It is important for people running a home-based business to periodically assess the success of their enterprises. Here are NINE, rather than Ten, acid tests of your business. Authored by Linda Stern and published in "Home Office Computing" May 1993, Vol.11, No.5, Pp.28-30. "The only way to keep score in business is to add up how much money you make." - Harry B. Helmsley
1. The "You're eating, aren't you. test.
You are covering your expenses and then some. "If you are in your first year of business - or even the second or third - and your are paying your bills and keeping your head above water, you are doing pretty well." (Norman Boone, a San Francisco Financial Planner) After that the test gets a little harder, because you start adding other things, such as a (more) comfortable life style, occasional trips on vacation, nights out, disability, health and life insurance, and a retirement savings plan.
2. The "real job" test.
How much could you command on the open job market. The best way to determine this is to retain contacts and gossip. How much is the person who has your old job making. How much do want ads offer for people with your skills. Are you putting in 16-hour days and seven-day weeks and not making what you could in a 9-to-5 job, it is probably time to rethink the way you're working.
3. The return on investment test.
If you were a publicly held company, would you be better off investing in yourself or in a bank account. This key financial calculation tells you how well your business is using your money, according to Steve Cranfill, a principal in Management Advisory Services. First, figure out how much money you spent to set yourself up in business, including the computer, phone bill and business cards. Then, figure out how much profit you made in your first year by subtracting your salary (if you had one) from the money you had left at the end of the year. Divide your profit by the cost of setting up your business. Your ROI should be 12 to 15 percent of what you've invested in yourself. Otherwise, you might as well put your money in Treasury bonds and go find a job. Maybe, you just have a nice hobby.
4. The by-the-numbers test.
These are the rules of thumb for recognizing healthy businesses. A "quick ratio"
5. The bend test.
Keep a spreadsheet on a quarterly basis that figures all of these ratios, return on investment, salary and profits. Set it up to compare like periods: third quarters to third quarters, full years to full years. Is your business moving in the right direction and fast enough. It is good if you are growing about 15% a year. At least you should be moving up at the inflation rate, (3 percent in resent years) and then some.
6. The I'll-show-you-mine-if-you-show-me-yours test.
Comparisons are among the most accurate measures of success, and many trade associations and professional groups allow us to compare our progress with that of our peers by taking surveys. Check out the Robert Morris Associates reference books. Ask your local banker to look through them. He will be impressed that you know what to look for.
7. The profit centers test.
Take some time to break down your business by clients, activities, and products. What activities and products make you the most money, and how much of your time do you spend on them. Which clients are the most profitable and how much of your workload do they provide. A survey of this material will tell you how much attention you are paying to small clients as well as the large ones. Maybe you will need to change where you put your marketing energy or whether you should change your services to one that bring in cash.
8. The personal benchmark test.
You are probably self-employed for a variety of reasons that aren't all financial. Maybe you want to spend time with your family, may you enjoy the freedom of working in your pajamas, or maybe you hate commuting. Set your own goals and then see how your business matches up to them. Says Bone "The issue is that you need to sit down ahead of time as say, 'This is how I define success for myself.' You might want to talk about income, liquidity, free time, and quality of life. If you know ahead of time what you are trying to accomplish, it becomes easier to set up plans, and if you don't know where you are going, you probably won't get there.
9. The all-important gut check.
If you don't have time to do all this, the number crunching and all that, take a moment to ask yourself how it all feels. In the final analysis, you have to feel good in your own skin...to be able to spend your life in your own way.
10. Concluding remarks.
What is success. And how will you know if you are there. This is the question entrepreneurial types grapple with regularly. Sometimes we struggle emotionally, as when we worry that the energy used building our businesses would have been better spent hunting for a real job. More often our questions are practical: Am I making enough to justify hiring an assistant. Will my business qualify for a bank loan. Can I afford a new laptop. Am I on track here. Go back to Number 1. It is time for truth or consequences.
About the Submitter
This piece was originally submitted by Alvah Parker, Personal and Business Coach, who can be reached at asparker@asparker.com, or visited on the web. Alvah Parker wants you to know: I coach managers, sales professionals, and small business owners on worklife issues such as transitioning to a new career, working at home, and taking their career or business to the next level.
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