Sales growth is one of the most basic barometers of success for any business. You can calculate revenue growth in three simple steps:
- Track sales from one period to the next.
- Subtract the previous period’s revenue from the current period.
- Divide that number by the total of last period’s revenue.
You’ll get revenue growth expressed as a percentage. The goal is to aim for positive growth. Negative growth tells you something is wrong and that you need to take corrective action.
Tied closely to revenue sources is revenue concentration. The goal is to ensure that most of your revenue isn’t coming from one or two clients. If this is the case, you should take immediate action to diversify your client portfolio to protect yourself. Why? Well, if you lose that client, there will be a massive hole in your monthly income, with you scrambling to find extra clients.
Profitability over time
You also need to look at your expenses to see what’s draining your financial resources. By tracking your expenses and income, you can then compile profit and loss reports, (through deducting expenses from income) to analyze your business performance over a period.
Identify your business drivers
In order to identify your business drivers, look at current and past performance as internal benchmarks. This varies from business to business, but these top areas are a good place to start if you’re unsure:
- Sales – Where are your leads coming from? What activity will cause sales (WCS)? How well does your pipeline provide visibility into future results?
- Cash flow – Where is your money coming from and going to? Do you have enough currently, and how can you improve your future cash flow?
- Employee retention – What is your turnover rate? How much knowledge walks out the door when someone quits? Are your employees happy and engaged?
- Client retention – How long do clients stay with your business? Are you getting the right, highly profitable clients at a sustainable rate?
Business Failure Can Lead to Success
Failure is inevitable in business but that doesn’t mean you can’t learn from your mistakes and bounce back. As Theodore Roosevelt once said, “It is hard to fail, but it is worse never to have tried to succeed.” Being afraid of failure is what often prevents CEOs from writing down goals. That’s what prevents your business from progressing and reaching new heights.
Being willing to pay attention to your numbers, listen to your team and acknowledge when things have fallen short, allows you to quickly pivot and focus on what you can implement to get back on track. And aside from helping you better manage your business; a thorough financial plan also makes you more attractive to investors. It makes you less of a risk and shows that you have a firm plan and track record in place to grow your business.