25 Point Diagnostic: Complete Business Assessment

This 25-Point Diagnostic System applies to start-ups, developing and growth businesses.  Investors and others use this to assess the state of your business.

1. Accounting Ratios

  • Identify key ratios relevant to your business.
  • Create dashboard metrics that interpret financial statements for you regularly (e.g. once weekly).
  • Color code red light, yellow light, green light, to signal urgency.


2. Bank Relationships

  • Communicate regularly with your bank with either a written report or a phone call.
  • Practice instant transmission of bad news or trouble.


3. Board Governance + Advisory Boards

  • Set up a board to govern.
  • Learn the role of board and officer positions.
  • Gain proficiency in various hats one wears as an employee and as a board member.
  • Gain proficiency in forming advisory boards (short term or long term) to engage thought leaders and provide fresh input.


4. Business Plan

  • Create a one-page business plan, supplemented by detailed appendices.
  • Create a 12 key question pitch deck for capital, customers, and other key relationships such as bankers and investors.
  • Update business plan quarterly.


5. Cap Table/Minute Book

  • The minute book must be orderly, organized, complete, up to date, and detailed to chronicle all major decisions and resolutions.
  • The cap table must be organized in a standard way. See me for how to do this if you haven’t heard this. Note: No excessive complexity in share structure – believe me – you want to watch out for rampant poor advice!


6. Compensation Plan/Performance Pay/Profit Sharing

  • The best compensation plans have horizontal and vertical equity.
  • The best performance/incentive pay systems recognize three factors: company performance, individual performance and team performance.
  • Check with me for details.


7. Competition Analysis

  • A good competition analysis compares features, product lines, and key differentiators. This can be shown in one slide divided into four quadrants – with your company in the top right hand corner as you visualize the picture. 
  • Check with me to discuss why you need this analysis both as an imperative to excel and as a reality check.


8. Emergency Plan

  • What happens if the founder dies suddenly or is sidelined by some tumultuous event? Does the spouse know what to do to retain control and have access to immediate funds? Can the company continue if the founder is out of commission? What if a disaster hits the company? Can key leaders, including the founder, carry on? Are there fallback positions? Can key staff members replace each other in emergency situations?


9. Ethics Policy

  • An ethics policy takes into account not only civic duty, legitimate law, and common sense but also Catholic Tradition and the Magisterium.


 10. Exit Plan

  • Financial statements should always include valuation (example: EBITDA x 3 to 5) so that decisions that are simulated or recently achieved can be assessed as to their impact on valuation. 
  • Every business owner ought to know what the exit is – lifestyle business that will carry on for many years, a rapid exit financed by outside angel or venture capital, going public, selling to employees, etc.


 11. Financial Reporting

  • The best financial reporting includes dashboard metrics that are color-coded: red light, yellow-light, and green light. Here are 12 dashboard examples.
  • The best financial reporting is regular and frequent (e.g. weekly, every week).


 12. HR Strategy

  • Is there a professional approach to hiring, performance evaluation, firing, upholding moral and ethical standards in the workplace, following employment law, and other aspects of upholding a proper HR strategy.


 13. IP Protection

  • There needs to be well thought out and well-founded intellectual property protection.
  • This may not protect you from a battle with predators but at least you will be well prepared and on the right side of the issue.


14. Key Advisors (Accounting, Tax, Legal, Mentors)

  • Although most businesses understand the need for smart advice the high-performance business leader will form an advisory board or council to “combine” the efforts of the professional service providers.


 15. Management Structure/Leadership Team

  • Is the leadership team united, focused, and do they believe in the mission? The best businesses interact with their leadership team in ways that extend beyond the usual, particularly a Catholic business. Examples include: sensitivity to family responsibilities, above average flexibility, unique compensation plans, and other special features. 


 16. Marketing Strategy

  • A sophisticated marketing strategy continually checks the market place through scans, continuously does customer discovery, and assesses the competition.


 17. Operations Plan

  • The operations plan is fine tuned and sensitive to how individual parts of the plan interact in a harmonious way to create a more powerful product set. This is both an art and a science. In future podcasts we will delve into this.


 18. Pricing Strategy/Margin Control

  • Margin control is a special kind of analysis in which margin is protected. An example is how sales people often inadvertently give away margin by discounting the wrong way. Rather than discounting on volume or similar factors they give away top-line margin, which hurts the financial performance of the business. 


19. Product Road Map

  • Developing a product road map is essential to avoiding random feature creep, delays in releasing versions into the marketplace, and adding useless features. 


 20. Sales Plan

  • The sales plan is to be properly targeted. Most businesses need to ramp up their sales pipeline analysis. A common problem is the inability to forecast the dollar value of prospective revenue accurately. Sales people often fall into the trap of pushing a narrative of the sales pipeline that calculates the total final value without respecting timing. The best sales pipeline analysis accounts for timing by reducing the total value of sales at various stages of the sales cycle by the percentage probability of closing that sale at that point in the cycle.
  • The best businesses constantly work to shorten the sales cycle using analysis of the actions of the sales team and by conducting conversion surveys of customers after the sales decision to see what led to faster decisions or what delayed the buy decision.


 21. Strategic Plan

  • The strategic plan should be brief  (1 to 3 pages) and forward looking a maximum of 2 to 3 years.
  • A plan longer than that or farther out into the future is simply not useful. 


22. Succession Plan

  • The succession plan should take into account the head of the business, board members, key executives (senior managers) and, actually almost every employee.
  • Redundancy is the key to a good succession plan. So is flexibility and cross training. 
  • Most businesses pay very little attention to succession planning and are generally caught short when a critical vacancy arises.


 23. Supply Chain Analysis/Value Chain

  • The pandemic has taught, among many other things, that the supply chain is vulnerable.
  • The diagnostic should check on the robust qualities (or lack thereof) of the existing supply chain. It should also include at least one if not two alternatives to each link in the chain.
  • The value chain is slightly different than the supply chain in that it attempts to quantify the value added (or perhaps, in dollar terms, the margin) added at each step of the supply chain – whether inside the company or outside.


 24. SWOT Analysis

  • A good SWOT analysis (strengths, weaknesses, opportunities, threats) should be thorough and honest.
  • It should also seek input from various stakeholders such as employees, owners, board directors, customers, analysts or observers, and even segments of the wider community such as consumers or competitors.

25. Valuation

  • Regular monitoring of the value (valuation) of the business should occur, preferably in each financial statement produced. 
  • The main ways include: recent comparable sales (comps), present value of the future (projected) stream of income, EBITDA times 3 to 5 (or some similar multiple), value of initial capital in or added capital injected, P/E ratios, and a couple of other more esoteric methods.


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