Tackling the finance workflow of your business can give you a lot of power to improve, grow and communicate its value proposition sustainably.
Investing time into this support function can be a valuable intervention in the circular process of planning and running any operation, whether it is a social enterprise, for-profit or non-profit. Between running your business operations and planning for its future, fit in the time and processes for performance management and budgeting functions.
What is performance management?
This function involves deliberate action to question how your business is doing and understanding why. As leaders in the business, you gather information to assess the performance of your business and drive future decision making to transform and grow.
As you manage your business, take note of what went well and what did not go well. Your finance records can give you a lot of information about this, starting from a review of whether your cost levels met your expectations or not? Why? Always ask why! Identify sources of income loss or inefficiencies i.e. the leaks that are weakening your business model’s impact and profitability. Do you know what they are? Such knowledge can give you a lot of power to maintain and replicate the good results and change up the tasks that were not as successful.
A key measure to make sure you know is how much does it cost you to support one beneficiary? To serve one customer? How will that change as you grow? This is the biggest question to address when it comes to sustainability from a financial perspective and an impact lens. Also, this is an important answer that impact-focused funders want to see.
Just as important as the financial measures are non-monetary statistics. Number of customers and beneficiaries, employees retained, how many days does inventory sit in storage, units of waste in operation…sky’s the limit! The exercise to measure, report and analyze these performance measures is different for every business model and can be easy to neglect or delay because it does not interfere with day-to-day operations, especially when there are minimal human resources to dedicate to this process. For any organization’s leader, it is highly recommended to take time off at least on a monthly basis to check in on your performance and factor into your upcoming decisions.
Now, you have all this information and a better understanding of your operation’s performance and capabilities. Take that back to the drawing board for some strategic planning on where you are headed next. And that should be paired up with a robust budgeting process. Here are a few examples of the thought process to transition from reviewing your past performance to setting standards for your future performance:
- Know the reasons e.g. if you are investing in more expensive raw material to make sure it is environmentally friendly and ethically made, factor that pricing into your budget and then make sure you target customers that also share your values. Can you sustainably afford these measures?
- Compare, compare, compare: period over period, see how your performance is changing. Compare what you offer for beneficiaries versus the impact of other programs. Compare where they started off and where they are at after participating in your programs or using your products. What level do you ideally want to perform at? Does your strategic planning and budget show how you plan to reach that?
- What is your break even point? Have you considered the difference between variable costs (costs that increase with each additional unit of production/service generated by the operation) and fixed costs? When do you reach this point?
- Managing direct production and program costs vs administrative costs: this is a key issue to highlight for non-profits and social enterprises. Where funders, donors, and impact investors want to invest in the impact you are making for your community, they don’t want to see an exorbitant portion of that going towards paying administrative fees or large overhead costs. How do you balance having sufficient support functions while keeping the costs low?
Armed with this process, you can better plan what is happening in your business and avoid surprises when it comes to performance. Check out our member resources for support on how to dig deeper into this process, conduct it effectively, manage the operations better, and what to share with your stakeholders. Have any other questions that we can help with? Leave a comment below or reach out to our program coordinators.