Setting and measuring small business targets
Last month we covered how to set New Year’s resolutions and take steps to help you achieve them. To build on that I’d like to take you through the steps for setting targets for your small business and implementing KPIs to link your staffs’ performance with your business goals. This is such a crucial element of successful business growth, and if you need any assistance to ensure it is done correctly, Trak can provide that service.
Step 1 | Set goals
Firstly, the key documents for setting your business’s strategic goals are your Business Plan and Financial Plan. Do you have these in place? Are they up to date?
A business plan is the document which summarises the complete idea of your of your business, how you will deliver it, with who you will deliver it, and to who you will deliver it. It covers strategies and considerations in relation to vision/mission, structure, staffing, remuneration, sales, marketing, finance, insurance, legal, market, pricing and SWOT.
A financial plan, is part of the business plan which details the financial blue print which you will follow once you put the above strategies and philosophies in place. It will include items such as forecasts of your Balance Sheet, Profit & Loss and Cashflow, as well as scenario analysis and break-even analysis.
It may sometimes also include a budget of the key individual’s finances and possibly a series of steps or specific goals for spending and saving in the future.
Unfortunately many small businesses don’t invest the time to develop a business plan and financial plan, or if they do, they tend to collect dust on a shelf somewhere.
Get management and staff involved in business plan development and review where possible, as their involvement at the outset can often build loyalty and commitment which comes through at the operational level.
Remember, all goals and targets should be SMART – specific, measurable, achievable, realistic and time-bound.
Your business plan should outline your business proposition, market position, strengths and weaknesses, threats and opportunities and long-term goals. Your goals may be associated with:
- Service delivery;
- Staff training and engagement;
- Brand awareness;
- Customer loyalty; and/or
- Local community and philanthropy.
Entrepreneur.com also provides a neat summary of what a Business Plan should contain and Business.gov.au provides templates for Business, Marketing, Succession and Financial plans that are very useful.
Prepare a business plan and refer to it, even if you just scratch something fairly basic together, treat it as your highest-level document for your business’s direction and integrate these strategies throughout your operational processes and procedures.
What problems do you come across when preparing and reviewing your business and financial plans? We will cover more detail on what makes a good business and financial plan in future blog posts.
Step 2 | Set targets to achieve your goals
Your high level goals need to be broken down into targets that you can work towards each month and the targets need to be linked to your goals and indicate overall performance of your business. These sorts of targets are called key performance indicators (KPIs).
KPIs (Key Performance Indicators) are a measure of how the key targets, drivers and costs of your business are tracking along. They enable you to identify the most crucial part of your business operation, and then put in place a system for measuring how they are progressing.
KPIs are a set of tools to help you translate your business goals into measurable targets that management and staff can focus on achieving.
The important things to consider when setting KPIs are:
- Are KPIs most influential drivers of your business success?
- Are KPIs quantifiable?
- Can KPIs be linked to staff remuneration schemes?
- Can they be easily measured? How much time and money will it cost to measure them?
We will go into more detail in a blog post in the future about what sort of KPIs are more suitable for small businesses to set, measure and monitor.
Step 3 | Get your team involved in working towards your targets
It is really important that your team is working in unison at working towards your business goals. KPIs provide intermediate targets that your team can focus on in the short term.
What you must do is ensure that your remuneration system is linked to those KPIs. By doing so, your business is able to have a team of employees that are focused on the overall success of the business, as their efforts will result in direct rewards. And if set correctly, those efforts will result in business value growth whether by higher sales or lower costs.
To help generate buy-in and drive from your team I’d suggest getting them involved in the goal setting and goal review process and encourage input and suggestions for discussion. As much as possible, let them be involved in establishing the KPIs, measurement and associated remuneration system. If this is not an option within your business then you will need to put more effort into communicating your goals and targets to your team and creating buy-in and drive. Even if your team did help you develop your goals and targets, you will still need to manage regular communication and incentives to drive performance. We will cover some ideas for managing teams working towards targets in future blog posts.
Step 4 | Measuring your targets
This really depends on your KPIs you set, but to make sure you can collect information regularly ensure that someone is responsible for collecting and reporting on each of the KPI datasets and that they have the skills, tools and procedures in place to collect good data.
Ensure your record keeping is up to date, minimises double handling and is stored and backed up in a safe location.
Bring all the KPI datasets together in one overall reporting mechanism that can be referred to monthly, quarterly and annually to review business goals, targets and team and business performance.
So to debrief:
Each business should have:
- A current business plan (prepared in the past 1-3 years);
- A current financial plan (prepared in the past 1-3 years);
- Annual and monthly KPIs;
- A system for communicating goals and targets to the team, and
- A system for collecting, recording and evaluating KPIs.
There is nothing more damaging to a business’s growth than a poorly constructed financial plan and remuneration system. We have helped businesses who had thought they had set KPIs and remuneration correctly, but in fact had misaligned the goals of the employees to the goals of the company. They were going in opposite directions! We can help you set up and measure your targets correctly or fix any problems you may already have in place, please call us at Trak to assist.
What KPIs have been most beneficial for your business?