A careful and honest audit of how your business performed in 2018 is a healthy practice. Anything that can be measured can be improved. A business audit can provide valuable information with which you can make adjustments, create plans, and set goals for the coming year. No successful business owner is satisfied just to maintain the status quo; that is a sure recipe for disaster and bankruptcy. Owning and running your own business is similar to climbing up a steep muddy slope. If you are not making a concerted effort to move upward, you are sliding backward. You cannot sit in place.
It is recommended that you contract with a professional auditor from outside your organization to perform this task. They will know how to examine each area of your business, ask hard questions, demand to see pertinent data, not get tired of the process and cut corners, and present you with honest answers. Such transparency is vital in order to make the necessary changes for improvement.
However, in many small businesses, especially solopreneur or sole-proprietor businesses, this audit is performed by the owner. If you are the kind of person who can step away and look at your business dispassionately, then you can probably produce an effective and useful audit. You can save money doing it yourself, but only if you can be painfully honest and detailed in your examination.
Questions you might want to ask include:
- What’s my direction? Examine where you are now, where you want to go over the next year, and even the next three to five years, and how you intend to get there.
- What are my current and future target markets? Which markets should I compete in, how will they change, and what does the business need in order to connect with these markets?
- How do I gain market advantage? How can my business perform better than the competition in my chosen markets?
- What resources do I require to succeed? What skills, assets, finance, relationships, technical competence, and facilities do I need to compete? Have these changed since I started?
- What business environment am I competing in? What external factors may affect the business’ ability to compete?
- How am I measuring success? Remember, measures of performance may change as your business matures.
Your answers to these questions will lay the foundation for how you examine each area of your business. Below are the basic areas to audit and some things in each area upon which you should focus your attention.
Evaluate Your Core Activities
This is where you evaluate the products you make or services you provide. What makes them successful and how they could be improved? Could you (and should you) launch new or complementary products or services?
Address these key questions about your products or services:
- How effectively are you matching your products and/or services to your customers’ needs? If you’re not quite sure what those needs are, you should perform a new market or customer analysis.
- Which of your products and/or services are succeeding? Which aren’t performing as planned? Decide which products and/or services offer both a high percentage of sales and high profit margins.
- What’s really behind the problems of a product and/or service? Look for “quick wins,” easy fixes that make fundamental improvements.
- Are you reviewing costs frequently?
Answering these questions will give you the basis on which to improve performance and profitability.
Evaluate Your Business Efficiency
How efficiently to you conduct your business? Are you mainly reactionary in nature, or do you maintain a set strategy and stick to it? Even a set strategy can benefit from some flexibility, but how you make decisions in your business should be based on a plan, not whims.
Consider the various aspects of your business:
Property / Store Location
- What are your long-term commitments to the property?
- What are the advantages and disadvantages of your current location?
- Do you have room to grow, or the flexibility to cut back if necessary?
- If you move premises, what will be the cost? Will there be long-term cost savings and improvements in efficiency?
Facilities / Equipment
- If you manufacture products, how modern is your equipment?
- What is the capacity of your current facility compared to existing and forecast demand?
- How will you fund any improvements?
- How do you compare with your competition?
- What management information and other IT systems do you have in place?
- Will these systems cater for any proposed expansion?
- Will they really make a difference to the quality of product or service your business provides? If they don’t, can you change them to make sure they do?
- Do you make best use of technology such as wireless networking and mobile phones to allow for more flexible working?
- Do you have the right people to achieve your objectives?
- Do they know what is expected of them?
- Do you operate a training and development plan?
- Do you pay as well as the competition?
- Do you suffer from high staff turnover?
- Are staff motivated and satisfied?
- Can you contract outside workers?
- Do you have the right management team in place for growth?
- Do you have the skills available that you need in areas such as human resources, sales, and IT?
- Do your staff need new or improved skills or to be retrained?
- Can some of your staffing be handled through outside contractors?
Evaluate Your Financial Standing
Your business finances should be under constant scrutiny, but an overall yearly evaluation is healthy. Financial management and planning should always be included in any audit. Your income, costs, and needs can always change due to market shifts and trends.
When reviewing your finances, consider the following:
- Cash flow – this is the balance of all of the money flowing in and out of your business. Make sure that your forecast is regularly reviewed and updated.
- Working capital – have your requirements changed? If so, explain the reasons for any movement.
- Cost base – keep your costs under constant review. Make sure that your costs are covered in your sale price.
- Borrowing – what is the position of any lines of credit or loans? Are there more appropriate or cheaper forms of finance you could use?
- Growth – do you have plans in place to adapt your cash flow and financing to accommodate changing needs and growth?
Evaluate Your Biggest Competitors
Who are your biggest competitors? How are they doing compared to your success? You will probably find it useful to do a SWOT analysis (strengths, weaknesses, opportunities, threats). This will show you how you are doing in relation to the market in general and specifically against your closest competitors.
Questions to ask about your competitors include:
- Who are the top 5?
- What do they offer?
- How do they price their products and/or services?
- What are the profiles and numbers of their customers compared to yours?
- What are their competitive advantages and disadvantages compared to yours?
These primary areas and beginning questions will undoubtedly lead to even more questions about your business. That’s a good thing. The more questions you ask and answer honestly, a clearer picture of your business is revealed. Only through honest evaluation can you discover what your business does well so you can capitalize on it. And, you’ll discover what you don’t do so well, and take steps to fix it.
What did your business audit reveal? What are 5 things you will be doing differently in 2019 as a result of your 2018 business audit?