To optimize business success your focus should be on both growing your company today and planning your exit objectives. These endeavors are most effectively pursued concurrently and maximizing the value of your business is foundational to achieving both short and long-term goals.
Maximizing value – for today and tomorrow – hinges on identifying and prioritizing the Key Performance Indicators (KPIs) that apply to your individual organization. Think of KPIs as a GPS system for your business.
No matter the type or size or your business, tracking progress against your goals can help you understand what areas need your attention most. KPIs provide the tools you need to monitor the pulse and performance of your business throughout the year, and beyond. The first step is identifying the critical drivers of your business.
Identifying and Monitoring KPIs
I recommend that you begin with no more than five KPI categories, of which there are many across various components of your business. Common categories include:
- Finance
- Sales
- Marketing
- Operations
- Revenue/Profits
- Information technology
- Human resources/employee retention
- Customer service
From the list above and taking into consideration your company’s overall strategy, choose the three categories you want to concentrate on over the next six months – a manageable way to test drive the process.
Next, identify a few specific leading or lagging indicators for each category. For example, leading indicators for marketing may include specifics such as website traffic, social media engagement, open and click-through rates for emails and newsletters, and LinkedIn likes and comments. They provide the data that predict future performance and can often be adjusted quickly to influence future outcomes.
Lagging indicators measure past performance. For marketing, examples could be revenue growth, return on marketing investment, or customer retention rate. Set the KPIs, or desired goals, for each of your leading and lagging indicators. These are the metrics you will use to track your overall performance in each area.
Once your KPIs are in place, review and measure them weekly to stay informed and on track. If you find that some KPIs are not providing adequate information, consider choosing another KPI that more specifically provides the information you need. KPIs should also be revised along with any changes you make in your business, and as it grows. While choosing your KPIs can be difficult at first, taking an iterative approach by reviewing data and narrowing them down to those that are most critical to your company can help you continue a growth or improvement trajectory.
Where Exit Planning Comes In
If you are building your business optimally, exit planning is a natural result. It requires strategic thinking with an eye on the future, which means planning and forecasting, then acting on that strategic plan. One of the most effective ways to grow your business is to develop a strategy focused on value optimization, which carries over into how the company operates. Maximizing the value of your business is also the focus of a good exit strategy and the key to accomplishing both long- and short-term goals. For many business owners, a value-based management approach can empower you to reach your growth goals today, alongside your future exit objectives.
KPIs are measurable objectives that align with specific strategic goals for a defined period of time – an essential tool for driving business growth through the regular, intentional review and analysis of your unique issues.
With accountability built in KPIs enable:
- Regular monitoring of performance
- More efficient problem-solving
- Accelerated, informed decision-making
- Optimization of efficiency
- Evaluation of progress
- Improved profitability
- The ability to maintain the general health of the company
Is this something you could use to maximize the value of your business?
I would welcome the opportunity, from my CPA and strategic planning perspective, to help you define the objectives you want to track and identify the KPIs that will most effectively do so. Working with me, one-on-one, we drill down and address issues that are unique to your business and develop sustainable strategies for today and your sometimes-elusive exit. Contact me for a complimentary consultation.
Bob Zarlengo is a certified exit strategist and CPA. More than four decades of experience in public accounting, expertise in financial reporting, income and estate planning, and tax compliance make him a valued and trusted advisor to his clients.