Business Critical Success Factors and how to set them for your business…..

Last week I touched on doing the boring stuff and how important that is.  I also indicated I would go through some important business topics in the coming weeks.  Today I am covering one of those topics – my view of and tips on Critical Success Factors.

Often business owners are confused as to what information they should be monitoring for their business, and of course being time poor, what information is most useful in evaluating whether their business is on track.  No one wants, or has the time, to review lots of numbers….  sometimes not even us accountants…. or you may not even know where to start looking to tell whether you business is performing.

The key is to develop a list of five (5) Critical Success Factors (CSFs), which at a glance, will tell you whether your business is on track.

So what is a Critical Success Factor (CSFs) and how do you set them for your business?

CSFs are those items that influence your business more than any other.  They should tell you whether you are on track, without the need to review detailed Profit and Loss Statements or Balance Sheets which are prepared well after the event.  Also, you should not need to be an accountant to understand whether you have achieved your CSF (though you may need their helping setting one or two of them).

A few key points here:

  • The 5 CSFs should fit on one page – ideally in the palm of your hand.
  • They should be meaningful to your business and your desired outcomes.  Not something generic you’ve heard before or your friend measures.
  • Preferably easy to measure and track, but aren’t always Profit and Loss based.
  • Think about the lead up and try to set CSFs that are as close to the front of the process as possible [Lead focused].  This will ensure you “have the pulse” of the business and can correct quickly if need be.  For example, revenue is based on sales… so what drives those sales?  Advertising dollars spent, client visits, leads so-on.  Use this lead activity (i.e. new client appointments sat) as a CSF, not the revenue dollars.

The easiest way to develop your list is to review your current year budget…. yes, I know, boring.  However, it is vital ingredient to business success.  After all, how do you know you have reached your goal or missed a target, if you can’t see it or didn’t set it in the first place.  Have you ever tried playing a game of football blindfolded and not knowing where the goal / try-line is….  In a later article I will give you tips on how to set a business budget. 

If you have not yet prepared a month by month budget for the 2016 calendar year, then this is your starting point.  Give it a go, its not too hard.  Ask your accountant to help. 

Next, perform a simple SWOT analysis on your business.  A SWOT analysis reviews the Strengths, Weaknesses, Opportunities and Threats to your business, with particular focus on those items that impact your ability to hit that budget you just set.  This is the vital bit…..  Ask yourself “What will stop me hitting that budget?” 

You should be able to list at least 5 items under each heading (5 Strengths, 5 Threats and so-on). Remember, every threat is also an opportunity, so think positively….. after all, you are an entrepreneur….

The items listed in your SWOT analysis are essentially your CSFs.  They are the items that most impact your ability to meet budget and accordingly, should be the items you monitor on a regular basis to ensure your business is on track.

Holmans recommends you rank the items that you can control in order of importance and use the top 5 as your regular CSFs.  Remember, you must be able to control or influence the result to be a CSF.  For example, the political party in power is not something you are likely to be able to influence and should not be a CSF. 

The CSFs should be converted into clear measurable targets and the 5 should include both financial and non-financial targets. You should review these top 5 CSFs on a monthly basis as a minimum.  Depending on your business, it might be daily or weekly.

So some examples to get you started…. CSFs for your business could include:

  • Leads received per week/month, quotes provided so-on
  • New Clients per month of x
  • New Client $ per month of x
  • Turnover per month… but I prefer Lead Focus related measures like sales meetings, new client interviews, meetings with Centres of Influence per month, articles published, seminars run, inquiries received so-on.  If you measure turnover, the horse has already bolted.
  • Re-work/Warranty work performed
  • Average sale $
  • Average hourly rate
  • Wage $ and % per week
  • Staff sick days per month, Staff retention
  • Computer/manufacturing equipment down time hours
  • Write-offs
  • referrals/complaints received per month
  • % of clients re-booked for next appointment
  • stock turnover days or slowing moving stock measures
  • Cashflow items might be debtor days or % of debtors greater than 30 days
  • and so-on

Each CSF will have a benchmark or goal, which if you hit, means you are well on your way to achieving budget in that area.

Looking at only the top 5 CSFs for your business and meeting the predetermined targets/budgets will give you the confidence your business is performing, without wallowing in a sea of numbers and information.  Of course, this allows you to focus on other areas of your business….. like servicing your customers knowing full well the other stuff should be ok.  It also helps the “sleep at night” factor.

Remember, you should still review your Profit and Loss Statement and Balance Sheet to confirm the CSFs are giving you the full picture.  However, that should be a process of “yes, that is what I expected given my CSFs” if your CSFs are properly set.

Remember, businesses don’t plan to fail, they fail to plan. So develop your CSFs today – give it a go – what have you got to lose. Should you require assistance with the above, please contact us or see your accountant.