and understand what your business will need to achieve to support your financial goals.
Your exit strategy will dictate the financial targets that you set for your business and the amount of time you have to achieve them. If you’re not on track then you will need to decide whether to revise your exit strategy or ramp up activity now in order to ensure you can still achieve your goals.
5. Consider worst case scenarios
An essential output of your annual business review is your increased ability to imagine and plan for what comes next. By understanding the changes of the last 12 months you can map out some trends and predict where your business could go in the next 12. Put some effort into scenario planning and you will be better placed to deal with extreme events that have the potential to blindside your business.
Completing your annual financial review will give you the opportunity to capture valuable insights about the state of your business, your market and the economy in general. A thorough review of your targets and goals will allow you to understand whether you are on track to achieve your long-term targets or if you need to adjust your business plans in any way.
Business changes constantly, just like life, and an annual business review is a valuable opportunity to keep your plans relevant to your long-term goals.