Holiday decorations are out on display, there is cheer in the air, and very soon over one billion people will tune-in to see the ball drop in Times Square. There are lots of distractions for business owners over the holidays – personal and professional. If your business is B to B, then December can be a short (quiet) month, by nature. If you work with consumers, December can be booming; but there is still a relatively calm bubble the week between Christmas and New Year’s. Why not take this opportunity to reflect on the year, critique the results, and start off January with some momentum and a plan for success?
Let’s Get Started
Spend a little time to reflect on how the year went. What were your goals for the year? Were they strictly financial in nature or were there other strategic goals you wanted to accomplish?
A foothold in an important new market? The first order from a critical activity-based client outreach campaign? Public relations coverage in an important trade journal? With consumer products, a spot on Oprah could do the trick. The launch of a new product that could change the future direction of the company? These could all be legit goals for certain businesses.
If you started the year with a list (you should), then revisit it now. If you didn’t, that’s fine, build one now. Think back to last December and capture the essence of what you hoped to accomplish.
Examine the Numbers
Sometimes numbers can be a little intimidating, but they really are your friend. The numbers can tell a story that is clear and unambiguous.
The numbers can also be organized in different ways to focus on specific pieces of information. A simple income statement can show sales and expense results over the course of the year. It is best if the numbers can be arranged in columns by month so that we can see seasonal trends – one column for the entire year, does not tell us as much. If we use the numbers from each monthly column and divide them by top-line sales, this can give use a sense for the magnitude (importance) of each element in relation to sales. This called a common size income statement. We can also subtract the previous months number, from the current months number, and divide by the previous months number, for the numbers going along the horizonal, to get a sense for trends that might not be obvious from the raw numbers.
The most important numbers will depend on the type of business. It is common to track sales, even though growing sales may not be the primary objective of some all businesses. It can still be an important indicator of business health. Were sales up, down, or flat for the year? Is this part of a longer term trend (e.g., this is the sixth year of decline or another record year)? Were the results due to something within our control or larger environmental factors. COVID has taken a toll on many businesses over the past couple of years. Do we expect these challenges to linger, or do we see them as temporary in nature?
Pick Key Metrics
Most businesses and industries have mountains of data. We don’t want to get overwhelmed by the sheer volume. We just need to pick a few key metrics that we know are pivotal to the health of our business. These are often referred to as Key Performance Indicators (KPI’s).
As mentioned earlier, it is common to track sales as a topline indicator. It is also common to track gross margin – the amount of money that remains once Cost of Goods Sold is deducted. This is often tracked as both an absolute number and as a percentage. It can be important to track expenses as a percentage of sales. If we have certain categories that make up a large portion of expenses, labor for example, then we can call those out and show them separately. Inventory levels and inventory turn-over can also be key metrics in manufacturing industries.
How Did You Do?
Once we know what we are tracking, and we have gathered the information, then it is time to evaluate our results. How did we do? Were we close or off by a mile? As Jim Collins says in Good to Great, we need to be brutally honest with the results. If the results are in-line with expectations, then how do we get even better? If we came up short, what concrete (actionable) steps can we take to avoid that outcome in the future?
Looking Forward
Now we are back to that list of goals – this time for 2022. What do we want to accomplish?
SWOT analysis is a great place to start. Create a list of all your (internal) strengths and weaknesses. We need to understand our core competencies, but we also should own areas where we are lacking as well. Then add (external) opportunities and threats. When using this tool, strengths and weaknesses should always be internal, and opportunities and threats should always be external. We can also rank each item on the list in terms of likelihood and magnitude. This will help to direct our focus to the most important elements of the list.
Now let’s make a list of SMART goals for 2022. SMART is an acronym that stands for Specific, Measurable, Actionable, Realistic, and Time-based. There are a few different versions of this tool in popular media, but this is the version we prefer. Goals should be clear and unambiguous (Specific). We need to be able to measure the results (Measurable). The goal needs to be something that we can take concrete action to obtain (Actionable). Goals should be within reach (Realistic) – though we often want to raise the bar a little. If the bar is set too low, then it becomes less motivational; If the bar is set too high, then it can demoralize rather than bring focus. We also need a specific date (Time-based) when each item will be complete.
We don’t want to go overboard on goals for the coming year. There is really not pre-set limit. However, if we have too many, and get spread too thin, then we may not accomplish any of them. If we have too few, then we can grow our business in a very monochromatic way. Just as a general rule, three is probably too few, and a dozen is definitely too many.
Monitor Progress
That’s it. We are ready to hit the ground running in 2022.
Just remember, that we don’t have to wait until next December to check our progress. We should have defined our KPI’s in this process. We can monitor them on an ongoing basis to assess our progress. There are many companies that will add KPI’s in an automated dashboard so they can monitor the business continuously. You can experiment a little and find the right balance for your business.
Here to a healthy and AMAZING 2022!
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