Question

List some of the techniques on assessing the past performance of a company

Answer 1

Assess business performance

Assessing your business performance should be an ongoing process. It helps you identify areas that need to be improved before they become major issues, as well as giving you the opportunity to consider how to respond.

The following methods can help you assess your business performance:

Review your business plan

The first step of assessing your business performance is to review your business plan, including financial statements, to understand what is happening within your business. Reviewing and updating your business plan will help you respond to the risks of an economic downturn.

You can use the SWOT analysis tool and a financial analysis to understand how you can best deal with critical issues that may affect your business.

SWOT analysis

A SWOT analysis is a management tool that can help you develop business strategies by:

• building on strengths (S)
• minimising weaknesses (W)
• seizing opportunities (O)
• counteracting threats (T).

A SWOT analysis will help you identify areas that need to be improved in order for you to respond to an economic downturn. It also gives you the ability to identify new opportunities the economic downturn may present.

Financial analysis

Best practice financial management involves planning and forecasting financials based on the strategic goals of your business, and regularly reviewing actual performance against your forecasts. To conduct a financial analysis of your business, you need to analyse your current financial statements, including profit and loss and cash flow. Look for trends, such as declining sales, that may put your business at risk, and think about the impact they could have on your business's financial performance.

Key factors to consider in your financial analysis include:

• trends in cash flow (positive or negative), revenue and expenses
• current sales of various products or services
• level and turnover of stock
• review of debtor and creditor days
• debt, and how your business services debt.

More tools to assess your business's financial performance

Financial ratios

Financial ratios are ratios you can extract from financial statements. You can use financial ratios to compare your business's performance during different time periods. You can also use them to compare the performance of your own business with the performance of other businesses. You do this by comparing your ratios with statistics and other benchmarks that governments and industry organisations publish. Learn more about financial ratios.

Benchmarking

Benchmarking uses information collected from a number of businesses within the same industry sector to establish a range of averages for key business variables (e.g. cost of overheads, staff hours). You can then use this information to compare and measure your business performance. Learn more about benchmarking your business.

Also consider...

• Use our competitor profile chart to get a clearer understanding of how your competitors are performing.