How to Set Financial Benchmarks to Achieve Long Term Success

milestone2You need a starting point to establish business benchmarks. What better place to begin than with your own financial results. If you have been in business for at least a year then you can use annual data and look for specific areas to improve. Likewise, you can benefit from this practice in a brand new business, too. Here’s how.

The first step is to bring your books up to date.

Yes, I know, bookkeeping is not the most attractive task in business but it is something that we all have to do. If you are dead set against sitting down with the numbers consider subbing it out. Whatever you have to do this year to stay on top of the finances, do it. Believe me having this part of your business in order pays off when you know exactly how things are going. Also, when it comes to building your ideal business model with bench-marking, there is no room for guesstimates. Only actual will do. 

After completing the bookkeeping, the next phase is financial reports.

In this step, you prepare an accurate Balance Sheet, Profit and Loss Statement and a Statement of Cash Flows. These are the three basic reports that managers use in business. They are the score cards that provide information such as the amount of sales made, how much profit remains and what is the balance of cash in the bank. Other financial data that you may want to use for bench-marking comes from Accounts Receivable Aging, Accounts Payable Summary, and Debt Schedules.

Now you are ready for forecasts and benchmarks.

Using the historical information from financial reports is how to jump-start the process. The reports contain key numbers that you will use to calculate figures specific to your business. So rather than creating hypothetical measures, use actual financial results. Since business conditions rarely stay the same you should expect results change in future periods.

Your company is constantly changing so be prepared to forecast changes, too. One way to do this is by establishing a multiplier for each statistic you track. A multiplier provides the amount by which forecasts will increase. For example, if sales were at $100,000 at the end of the year and you expect them to grow to $150,000 over the next period, the multiplier will be 1.5 times the historical amount. Another point to keep in mind when forecasting is attrition so that you account for both the ups and downs in your business.

Overall, having the right data from the start is key to establishing benchmarks. When you couple financial information with thorough research in competitive performance, you have the makings for solid milestones in your business plan.

Do you use benchmarks in your business? Tell us how in the comments below. Want to learn what’s working for other entrepreneurs who are raising their financial IQ? Join our Facebook community.

To your success :^)

 

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2 thoughts on “How to Set Financial Benchmarks to Achieve Long Term Success

  1. I used to be so haphazard at bookkeeping. Now I keep my personal books as clean as my business books, and things are much better. I can actually do taxes myself 🙂

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