Posted on: 05 May, 15
A guide to choosing, measuring and using targets in your business
As exhilarating as it may be to set off on an adventure without a plan, any explorer, sailor or business owner will tell you that not knowing where you want to go can be a recipe for disaster. Setting targets for your business is not just a question of simply stating where you would like to be in a year’s time. Giving yourself accurate targets to work towards involves knowing how you are performing now and having a good idea of how you will be performing in the future.
There is real value in taking some time to make your predictions as accurate as possible.
Setting your business accurate targets is important in a number of key areas:
A major part of setting the right kind of business targets is having a realistic idea of how your company is actually performing. Without having detailed knowledge of your performance you won’t be able to set targets or know whether or not you have achieved them.
An important aspect of performance measuring comes in the form of key performance indicators (KPIs). UK companies are required to comply with legislation regarding business reviews, meaning that they must report on a range of financial and nonfinancial KPIs as part of their annual Directors report.
The Companies Act 2006 classifies KPIs as factors “by reference to which the development, performance or position of the business of the company can be measured effectively.”
The KPIs you choose will depend on your company and your business sector. It is important to bear in mind that KPIs are not synonymous with your business goals, and have much more to do with your business processes. What is it your business does, what does it need to do it and how can your processes by changed so that you can do more?
Many people like to use the SMART criteria:
So, an example set of KPIs for a shoe shop may include:
While a website development business’ list might include:
Using your KPIs to set your business targets means that you understand the fundamentals of your business process and can subsequently set realistic targets. If each customer that walks into your shop spends an average of £5 per visit, it may not be realistic to set a target of increasing this to £15 in 12 months.
Some important points to remember are:
Business forecasting is a complex process of making statements about events that have not actually happened yet. By using your KPIs and your business targets you should be able to paint a pretty accurate picture of what kind of shape the company will be in if you hit all your targets, only some of them or none of them at all.
Forecasting is not the same as assumption. A forecast is not a picture of what will definitely happen in the future; rather the forecasted outcomes are likely to occur if targets are met and damaging externalities do not occur.
There are many different methods for business forecasting and which one is best suited for you will depend on the size, scope and sector your company is in.
There are a number of business forecasting essentials which should always be factored in:
While forecasting, target setting and performance measuring are all distinct practices, when done properly they can work effectively in tandem. Knowing where you want your business to be is not particularly useful unless you also know how you operate right now and how your company is likely to react to different situations.
Setting targets and forecasting can be complex and resource draining tasks. We can help you get right down to the core of your operations and build up an accurate and flexible set of targets and forecasts.
Copyright © 2013 - Oury Clark.