Business Performance Analysis and Improvement

This site is dedicated to small business owners and their advisors who wish to analyze, monitor and improve business performance.

Analysis

Financial

Financial analysis involves analyzing the financial ratios and common-size financial statements of a company by comparing them to its own historical trends and the industry in general.

Common-size financial statements convert dollar figures to percentages. Income statement (profit & loss) items are converted to a percentage of net sales. Balance sheet (assets, liabilities & equity) items are converted to a percentage of total assets, or total liabilities and equity. Common-sized data is more easily compared to other companies regardless of their size.

Although financial analysis is a useful tool, it does not consider non-financial factors that are often just as, or more important than the numbers.

SWOT

SWOT analysis involves looking for: Internal (S)trengths and
(W)eaknesses; and External (O)pportunities and (T)hreats. SWOT analysis has been around for a long time and is widely used. It is a fairly simple concept, but it is so broad that many people struggle when trying to use it. Where do you start? What should you focus on? What questions should you ask? The internal section needs to analyze key areas like management, sales and marketing, financial condition, operations, and facilities.

Michael Porter created the Five Forces framework to analyze the competitive environment in an industry. The five forces can be used to define the external portion of the analysis. The five forces are: 1) threat of new entrants, 2) bargaining power of customers, 3) bargaining power of suppliers, 4) rivalry from competitors, and 5) availability of substitutes.

Improvement

Improving performance involves several steps:

1) Identify key areas (performance drivers)
2) Determine how and what to measure (key performance indicators)
3) Determine current level of performance (analysis)
4) Figure out how to improve the performance drivers
5) Apply solutions
6) Monitor results

The first 3 steps may not occur in order. The key performance drivers are often discovered during the analysis process. Steps 4 through 6 are an ongoing process to continually improve performance in that area.

Resources

Articles about Business Performance