Imagine you’re driving down the highway without a care in the world — and then one of your tires blows out and you go from living life in the fast lane to waiting for help on the shoulder.
When you take your tire in for repair, you’re told it was likely underinflated, which led to the blow out. Keeping an eye on your tire pressure might have avoided this mess and kept you cruising right along.
The same thing can be true for your business. Income is steady. Profits are healthy. Clients and customers are happy. It feels like a smooth ride. But are you heading in the right direction? Are there any potential hazards you don’t see or opportunities you might miss?
A good way to find out is to do a business assessment and evaluate your business performance. And we’re here to show you how to do that.
Buckle up and let’s roll.
If your business is not doing well, you probably already know it and are working to fix it. But even if it’s humming along, it can still make sense to look under the hood and take a closer look at how different parts are working.
To stretch that car analogy just a bit more, a business assessment can help you find areas where you can improve performance, increase efficiency, and spot areas that may need maintenance in the near future.
For example, your sales could be strong each month, but how are your expenses? The more money you spend to bring in sales, the less profit you may walk away with at the end of the month.
And with opportunities to save more, there may be opportunities to do more. Your customers may like the way you cut their lawn, shape their nails, or design their website, but they may love it even more if you offered weed control services, eyelash extensions, or created their social posts.
Perhaps you’ve heard the statement, “The only thing constant is change.” That's often true with business. Success today could turn south tomorrow. That's why it can be a good idea to take a step back from running your business and look at how you’re doing.
Assessing business performance doesn’t have to be difficult or take a lot of time. We’ve got some tips to get you started and help you get information and insights to make your business even more successful.
You may be the heart and soul of your business, but money is the lifeblood. Let’s start by seeing how much money your business generates, how much it spends, and its overall financial health.
Looking at certain financial statements is a good place to start and are valuable business assessment tools for this review:
Income statement — This document shows how much profit (or loss) occurred during a certain timeframe (often monthly). It will include the money you brought in (revenue) and the money you paid out in expenses.
Ideally, you want to see a profit here (more money being brought in than paid out as an expense). But beyond that, you may want to look at how to increase that profit. One way to do this is by comparing income over different periods of time to see if you’re bringing in more or less money. You also can look at expenses, such as materials, payroll, and other costs of doing business. If you can find a way to lower or eliminate some of those expenses, you could increase your profit.
Balance sheet — This document includes your assets and liabilities. Having a greater amount of assets than liabilities often indicates a healthier business.
During your review, you may want to look at your inventory. Consider what you have in stock and how much you generally sell in a given time period. Do you have more than you need in stock? If so, you may not need to purchase new inventory for a while, which can save you money.
Cash flow statement — This is similar to an income statement, as it measures cash coming in and going out during a certain period of time. A cash flow statement doesn’t include credit, so if you have customers who owe you money, or if you owe money to creditors, that wouldn’t be included in this document.
A positive cash flow is what you’re looking for. It shows you’re in a financially good position to cover your expenses for that time period. If your cash flow is low or negative, you may want to focus on boosting sales or cutting back some expenses.
How happy are your customers? Happy customers often can become loyal customers who make repeat purchases, as well as recommend your business to others. Keeping your current customers can make good business sense as well. Acquiring new customers can be 6 to 7 times more expensive than keeping your regulars.
If you’re looking for tips to keep customers coming back, we wrote this article that covers it.
Along with pleasing your current customers, you may want to look at ways to acquire new ones. There are a number of ways to get more feet in the door (or to your website), and they don’t always have to be expensive or time consuming.
For example, here are a few guides to get you started:
Whether you build homes, build spreadsheets, or build healthy diets for your clients, there are probably a few other people who do the same thing. I once worked for a business owner who said “In order to be better, you have to be different.” One way to get more unique customers is to offer them products or services your competitor can’t — or doesn’t. That can start with seeing what your competitors are doing.
Here are some ways to do that:
An easy and inexpensive way to do this is by visiting their location or website. Take a look at what they offer. Is there something you can do that they’re not doing? How much do they charge? Can you offer customers a better price or a better value?
Along with spending some time on your competitors’ websites, see what people say about them on review sites and their social media pages.
Are they the same as yours? If so, that could be a good indication that you may need to offer something different. If their customer target is different from yours, that could be a potential new area for you to go after.
We have some more helpful information about sizing up your competition in this Guide to Doing a Competitor Analysis.
It’s not just customers or competitors who can affect your business. Changes in your industry or profession may create a need for you to adapt or respond. That’s why it can be a good idea to focus part of your business assessment on what’s happening now and what trends look like in your line of work.
For instance, there’s a growing trend of locales limiting or banning the use of gas-powered equipment. If you’re a landscaper, that could affect when and where you could work. It also may mean an added cost of switching to battery-powered equipment to remain compliant.
Here’s another one. A study showed that customers are using cash less often. That may be a reason to look at the payment options you offer and consider expanding them to include popular ones such as Venmo, Apple Pay, and Square.
If you’re thinking about going after new customers or taking advantage of emerging market trends, that may require bringing on more help or picking up some new tools and equipment. Should you hire full-time employees or just part-time? Does it make more sense to buy or lease new equipment?
Those are some of the questions to consider as part of your performance review. And we’ve got a couple of guides to help with both:
If your business assessment is uncovering a lot of changes, you also may want to review your business insurance coverage. For example, adding employees could create a need for purchasing a workers’ compensation policy. Handling online payments might be a good reason to learn more about cyber coverage.
If you currently don’t have insurance, this would be a good time to consider it. You’re working hard to build a successful business. Why leave it exposed to the potentially costly risks of claims and lawsuits?
We can help make this part easy, too. Our online quote tool can help find coverage from leading carriers, all in just minutes. Plus, we’ve got a wealth of helpful, easy to understand information in our online Business Insurance 101 center. And if you’re not sure what you need or have questions about different coverages, we’ve got friendly and helpful licensed agents available by calling them at 844-654-7272.
Baseball Hall of Fame catcher Yogi Berra once said, “You can observe a lot just by watching.” We think that can apply to a small business assessment as well. Taking some time to look at where you’ve been, where you want to go, and then determining how best to get there can make your journey to small business success a smoother and more enjoyable ride.
As a 9-year-old at summer camp, I hated it — especially after being pulled screaming from the pool during the swimming competition. While this left me without an aquatic achievement patch, it also inspired the letter to my parents that got me an early release from Camp Willard. That showed me the power of writing. I’ve done my best to use it only for good ever since, such as writing helpful articles for small business owners.
Ed writes on a number of topics such as liability insurance, small business funding, and employee management.
This content is for general, informational purposes only and is not intended to provide legal, tax, accounting, or financial advice. Please obtain expert advice from industry specific professionals who may better understand your business’s needs. Read our full disclaimer
*Harborway Insurance policies are underwritten by Spinnaker Insurance Company and reinsured by Munich Re, an A+ (Superior) rated insurance carrier by AM Best. Harborway Insurance is a brand name of Harborway Insurance Agency, LLC, a licensed insurance producer in all 50 states and the District of Columbia. California license #6004217.