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Why Evaluate Your Business? (+ WHAT to Look At)

Last Updated on: June 14th, 2021

Why Evaluate Your Business? (+ WHAT to Look At)

A business evaluation can provide you with valuable insight as to how your business is making money and how you’re spending it. Taking a closer look at your finances can reveal things you never knew about your company’s finances, and where you need to plug potential holes in your expenses.

Here are 5 things you should evaluate when performing your business evaluation.

Business Evaluation Component #1: Employee Performance

Labor is probably the biggest expense for your business, and if your employees aren’t measuring up to certain standards, you’re throwing away your money. As business owners, we set standards to ensure that we’re paying employees fair wages, based on what they can do and how well they perform in their areas of expertise. If employees aren’t measuring up, it’s time to take a look at how this really impacts your finances.

Let’s say you’re paying someone $50,000 per year for a high-level job that requires a lot of work. This employee has continuously failed to meet goals throughout the year, causing other employees to have to pick up the slack and help do their job. Not only is this detrimental to the cost of keeping this employee on the payroll, but it can cause serious frustration and extra work for other employees.

If someone on the payroll isn’t measuring up, perform a review twice a year and give them goals to reach. If they continuously fail to meet those goals, it may be time to consider seeking out a new person to fill that position.

Additionally, because blogging can help your business thrive, you should be sure to hire bloggers who can create compelling content for you on a regular basis. This will help boost your brand’s visibility online as well as help you rank in the search engines.

Business Evaluation Component #2: Fixed and Variable Expenses

Every financial review should include both fixed and variable expenses.

Fixed expenses are things that don’t change (such as your building’s rent or mortgage payment, or the financing for the company vehicles). Variable expenses vary according to their use (such as phone bills, utility bills, advertising, etc.).

Fixed expenses should always be deducted from your gross income, and variable expenses should have a budget that will help keep costs to a minimum. Since variable expenses are so flexible, ensure you have a fixed ceiling on these expenses; in other words, an amount that they absolutely must not exceed. Deduct this from your monthly gross for a more accurate picture of your net income.

Business Evaluation Component #3: Marketing Costs and ROI

Marketing probably accounts for a large portion of your budget, as it should. Marketing is essential to the continued growth of your business. You need to keep current customers engaged and potential customers aware that your brand exists.

Marketing might involve spending money on ads, creating and promoting a book for your business, or hiring a marketing firm to help you promote your business.

While marketing is an essential component, so is ensuring you’re getting an ROI from it, or a return on investment. If your marketing expenses are high, but you’re not seeing an influx or are seeing a drop in customer interaction, you’re not getting an ROI. This can mean it’s time to take a closer look at your marketing efforts and decide what you can do to improve brand awareness and attract new leads. Maybe you need to hire a top-notch freelance writer to create copy for your website so you can boost your sales!

If you perform in-house marketing, it may actually be more affordable for your business to hire an outside marketing firm with proven results. This will help ensure an ROI for your marketing efforts and guarantee that what you’re paying for can produce the results you want. Take a look at this article about how marketing firms can help your business.

Business Evaluation Component #4: Tax Deductions

While you’re performing your business evaluation, make sure you’re accounting for all of your tax-deductible items. Save receipts and invoices for all of your company’s expenses throughout the year, no matter how small or trivial they may seem.

Anything you can claim as a deduction will help you recover some of your business’s expenses, putting more money back into the business account and creating more opportunity for growth. Don’t underestimate expenses like gasoline and mileage for company vehicles, or even office supplies like printer ink and paper.

Anytime your business incurs an expense, keep a record of that expense so when you file your taxes, you’ll have an easy-to-access collection of expense reports.

Business Evaluation Component #5: New Expenses

Have you incurred any new expenses since the beginning of the year? Perhaps you decided the business needs a video conferencing solution or maybe you have hired someone to create stunning infographics for your website. Any new costs that have come about since your last evaluation should be accounted for and added to your monthly expenditure list. This includes new phones, vehicles, legal expenses, travel expenses, and financial advisors. Having a financial advisor can help your business immensely. You can find one either locally or online. (You can compare the 5 best financial advisors in Texas on the Careful Cents site.)

If you’ve switched to different materials for your products that cost more, you’ll want to document those as well for when you file your taxes. The best practice when you’re in business is to simply document everything. The more documentation you have, the better.

Accuracy is essential for filing your taxes, as any errors can come back to haunt you in the form of fees or penalties later on.

Conclusion

Your mid-year expense evaluation should include everything your company spends money on, including labor, materials, office supplies, marketing, etc., so you can experience entrepreneurial excellence and success. Be sure to make a thorough and accurate report so you can take a detailed look at where your money is going. The more accurate the report is, the better chance you’ll have at trimming down expenses where necessary and maximizing your net profit. Don’t forget the little things, and remember to document everything!

80 thoughts on “Why Evaluate Your Business? (+ WHAT to Look At)”

  1. says

    What a great way to tell people that a business isn’t run blindly. It is very important to evaluate your business and to know what really is happening in a business. It can give you accurate data on everything. Thus I can accurately find out the amount of tax I owe to the government. TFS this amazing article!

    Reply
    • says

      Charlie, I also calculate how much tax I owe the government and set that money aside each month. It sure helps having that money “at the ready,” come tax time!

      Reply
  2. says

    I want to start a small business in our local market. I searching for some tips for my business. Your Article help me and motivated.
    Thank You Very Much, Lorraine.

    Reply
  4. says

    !Hi
    thank you for this. i love to read and support authors as much as i can. they play such an important role in our society and civilization especially the good ones you offer some great ideas supporting these wonderful people…

    Reply
  7. says

    Hi Lorraine,

    Very well written blog post. You have listed some of the best ways to evaluate your business. There is a common misconception that you should think about evaluation of our business only when you are seeking an outside investment. Evaluation of our business is the key to understanding where your business stands. It helps you understand where your business stands finance and helps you identify the mistake that you are making in your business and how to improve your business.

    Reply
  10. says

    A blog page has undoubtedly become the heart of any business. It helps every business in ranking new keywords and keeping the website active. It not only maintains the online presence of a business, but also brings new potential customers.
    Thank you so much for this amazing and informative blog post. I found it very informative. Thanks again, dear.
    Ravi Kumar recently posted…10 Reasons to Take the PMP Certification In 2020!

    Reply
  11. says

    Hi Lorraine,

    I’m just starting up a blog/business based in the Vegan space. Thanks for your advice, especially the importance of hiring professional writers for content. I was initially going to be writing content myself and with a friend, but we’re not experienced writers and it’s a cornerstone of the business.

    I may be in touch to request your copywriting services sometime in the near future! 🙂

    – Joe

    Reply
  13. says

    Evaluation of our business is an obvious thing. Because. a evaluation can provide us necessary information which includes pros and cons, profit and loss etc. Also, we will get to know about loopholes of our business which we might need to be solved. The 5 evaluations is the exact thing which will provide us about those details which we will need. Thank you so much for sharing those 5 essential things which we should evaluate. It will definitely help us a lot.
    Ray recently posted…Jewelry Product Photography: Shooting and Editing Ring in Photoshop CC18

    Reply
  14. says

    Hi
    I am owning an online store which is selling home decors, as a first-generation entrepreneur,

    I am struggling to scale my business, managing the accounts, I thought my business is doing great but after all expenses, profit is very low, and I don’t where I am loosing that, so I started reading blogs about scaling my business and i come up with your article, which gave me clear idea about scaling my business

    Thank you

    Reply
  16. says

    “Taking a closer look at your finances can reveal things you never knew about your company’s finances, and where you need to plug potential holes in your expenses.” I think this is on point. A lot of the time I am actually suprised how many sort of hidden expenses add up during the year and when evaluating once in a while, I find suprisingly many “holes” as you say to plug.

    -Santtu
    Santtu Seppänen recently posted…How to Get Testimonials for Your Business

    Reply
    • says

      Santtu, part of running a business is having expenses, but that doesn’t mean we have to waste money unnecessarily. Keeping an eye on your expenses and evaluating your business is a great practice to help grow your business and curb your unneeded expenses!

      Reply
  18. says

    Great tips Lorraine, especially the part about Marketing Costs and ROI – Even if businesss owners do calculate their (CAC) customer acquisition cost, but don’t always consider the LTV (lifetime value) a customer can offer to their business. Stumbled upon your blog recently, but will definitely keep coming back for more!

    Reply
  19. Sam patel says

    Hello Lorraine, This is an interesting and informative article. You are a great author also you have great knowledge. Thank you for sharing.

    Reply
  20. says

    Wow! These are all great steps, we should struggle with them from time to time. And, you bring up them outstanding – Time is precious, so we need to make sure we use it wisely!

    Reply
  21. says

    Hi Loraine,

    It’s quite shocking for me that you were not a business student still you have great knowledge about the business processes and evaluation. The points you have mentioned are the key factors in measuring the success of the business. Thanks for sharing.
    Billy Burger recently posted…Services we offer

    Reply
    • says

      Jessica, I always look at my ROI, especially when it comes to platforms like Facebook (where I get the least ROI for my business but the most for my social life).

      I’m glad you enjoyed the post!

      Reply
  24. says

    Great article Lorraine !!!! Yeah it is important to keep a check on financial outflow in business like spending money on employees, advertisement, taxes or on a new product.

    Reply
    • says

      That’s great! New customers aren’t the only metric you should be looking at, though. You should also look at other things when you evaluate your business. Read the article again!

      Reply
  26. David Hilcher says

    I know it is much harder with a small enterprise, but everyone needs to benchmark themselves to ensure they stay in the game. On top of that, Prof Clayton Christensen has a good read on ‘disruptive innovation’. Each year do your SWOT. Put in the improvements to lift yourself up using continuous innovation. But the real disruption comes when you think like an entrant going after your own market. That’s when you really start to hit the numbers. David Hilcher Brisbane

    Reply
  28. says

    Thanks Lorraine for this wonderful post! One thing I always do for my business is evaluate the performance of my employees. If something is off, I’d find I way to fix it ASAP.

    Reply
  29. says

    Lorraine,

    Thanks for your article detailing the importance of business evaluation. It’s mandatory to do so at least to standardize our business or service reliability. Without which, there is no point in promoting it. To make sure that we are moving in the right path towards our goal, we should evaluate and analyze the inputs and outputs periodically.
    Aria Mathew recently posted…SEO-Friendly Web Design Is Made Easier With These 7 Simple Ways!

    Reply
  30. says

    A good solidly written article Lorraine.

    Even as an employee you need to be part of the thinking for example the ROI on any projects and work, not just on the marketing.

    Reply
  31. smart home says

    A business evaluation can provide with valuable insight as to how a business is making money. This blog contain 5 things to evaluate when performing a business evaluation.Thanks for sharing this types of content.

    Reply
  32. says

    Lorraine,

    Without business evaluation, we can’t even say our business is successful or not. Even to allocate a marketing budget for the upcoming year, analyzing the previous year’s marketing expenses and ROI is crucial. Running a business with random inputs never works. Thanks for reminding people to think about business evaluation periodically to bring it up successfully.
    Above all, being a blogging friend, I still admire how I missed commenting on your blogs. I have read some of your articles about writing though 🙂
    Sathish Arumugam recently posted…Anchor Text Ratio Guide: Don’t Over Optimize & Hit By Google Penalties

    Reply
    • says

      Sathish,

      I agree with you completely and thank you for adding these valuable points to the discussion!

      It’s not always feasible to spend time commenting but I appreciate that you are still reading my blog posts!

      Lorraine

      Reply
  35. pws digital says

    love this article and the tips on how to blog as an authority. I think it has inspired me today, to study and research more on the web hosting topics I write on my blog. Thanks!

    Reply
  37. says

    Hey Lorraine,

    You have explored these business evaluation component very genuinely and these factors are impactful when it comes to own business.

    It goes without saying that the success of your company largely depends on how well employees perform their tasks. Yet, you would not be the first company to struggle with defining what that looks like.

    The best place to start when you want to know how to improve employee performance is gaining an understanding.
    Eventually, thanks for sharing these worthy information with us.

    Thanking you.

    With best regards,

    Amar Kumar

    Reply
    • says

      Amar, thanks for adding your comment here. I am glad you appreciated the information about evaluating your business. I know that you are a blogger who works very hard on his business!

      Reply
  40. says

    Super solid tips here, Lorraine. A little review goes a long way in helping you gain clarity. You cannot stick your head in the sand and run a successful venture. Careful, deliberate analysis helps you succeed.

    Reply
    • says

      Ryan, thanks for your comment. It’s important to evaluate your business so you can see where you need to improve.
      I like how you do regular evaluations on Blogging from Paradise.

      Your success proves that this is important!

      Reply

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