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

Last Updated on: September 25th, 2019

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!

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

    • 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!

  1. 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

  2. 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.

  3. 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!

  4. 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.

  5. 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.

  6. 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

    • 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

  7. 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!

  8. 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

    • 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!

  9. 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.

    • 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!

Leave a Reply

Your email address will not be published. Required fields are marked *

CommentLuv badge