Reviewing the business while also working in it can be difficult during peak times. Dennis Mattiske suggests setting aside time in January to examine your business so you can correct problems and start building a business plan for the next financial year.
The relatively quiet time of January can be a productive time for business owners. Make a date with yourself to clear the decks and do detailed and lateral review of the last year, taking stock of your business from various angles. This review should provide the information and insight you need to take your business plan into the next phase.
There is much to consider, from key individual factors such as your budget, staff, location, clients, product or services, your own role as owner, to the overall direction of the business, what needs changing, what needs developing.
Start with a budget review. If a documented budget for the current financial year already exists, a good place to start is by reviewing actual results against the budget. Don’t just compare the actual profit to the budgeted profit, look at the underlying reasons for why the results for both income and expenditure may be either less or more than expected.
Even if a formal budget doesn’t exist, owners can review the results achieved and decide whether or not they are up to expectations. If done conscientiously, this exercise will help business owners identify action to take to improve the business and ensure it performs up to expectations.
It’s also a good idea to start planning the 2007/08 budget, so it’s ready by July 1, 2007.
While reviewing the budget and profit or loss, business owners should also consider whether they are receiving an adequate return for the time, effort, risk and capital involved.
A good question to ask is: if you had to pay a manager to run the business, how much would this be? Is the business earning this, plus an adequate return on the capital involved?
Staffing is often one of the biggest expenses for a business, and owners can be reluctant to add to this by taking on more staff or outsourcing some activities. But when business owners list all the activities they spend their time on, they can find it very revealing. For example, it could include selling, marketing, administration, bookkeeping and dealing with staffing issues. Except for very small or start-up businesses, it’s often better for the owner to delegate or outsource accounting and administration tasks and concentrate on what they do best, or why they started the business in the first place, whether that be marketing, customer relations or product development.
Another staffing area to review is whether key employees are satisfied in their current job, and whether there is any risk of them moving on. Undertake a ‘training needs’ analysis by reviewing the skills required by the most significant employees and rate their performances in those skills. Are there any areas where training could significantly improve performance, or provide career growth opportunities that will retain staff?
Customer Relations
Client relations and customer service need continuous work and attention. It often helps to have a benchmark to compare performance against, and a customer survey is a good way to find out what customers really think about your current service. For example, list the various areas of service and ask customers to rank performance. Ask them to prioritise what is important to them—the results may be surprising—or ask for suggestions on improving service. Quite often good ideas will be forthcoming.
Once the survey is completed, it’s important that steps are then taken to implement suggestions. If possible, these steps should also be communicated back to those who responded to the survey (as well as those who didn’t). It shows the business is responsive, and that it values customer feedback.
Businesses with several different categories of customers should regularly analyse the sales made in those categories. For example, add up the number of sales made during the period, calculate the average sales value per category, and seek ways to improve this.
Business owners should also review sales for the last six months by customer and, if possible, product by customer. For example, sales to the top 20 customers could reveal information on how sales can be increased to them simply by changing communications or offering special price deals.
Another tactic is to compare this year’s top 20 customers with the previous years. How do they compare? If some customers are buying less, are there ways to get them back? If the names on the list change each year, does customer service need improving?
Also look at customers who have purchased nothing in the current year but made modest but consistent purchases in prior years. Can they be won back?
Review product lists and, as with customers, compare the top 20 products this year with previous years. Does this reveal anything about buying trends? Identify the 10 worst-selling products and decide whether or not they should be discontinued; revitalised by re-packaging; re-launched; or perhaps sold into a different market.
Take the time to visit competitors, rank areas such as pricing, service, location, quality of product or range of products, and then compare with your business.
Differences in price, product range, or location, could indicate the need to lower prices, or might present an opportunity to increase them. The results of the survey should be kept and revisited in subsequent years.
The start of the new year is a good time to develop marketing activities for the next 12 months. Start by looking at what has already been done, and whether it is working. If not already done, consider introducing a system to collect data from new customers on how they heard of the business. Activities that work can be boosted, and those that don’t can be reviewed.
Also monitor the website and visitor figures. Invest in software to analyse the hits to the various web pages and which ones are the most visited. If a particular product or service seems most popular, offer more information on it or promote it in other marketing activities.
Consider whether different customer groups need different marketing strategies. Think of the different ways to communicate to them.
Business Premises
Renovating the business premises, or moving to another location, can be a daunting task and is often put off. But location and set-up are important.
Review the layout of the premises and consider ways it could be improved to facilitate better use and generate greater efficiency. For example, is the factory or warehouse properly laid out to maximise efficiency of work flow? Ask staff for their input.
Also, would the business benefit from a different location? If so, consider the positive and negative impacts of a move. Often, with sufficient lead-time and planning, a move can be much more simple and straightforward than you envisage.
Even if there is time left on the lease, investigate other areas that could be considered for re-location in the future.
Another way to increase business efficiency is to look at whether any of the business processes can be improved by more or better use of technology.
Identify the most important processes required to run the business and document them step by step, perhaps using flow charts and including some measure of speed of performance. This may identify areas where computer systems or other equipment could help with both speed and efficiency.
Is enough time and budget spent on innovation, such as research and development of new products and enhancement of old ones? Make a plan and set aside both time and money to spend on innovation. It is much better to do this on an ongoing basis than attempt it when the business has already grown tired.
Perhaps the most important area for business owners to review on a regular basis is whether or not the finance structure is correct. If the bank overdraft is nearly always near its limit, this may indica
te a core debt that can perhaps be financed less expensively. A specific bank loan secured by real estate will usually have a lower interest rate than an overdraft. Alternatively, it could also indicate internal problems with collecting payments from debtors in a timely manner, which needs addressing.
In a mature business, the security provided to the bank can sometimes be reduced. For example, it may be possible to remove the family home from the security. If the business is not using its overdraft facility and has good quality debtors who pay promptly, there may be scope to change the financing.
Business owners should gather together financial information and make an appointment to see their bank manager to ensure the best financial structure is used.
Everyday operational issues will always demand immediate attention from business owners. Often there doesn’t appear to be enough time to spend on the planning and strategy for the business, and even less time for successful implementation of those plans and strategies.
To help with this planning, it may help to involve a third party. An external director or a business coach can help facilitate the development of business planning and strategy. While they don’t need to be experts in the industry, they can implement the planning and strategy activities, and maximise the use of the owner’s skills. Because they aren’t intimately involved in running the business, an external party won’t succumb to the pressure of the operational issues and with regular contact can make sure a timetable of tasks is developed and put into action.
Taking the time to review the progress of the business and identify areas of opportunity is vital to its success. A business that doesn’t do this is inevitably going to miss out on opportunities and will ultimately fail to capitalise on its strengths. So make yours a New Year’s resolution to take action.
* Dennis Mattiske is a partner with accountants and business and financial advisers HLB Mann Judd, Sydney.
Top 10 Resolutions
1. Review actual figures to budget for the last six months and identify reasons for discrepancies.
2. Undertake a customer survey and use the findings to improve service.
3. Set sales benchmarks and identify five things that can be done to improve sales.
4. Identify and quit under-performing products.
5. Visit the competition and compare with your business.
6. Consider the effectiveness of marketing. List five new initiatives for the New Year.
7. Identify staff training needs and book appropriate courses.
8. Review the premises layout and location, and research alternatives.
9. Prepare and implement an innovation plan.
10. Revisit the finance structure and make an appointment with your bank manager.
