"Year over Year," and the Recession of 2009

This month our local community magazine published their annual "Year in Review for 2009" in which they chronicled, among other things, the local businesses that opened or closed their operations. Reading through the list was truly depressing! An astounding number of friends and business associates suffered terribly with the economic recession, and a staggering number of businesses closed operations in 2009. Although Federal Reserve Chairman Ben Bernanke has declared the technical end to the recession, I'm sure those business owners who lost their dream businesses would disagree.

"Year over Year" (YOY) is a term that business analysists use when comparing business performance from one fiscal or calendar year against the previous one. It is an especially usefull review that should be studied carefully, and made even more important by the recessionary cycle we are experiencing.

How did your business fare in 2009 (arguably the worst recessionary period in 50 years) as compared to 2008?

Now is a natural time of year, even for non-calendar fiscal year organizations to perform this analysis, and see just how they fared during 2009 vs. 2008. Careful analysis of YOY indicators will not only show the relative business strenghts and weaknesses, but will provide the tools to make adjustments for 2010 that could spell the difference between business disaster, or success.

In nautical terms, without the occasional sextant sighting, the mid-course corrections will never be made and shipwreck is the natural outcome!

In it's basic form, YOY performance analysis is nothing more than comparing the key performance indicators for one year against the previous year. These indicators vary by business, but generally include: Gross Revenue, EBITDA (Earnings Before Interest Taxes Depreciation and Amortization), Profit Margin, Expense Totals, and a host of other sector-specific indicators. These other indicators may include such things as Rate of Return (for product-producing and sales organizations,) Student Population/FTE (full time equivalent students) for education organizations, or others.

But effective YOY analysis is more than simply generating financial reports and noting the percentage of change of key indicators. That's where it begins, but the BEST managers spend true analysis time along with their team, performing "drill down" analysis to discover the true REASON behind the change - both favorable and unfavorable. This must not be a quick or intuitive process, but requires thoughtful and empirical analysis, with open discussion as to causes.

After the financials are prepared, and the analysis as to cause of change is performed, an action plan can effectively be formulated and executed. In other words YOY contains the following steps:

1. Financial Statements prepared
2. Management Team review and analysis
3. Thorough evaluation ("Drill Down") of causes of favorable/unfavorable elements
4. Formulation of Action Plan based upon this analysis
5. Execution of Action Plan

This is the exact process we follow at Access Education, and I'm thrilled at the performance of 2009 as compared with 2008, regardless of recessionary trends. Like we've said all along
there are some truly recession--proof businesses, and I'm happy that we can show that fact empirically. We strongly encourage each business owner/operator to devote the needed time to do a thorough YOY analysis, and enjoy a fantastic 2010 business year.