Success Rx: Your Business Physical

By: Jacquelyn Lynn

An annual performance evaluation for employees is a standard management practice; you go to the doctor (or at least you ought to) for a yearly check-up; you even have the air conditioning system in your home serviced once a year. Shouldn't you be doing the same thing for your real estate investing business? Take the time at least once a year to look at where you've been and where you're going, what's gone right and what's gone wrong, and how close you are to your original plan—the result will be a significantly healthier operation.

Your annual business check-up is a multi-step process. It involves studying your history, forecasting for the future, communicating with suppliers, colleagues, and other professional associates, then organizing all of the elements of the exercise into a productive and useful format. While that may sound intimidating, the good news is this: there are no hard, fast rules for conducting your annual check-up. Use any procedure that you're comfortable with—just get it done.

It's a good idea to link this annual review to your year-end tax return. You're already reviewing your financial data, so it makes sense to look at everything else at the same time.

What was your plan?
Go through each section of your business plan and compare what you intended to do with what you really did. Analyze why things worked the way they did—or didn't. Then develop a detailed plan for the coming year and use that plan as the baseline for next year's review.
Take a look at these specific areas:

Employee compensation and benefit packages. If you have employees, how do your pay scales and bonus plans compare with other employers in your area? Benefits play a major role in creating job satisfaction and employee loyalty; how satisfied are your workers with what you are offering? Could your benefit resources be realigned for improved employee relations?

Insurance. A good insurance agent should initiate an annual review of all your policies, but if he doesn't, you must. Do a line-by-line coverage and cost analysis so you can evaluate the cost of coverage against the specific related risk. Ask your agent about new insurance products that may be appropriate for your business.

Security issues. Take a look at your properties (both investment properties and your administrative facilities) from a safety perspective. Is the exterior lighting adequate? Are the locks sturdy? Are measures in place to protect late-night and solitary workers? Who has keys to the facility? If you&'ve had recent personnel turnover, you may want to invest in changing locks—even if all keys were returned. Consider, too, who knows your alarm codes and any other codes that allow access to confidential information.

Office furnishings. Are your work stations designed for maximum efficiency and productivity? Is the lighting adequate? Has there been a change in work load or style that may require different furnishings? Is your computer equipment sufficient, or should you consider an upgrade?

Professional relationships. Look at the people you rely on for professional advice—your attorney, accountant, financial planner, other consultants, etc.—and confirm that their knowledge and skill levels are appropriate for your needs. Your advisors need to be as smart as, or smarter than, you are.

Financial relationships. Review the details of your banking agreements, commercial loans, and leases.

Transportation. Review all of your transportation costs. The freight industry is extremely competitive; make sure your shipments are being properly classified and that you are receiving the maximum available discounts. Remember, too, that as carriers compete, they add services. Force them to educate you on what they have to offer and ask several carriers to submit bids for your business.

Postage. Ask the local post office to send a representative out to help you analyze your postage expenses and suggest ways you can save money and improve service—perhaps by pre-sorting or barcoding. Be sure your postage scales are calibrated properly so your weights are accurate.

Suppliers. Are your suppliers stable resources, and are you getting the best deal on your purchases? At least once a year—and perhaps more often for certain commodities—put all your major purchases out for competitive bid. Let all vendors know that this is your standard practice.

Maintenance and service contracts. Do a cost/benefit analysis on every maintenance and service contract before agreeing to a renewal.

The results are in
An effective annual check-up can take anywhere from a few days to several months to complete, but the payoff is well worth the investment. Don't let your review slide because you think you don't have time to do it. An annual review keeps you on track and gives you the information you need to correct mistakes before they become major problems.

Another priceless benefit of an annual review is peace of mind. Just as you personally appreciate the sense of well-being that comes from receiving a clean bill of health from your physician, your business—and everyone associated with it—will gain confidence from the knowledge that you are running a fiscally and strategically sound operation. With that security, it's easy to focus your energies on implementing your growth plan.