How Frequently Should You Look?

April 13, 2006

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Monitoring your business's performance is, again, another of those back office activities that doesn't contribute directly to providing goods and services to your customers. As a practical matter, you'll probably have a feel for how you're doing because of your involvement with the day-to-day activities of your business. If you make the bank deposits each night, if you pay the bills each month, if you balance the books at the end of the month, then you already know a lot about how your business is doing. But it's worthwhile to supplement this familiarity with some hard and fast milestones.

Using milestones is simply a decision to take a look at a specific performance measure at a particular point in time. Select milestones to best accommodate two competing considerations. On the one hand, milestones should be infrequent enough so that there is a meaningful amount of information available to analyze. On the other hand, milestones must occur frequently enough so that you can take appropriate action if you see that interim goals aren't being reached. With luck, you'll be able to schedule these periodic business check-ups to coincide with activities you would do anyway, such as balancing your checking account.

Many people think of performance milestones in the context of an annual performance review. If you have ever been an employee at a company that gives annual raises/reviews, you're familiar with the concept. But a good business doesn't wait a year before providing employee feedback For example, many salespeople have quotas to meet. Say a particular salesperson's goal is to sell 120 pieces of equipment in a year. Your business plan projected that the salesperson would sell 25 to 30 units in the first quarter. If only 12 were sold in the first three months, it's a good idea to take some action, even if it is only to find out why sales are lagging. The only way you can know that sales are lagging, however, is to take the time to look.