Evaluate the Business Performance

Review and evaluation of business systems and processes can help elevate performance in the market. A review involves scanning the data or results and deciding if changes are needed. On the other hand, evaluation requires gathering data and synthesising a report based on data. These tasks go hand-in-hand to provide you with better insight into your business performance.

You can use digital technologies to check if you hit your operational targets. The examples of digital technologies you can use include the following:

• Accounting systems
• Customer relationship management
• Employee and customer engagement surveys

Accounting systems record all transactions included in the business. These include payroll, accounts receivable, payable, profitability, and more. Meanwhile, CRMs manage all interactions with current and potential customers in the market. These include customer activities like website visits and ad clicks. Lastly, employee and customer engagement surveys determine the sentiments toward the business. These surveys help the PCBU retain both employees and customers in their business.  

Digital technologies and their role in modern businesses

Digital technology refers to devices or systems that generate, process, and store data.

Information technology became a vital part of modern businesses as people of the 21^st-century shop, interact, live and research differently from people of the last century.

Technology plays an essential role in¹⁴:

• the improvement of communication as technology simplifies internal and external communication
• propelling marketing and business growth to advertise and break into new markets
• streamlining decision-making by capturing critical data, including customer and market data, and helping businesses its weak areas
• enhancing customer relationships
• maintaining industry relevance.

Businesses collect and process a lot of data. These data include sales, customer information, inventory, and more. This is where digital technologies come in. Businesses use them to ensure proper processing and secure storage of data.

In the following, there are examples listed of the application of these digital technologies in companies:

• Accounting systems can automatically generate reports on sales and inventory. This saves time in compiling the raw data from sales and inventory.
• CRMs can send automated emails to your customers. These emails may contain promotions and special offers that customers may want to avail themselves. CRMs can also generate reports on the sales lead. This report helps in forming strategies to convert potential customers to paying customers.
• Surveys get data on the sentiments of employees and customers on the business. Automated survey forms can generate reports for interpretation of the PCBU—this report aids in formulating strategies to retain employees and customers.
• Collection and storage of employee and customer data are covered by the Privacy Act 1988. This law applies regardless of the technology used or method of collection.

Evaluation and review of operational targets through digital technologies

Digital technology can be used to review if the operational targets and specific figures are being met. Digital technologies include accounting systems, CRMs and employee and customer engagement surveys.

Accounting systems

As mentioned earlier, accounting systems track all transactions in the business. This means it can generate, store, and retrieve data of your transactions. Examples of accounting systems are Xero, Quick Books and Fresh Books. Let’s focus on Xero as the accounting system.

Accounting systems help track the following:

• Accounts receivable and payable
• Invoice, cost, and project profitability
• Accounting reports
• Taxes.

The frequency of the review of these details varies from one business to another. Companies may review monthly, quarterly, semi-annually, or annually. This may also depend on what the business aims to accomplish (e.g. tax forms, financial reports).

Accounts receivable and payable

Accounts receivable refer to the money your customers owe you. Xero has a feature that automates notifications and reminders for payments. When dealing with customers, you must send an invoice. This invoice contains the following information:

• Cost
• Purchased product/service
• Date of transaction
• Due date.

Xero sends the invoice to your client. If they fail to pay on the due date, they will receive a reminder. If they have already paid you, you will get notified by the application.

Accounts payable refer to the money you owe your suppliers. Xero also has a feature that records your payments. You can scan or email the invoice to your accounting software. From there, Xero can schedule the payment while adding it to the accounts payable ledger. Once you pay the supplier, the software marks the bill as paid.

Invoice, cost, and project profitability

Xero can also track project profitability. It allows you to do the following:

• Make an estimate and quote on a job
• Provide accurate time tracking and costs for the project
• Send customised invoices for your customers.

You can access these features in the Projects feature of Xero. This feature is also helpful in identifying which costs of the project are not yet paid. This can prevent potential losses from unpaid invoices.

Accounting reports

This feature of Xero allows you to view financial reports of your business. This includes your transactions, taxes, and income. It can also generate a statement of your business’s financial status. You can compare the reports to view how much your business is growing.

Taxes

Xero has an application called Xero Tax. This application focuses on managing and filing taxes. Xero Tax is connected to your business’s Xero account. This ensures that your financial statements are updated for use in taxes.

Taxes can be stressful to deal with. Using accounting software like Xero can help ease the burden of calculating and organising your tax details.

Watch the following 23-minute video to learn more about how Xero can help you manage your taxes.

Customer relationship management systems

CRMs store information about your clients. Names, addresses, phone numbers, and more are included. It also keeps track of customer activities like website visits and email activity. CRMs do these tasks to generate data on sales and leads. This eases the burden of doing repetitive tasks like sending emails to customers. Key parts of a CRM can include:

• Marketing automation
• Salesforce automation
• Customer service solutions/case management.

Similar to accounting software, the review and evaluation of data from CRMs may vary. Businesses may opt to review monthly, quarterly, semi-annually, or annually. This may depend on what they want to accomplish or publish.

Examples of CRMs include Salesforce Sales Cloud, Hubspot, and Zoho. Let’s focus on Salesforce Sales Cloud as an example of technology.

Salesforce is a CRM software that provides solutions for sales, service, and marketing. They also offer collaboration hubs for the internal business team. As a CRM, salesforce stores and generates reports about your customers and your sales.

As your business expands, handling customer information may become tedious. This is where CRMs like Salesforce come in. They help you manage customer information, generate sales lead reports and sales forecasts.

Watch the following 3-minute video to learn more about Salesforce CRM:

Employee and customer engagement survey

Caring for your staff is a huge part of managing your business. Similar to customers, without them, your business will cease to exist. This is why employee engagement surveys exist. Employee engagement surveys aim to:

• Measure your employee’s motivation and productivity levels
• Check if your employees align with your business goals
• Help you understand your employee’s morale levels
• Analyse areas where they need support.

The following table gives an example of some of the inclusions in an employee engagement survey:

Employee engagement survey
Questions	Responses
Manager/Supervisor
Does your supervisor provide the support or training you need?
Does your supervisor recognise your efforts and performance?
Teamwork
Does your team encourage participation in the workplace?
Is there a strong sense of camaraderie in your team?
Work-life balance
Do you feel that the organisation provides you with work-life balance?
Is your shift reasonable?
Career growth
Do you see a positive career growth outlook in this organisation?
Do you feel supported through training/provision of tools you need for your tasks?

When writing questions for the survey, ensure that they are clear and concise. They should also be questions that the employees can answer with a rating scale. You can conduct employee engagement surveys quarterly, semi-annually, or annually.

Customer satisfaction is related to customer engagement. Customer engagement happens before transactions. Examples include clicking ads, viewing websites, getting pamphlets, and more. Meanwhile, customer satisfaction occurs after the customer purchases and uses the product.

Effective customer engagement can attract more clients to your business. This is why marketing strategies require utmost care and planning before execution.

Consider the following things when writing customer engagement surveys:

• Keep a consistent format as it is easier to read and understand.
• Make questions easy to understand. Write questions that customers can respond to using a rating scale.
• Be specific with questions. Avoid writing vague or open-ended questions.

Listed are examples of questions for customer engagement.

• How do you feel about customer support in the store?
• How do you feel about the advertisements of the company?
• How likely are you to purchase in the future?

You can roll out customer engagement surveys on a quarterly, semi-annual, or annual basis. Ensure using the same timeframe if you are comparing historical data.

The following case study shows how you can review targets using digital technology. It also shows how you can use the results to plan and optimise your business performance:

A business can be viewed as giant machinery. Inside machinery, some cogs push each other to make the machinery work. The collection of cogs, in this case, is the business system. A business system refers to the policies, personnel, and equipment that work together. The business system, like your business plan, aligns with your business objectives. Alignment is essential for businesses to focus on what they want to achieve.

Aside from the business system, there is also the business structure. The business structure refers to the legal structure of a business that affects its daily activities. The structure can affect the following aspects of the company:

• Raising capital
• Business responsibilities
• Tax arrangements.

Business systems

Let’s take a look at each of the business systems in more detail:

Payroll

This refers to all policies, documents, personnel, and equipment associated with processing salary. The payroll system handles the tax payments, deductions, and other associated information.

Documentation of payroll involves using accounting software. Xero has a payroll management feature that lets you manage employees' salaries, leaves, payslips, and taxes. Payroll documentation involves inputting the correct details of the employees. These include the following:

• Employee name and address
• Date of birth
• Tax file number
• Start and termination date
• Bank details
• Gross wage, allowances, hourly rate.

Proper documentation ensures accurate reporting to the Australian Tax Office (ATO). This agency is responsible for collecting taxes in Australia.

Payroll reviews occur when an employee has changed in work hours or gets a promotion. When reviewing the payroll, ensure updating the pay rates of the employee. This guarantees proper reporting of the payroll tax of the employee. Use the same accounting system as the one you used in the documentation.

Personnel

This refers to all employees of the business, including the owner. The personnel business system ensures the operations of the business. Companies should ensure documentation of personnel system for the following reasons:

• Provide support to personnel
• Appraise key talents in the company

Review and documentation of personnel fall under the staffing plan.

Payments

Accounts receivable and payable systems are parts of the payments system. As a business, you are owed, and you owe money. You can conduct a review and documentation of this through accounting systems.

Inventory

Recall that inventory is the list of assets or items held by the company. Processing of inventory is part of the task of certain personnel in the company. You can conduct review and documentation of inventory using accounting systems like Xero.

Why is documentation and review of these systems necessary? Recall KPIs and operational targets? They are indicators of success for your company. Documentation and review of these systems can help you compare them against KPIs and targets. This will help you see if your business is succeeding.

Business structures

As mentioned earlier, business structures refer to a business’s legal structure. There are four common business structures. These are the following:

Sole proprietorship

The ATO refers to this structure as a sole trader by the ATO. This is the simplest of the four business structures. The business owner is in charge of the daily operations of the business.

The business owner does not need to file a separate income tax return for the company. They can use their personal tax information for this one, reporting the business income as part of the personal income.

Partnership

The owners of the business share control, income, and losses in this setup. This makes it inexpensive and easier to operate. Business coaches and governments recommend partnership agreements to avoid disputes in the business. Partnership agreements draw a definite line on the following:

• Responsibilities
• Taxes
• Profits
• Losses

A partnership business may employ people, but owners are not considered employees.

Company

Directors (board of directors) run the company. Meanwhile, shareholders own the company. Shareholders are people who own a share or part of the company.

Companies have additional requirements due to the massive assets that they hold. Laws hold the directors liable for their company's actions and debts. The Australian Securities and Investments Commission (ASIC) regulates corporations.

A company has its separate tax information from its directors. Thus, it is required by law to file an annual company tax return.

Trust

A trustee and a beneficiary make up a trust structure. Individuals or businesses can serve as trustees. They handle beneficiaries' finances or assets. For investment purposes, this setup is typical. The profits from the trust go to its beneficiaries.

Beneficiaries must file the net income from trusts as part of their income for their tax returns. Trusts must also file an annual tax return. They do not necessarily need to pay tax. Their tax payments depend on the distribution of the tax income.

Documenting the business structure

Documenting your business structure is similar to describing your business. You will present the members, operations, and other facets important in your company. During documentation, you must ensure recording the following.

During documentation, you will do the following steps:

Determine your business structure

Identify the kind of business structure you have. Your business structure has a significant impact on your liabilities as a PCBU. ATO states that businesses are not locked to a single structure. You may change the structure as the business thrives.

Creating an organisational chart can help you identify your business structure. An organisational chart shows the hierarchy of persons involved in the business. Ensure keeping a resume or record of your key personnel and staff.

Check your tax requirements

The filing of taxes differs from one business structure to another. This is why you identified the business structure in Step 1. You may talk to an accountant or solicitor for clarification on this matter.

Revisit your operations

Your business operations influence your potential income. This means that you may have to work on some tax registrations. This may include Goods and Services Tax (GST), Fuel Tax Credits (FTC), and Fringe Benefits Tax (FBT).

Reviewing the business structure

Just like business systems, you can also review your business structures. You can do the following to review your business structure:

1. Examine the organisation and its members
   List down the members of your business and create an organisational chart. The organisational chart can give you an idea of what your business structure is. This will help you distinguish the members and their ranks in the organisation.
2. Analyse the operations of the business
   Now all businesses are the same. They vary depending on the industry and their own nature. For example, some businesses are in the supply chain, and others focus on investments. Supply chain businesses are usually partnerships or companies. Investment businesses, on the other hand, are usually companies or trusts. Ensure proper analysis of your operations for appropriate categorisation of your business.
3. Evaluate the finances of the business
   Ensure analysis of the expenditures and income of your business. These have a huge impact on your tax liabilities. If you need help evaluating your taxes, you can ask for help from tax experts or ATO.

Reviewing your business structure will impact in the following ways:

• It affects the taxes that you need to pay
• It can help you manage your assets and protect them
• It can help in controlling the costs of running the business.

Researching and recording business improvements

A well-managed business is most likely to improve over time. This improvement comes in the form of increased revenue, staff and asset size. As your business grows, you will have more responsibilities to take care of. Thus, it is vital to research your business improvement to prepare yourself.

Researching your business improvements involves doing the following:

Check your revenue

Your revenue is the amount of cash that goes into your business from products and services. In some cases, you may need to pay a 10% GST as stated by GST Act 1999.

Check your staffing roster

As your business expands, you will need more staff. Thus, you will have more employees to pay and manage the tax for. Ensure that you report your updated roster to ATO for tax purposes. If you provide your employees with fringe benefits, then you will also have to pay FBT.

Check your balance sheet

As your business thrives, you may have acquired more assets for your operations. You should record these assets in your balance sheet. The balance sheet contains information about the following:

• Current assets or assets that you can convert to cash within a year
• Fixed assets or assets that your business uses for operations
• Total assets refer to the total amount of the assets you have.
• Liabilities or the payables of your business. This includes payments to suppliers or similar entities.
• Net assets refer to the business’s assets minus the liabilities.

Now that you know the documents that you need, you can move to record. Digital technologies are of immense help when it comes to these tasks.

You can do the following steps to record your business improvement:

Record your sales/payables

Log this information into your accounting system. Ensure that you keep your records updated. It would help to keep receipts for your payables so you can review if there are discrepancies.

Manage your employee roster

Ensure updating records of your staff. The personnel you give raises or benefits may have more tax to pay. Expansion of staff roster also means more taxes to pay.

Update the balance sheet

Accounting systems like Xero have a balance sheet feature. Ensure updating of your financial records so that you can generate the report when you need it.

As you may have noticed, there are legislations related to your business improvements. These are primarily tax-related. These taxes are as follows:

• Goods and Services Tax 1999
  The law requires businesses with GST turnover of $75,000 and above to pay GST. The GST turnover is the sum of supplies made in the current month and the previous 11 months.
• Fringe Benefits Tax Act 1986
  Fringe benefits refer to additional benefits of employees aside from cash. Examples of this include company cars and private health care. The FBT Act 1986 imposes a tax on the taxable value of the fringe benefits provided to employees.
• Income Tax Assessment Act 1997
  This law governs the capital gains tax (CGT) of businesses. The CGT applies to most properties with a few exceptions, like the principal residence. You will have to pay CGT on profits from selling properties like land, shares, or investments.

As you run your business, you will run into several operational problems. Do not fret. This is normal and a part of running a business.

Operational problems

The following are some operational problems that may arise. Let’s look into each of these and how they can be addressed.

Waste

These are often results of overproduction or inefficient use of resources. Too much waste in your business is a sign of problems in operations, efficiency and inventory. Addressing this problem includes increasing work efficiency and inventory management.

Quality

Quality problems occur if there is no quality management in place. Recall QA and QC? These ensure that your company produces quality products. Quality problems result in product defects, refunds, and product recall. Addressing this problem involves setting up a quality management system.

Delay

Delays refer to missing the milestones for operations. This can be a result of one or more of the following:

• Unorganised operation plan - This includes outdated milestones and unorganised deadlines.
• Staffing problems- Lack of personnel or skills gaps for the tasks
• Inefficient operations- Lack of a quality management system may lead to delays due to unorganised operations.

Addressing this problem requires a thorough review of the operational plan and staffing.

Control

Control may pertain to a lack of funding control and quality management. Lack of funding control can lead to overspending or underspending. This can have a significant impact on profits and the quality of products or services. You can refer to the quality part of this discussion for quality management problems.

Addressing this problem involves proper business planning and quality management.

Culture

Culture in this context refers to your business culture or ethics. This describes how you manage or operate your business. Culture problems lead to other issues previously discussed.

Addressing this problem involves aligning your business culture to your business goals. They must go hand-in-hand when running your business.

Addressing operational problems

You may have noticed in the discussion that there is a provided solution for each category. However, these are generic solutions for problems. In this part, you will learn how to identify issues using the root cause analysis.

There are six (6) steps to address operational problems.

Investigate and identify the problem

As a business owner, you should be observant of your business operations. You do not have to watch the business operations daily. You can review reports or get feedback from your employees. Once you notice and confirm the problem, you can move to the next step.

Analyse the problem

Describe how the problem affects your business. Are they affecting the employees? The sales? or customer relations? It is essential to document the problem at this stage. Documentations provide solid proof and a reference for future issues.

Ensure describing the problem as accurately as possible. Define it with numbers and factors associated with it.

Implement temporary countermeasures

Temporary countermeasures are also called band-aid solutions. As the name implies, this is temporary. For example, if there is an unhappy customer, you may give them vouchers or offer them discounts.

Establish the root cause of the problem

You can establish the root cause through root cause analysis (RCA). In this method, you will find the underlying cause of the problem to solve it. Doing so causes the pain to cease. There are several methods of root cause analysis. These include the following:

• Five whys
• Fishbone diagram
• Pareto chart

The following methods are commonly used to address the performance of three specific areas in a business.

1. Identify and meet staffing requirements
2. Analyse and correct business problems
3. Review and adjust the business plan

Formulate or propose solutions

Brainstorm with your team to work out solutions for the identified source of the problem. Involve staff to gain more insight into addressing the issue.

Implement the changes needed

The changes here are specific to areas that require attention. Ensure that you are targeting the correct issues or systems involved. You must also review the solution to see if it works. If it does not, you may go back to steps 4 and 5.

Methods to analyse and correct business problems

As mentioned in Step 4, RCA identifies the underlying cause of problems in the business. Step 4 also provided some examples of tools used in RCA. Let’s read more about how each method is implemented to evaluate and improve business performance:

The five whys method

One of the simplest and most commonly used is the five whys method. This method involves asking why at least five times to trace the problem. Consider the following examples of the five whys (questions) that can be used to help in identifying the problem:

• Why did the customer leave? There was a long queue for order
• Why is there a long queue for orders? There is not enough staff to accommodate orders
• Why is there not enough staff? Many staff have a day off today
• Why did they have a day off today? They have worked several back-to-back shifts for a month
• Why did they take several back-to-back shifts? There has been a large turnover of staff for the past few months

The fishbone diagram

The fishbone or Ishikawa diagram is also another tool used in RCA. It uses a fishbone structure to identify the problem's cause. The fish head represents the identified problem. The bones connecting to the spine are the potential contributors to the problem.

The Pareto chart

The Pareto chart is a combination of bar and line graphs that aims to segregate problems. The problems are identified and segregated as trivial and significant. This action helps the team to prioritise areas considered important to the business. You can also use Pareto charts to analyse the frequency of the problem in your operations.

Identify and meet staffing requirements

Understanding what staff requirements are needed will assist in identifying how to evaluate and improve business performance.

Through regular staff performance appraisals, information is provided on skills and gaps in staff members. This helps determine the human resource capacity to perform well and meet business goals and objectives. Through staff training/ regular professional development staff can then contribute to improving overall business performance.

Analyse and correct business problems

Through regular analysis of a business, any problems are identified prior to becoming major issues. The problems are analysed to provide a reliable basis for the nature of concerns that can keep a business from performing well. Correcting business problems allows you to resolve issues and perceive them as opportunities to improve performance. These opportunities empower change, fixing and new courses of action for a business to improve and operate better.

Review and adjust the business plan

Reviewing the business plan will provide information on what exactly is happening to the business in terms of different aspects of its performance. This method assists in assessing whether the business is performing in line with the goals and objectives of the plan. Adjustments made in a business plan reflect corrections and changes that provide a more current direction for the business and improvement in operations to be followed.

There are a lot of tools you can use for RCA. However, it is essential to know when and how to use each tool. The following 7-minute video shows when and how you can use each tool discussed:

It is important to work on policies and procedures and update them. You must also reflect the solutions that you formulated to solve the problem.

After performing a root analysis and identifying any underlying cause of a problem, correct actions must be taken to provide solution to these problems.

Updating policies and procedures

The method of updating policies and procedures may vary from one business to another. However, they have these three steps in common.

Identify people responsible for updating the policies and procedures

If you have a human resources department, they are responsible for this task. But if you own a small business, either you or the managers will be responsible for this task. Ensure that your policies and procedures align with relevant legislations and regulations:

• WHS
• Environmental legislations
• Taxation

You may consult a business lawyer to guide you in aligning with legislation.

Review and update the policies and procedures

Take the time to review the policies and procedures. Ensure that they are up to date and relevant to your operations. Include the corrective actions you formulated to your operational problems.

Ensure that you follow the legal and industry standards. You may consult business lawyers or industry experts for their advice on this one. You can also research them on your own. But ensure proper interpretation of the standards.

Revise and redistribute the policies and procedures

Proceed with the revision of the policies and procedures. You can distribute this digitally or in print. Ensure that all employees will receive a copy of the document. Doing so prevents miscommunication between the management and employees. If needed, set a town hall with the employees to communicate the changes with them.

Use the following questions to check your knowledge:

1. What is Xero used for?

2. What are human resource departments responsible for?

3. Several methods are used for root cause analysis. Can you name them all?

4. Are band-aid solutions to be implemented permanently or temporarily in a business?

5. Name the four types of business structures.