If you haven’t yet created a business plan for 2017, it’s not too late to catch the proverbial worm. The start of a new year is a great time to meet with your management team and analyze how your company performed in 2016 relative to the goals and objectives set forth in your 2016 plan. Based on this analysis, you can then set new goals and objectives for 2017.
Start with your financials
There are several areas of your business to examine as you review last year’s performance and make plans for 2017. The first and most important area is usually the financials. In particular, take a close look at the following key performance indicators, or KPIs:
Gross profit. This figure will tell you how much money you made after your manufacturing and selling costs were paid. It’s calculated by subtracting the cost of goods sold from your total revenue.
Current ratio. This ratio will help you gauge the strength of your cash flow. It’s calculated by dividing your current assets by your current liabilities.
Inventory turnover ratio. This ratio will warn you ahead of time if certain items are moving more slowly than they have in the past. It also will tell you how often these items are turned over. The ratio is calculated by dividing your cost of goods sold by your average inventory for the period.
Debt-to-equity ratio. This ratio will measure your company’s leverage, or how much debt is being used to finance your assets. It’s calculated by dividing your total liabilities by shareholder’s equity.
Other areas to examine
Human resources is another critical area to examine in your business planning. For example, what was your employee turnover rate last year? High employee turnover could be a sign of underlying problems, such as poor training and management, workers who are mismatched with jobs, and low employee morale.
Sales and marketing also is worth a close examination. Did you meet your goals for new sales last year, as measured in both sales volume and number of new customers? Did you generate an adequate return on investment (ROI) for your marketing dollars? If you can’t answer this last question, implement procedures for tracking the results of future marketing efforts so you can gauge marketing ROI going forward.
Finally, take a close look at your production and operations. If yours is a manufacturing business, what was your unit reject rate? Or if yours is a service business, how satisfied are your customers with the level of service your employees provided? Again, you may need to implement procedures for gauging customer satisfaction to answer this question this time next year.
A set of new objectives
With a review of last year’s performance complete, you can now set new goals in each of these areas for 2017. On the financial side, for instance, your goal might be to boost your gross profit from 20% to 30%. How will you lower your costs or increase efficiency to make this goal a reality?
Or maybe you want to lower your employee turnover rate from 20% to 10%. What will you do differently from a training and management standpoint to keep your employees from jumping ship this year?
Don’t wait any longer
Don’t let the start of a new year pass without reviewing your business’s recent performance. Then use this data to set realistic goals for the coming year.