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Business Report Business Success…Just Ahead
Know your destination. You can’t plan a trip if you don’t know where you are going. You can’t plan for success if you don’t know what you want. Get a clear picture of what you want the outcome to be. How will it work? What will it look like? What will the numbers be? You can get very specific in creating an objective that is detailed and that can be communicated to the rest of the company. The more specific the objective is the better. You should be able to see it and describe it almost like it was a memory. Getting a clear picture of what your want the business to be and sharing that with your employees and those that support your business is the first step in making a successful trip. Fill the tank. Cash is the fuel of small businesses. You need it to get started. You need it to keep running. And when you run out of it, even if your business is headed in the right direction, the business will come to a screeching halt. For a new business, it is necessary to secure the right amount of financing to get the business going and to provide some margin for error. In a going business, there should be an early warning sign when cash is running low. Even if you plan to sell the business or retire you must make sure that there is enough “fuel” to keep the business going until that happens. Get your financing right in the beginning and keep a close eye on cash. Sometime a business needs to be re-financed and in many cases a line of credit is an excellent way to align cash needs with changes in the business. Finally, when making decisions, you must consider not only the long-term impact on profit but also the short-term impact on cash. If the business runs out of cash it will simply stop running. Check you gauges. Don’t run out! Check the engine. If you want a successful trip, the engine needs to keep running well. The engine of business is the people. Do they work well together? Do the complement each other? Does each have a defined role that supports the overall objective? An engine that runs smoothly not only gets you there, but gets you there in a safe and efficient way while getting good mileage. The right staff will do the same for a business. There is only so much a business owner can do. Every small business has so many things going on (and in most cases the same thing a larger company has going on), but the owner cannot be good at all things. As a small business owner you are the head of sales, marketing, budgeting, finance, legal, risk management, purchasing, personnel, and many other departments. So, first and foremost, as the business owner, you should determine what you are good at and what you like to do. Then, take all other aspects of the business and decide whether you will do it, someone on staff will do it or you will outsource it. All vital functions must be done by the owner, staffed or outsourced. You need the right people in the company, working for the common good of the business and working well with each another. The right team can achieve beyond the owners greatest dreams and the wrong dream will struggle with the basics. Loyalty to employees, discomfort with firing or lack of alternative staffing can contribute to business owners being slow to take action to put the right team in place. Do yourself a favor. Put the right team in place. Make the tough choices and know who heads up each “department”. Once the engine is running smoothly, performance will improve and you’ll be sure the engine will get you there. Read the signs and use your roadmap. I hesitate to mention this knowing that some will be quick to point out how reluctant men are to ask directions or use a map. Sorry guys, but this is important. Statistics are essential to identify business opportunities and areas needing improvement. In any business, there are key success factors that should be measured and monitored to indicate where the business can improve. You should create a financial working model that can be modified as business conditions change and can be updated on a daily or weekly basis. The working model should be based on a breakeven analysis of the business including what the owner needs to make and debt repayment. Every business should know: daily sales needed to breakeven, average sale, number of customers or transactions, gross profit margins, and other such statistics. Each business has about six to ten key success factors that must be closely watched. And, when a gauge tells you something is wrong, don’t just turn up the radio. Make small adjustments when things are starting to get out of line and you can keep the business on track. Otherwise, you might find that you are far off track and need to turnaround and change direction. Improve your mileage. The tank is full, the engine is running smoothly and you are headed in the right direction. But, are you getting the results you want? Some companies have the right cash, the right staff and the right direction and still struggle to accomplish the objectives set by the owner. Why? Many times, there is too much focus on increasing sales and not enough on how much mileage you are getting out of those sales. In essence, you need to understand the power of gross profit. If you buy an item for $1.00 and sell it for $1.50, you make 50 cents gross profit. If you buy that same item for 75 cents, you improve your profit by 50%. In most businesses, there are opportunities to buy product at lower cost or change pricing strategies to improve gross profit margin. When allocating space, quoting jobs or deciding what products and services to offer, a business can make a dramatic difference by focusing on the objective of not just increasing sales but by maximizing gross profit. Get the most mileage out of your business. Avoid the pot-holes. With all of the effort to get the business running and to increase sales, many business owners forget to avoid the two biggest “pot-holes”, expenses and threats to the business. If you work incredibly hard to generate sales but don’t have a good handle on expenses, what have you gained? If you build a successful business but are exposed because you are not properly insured or not following good business practices, how long will your success continue? Expenses should be closely watched. One good practice is to periodically go line by line through your expenses and ask what it would take to reduce each line item by 15%. While it is not always possible to achieve 15%, the process tends to find areas where savings can be achieved. Payroll, insurance, phone bills, and others all offer the potential to reduce demand on the business. In some cases, simply restructuring debt can also lessen those demands. You should also guard against events or issues that threaten the business. Are you properly insured? Do you follow proper employment practices? Are your corporate records in good order? If you keep the demand on the business under control and minimize the threats to the business you will reap the benefits of filling the tank, checking the engine, following the map and getting good mileage. Otherwise, you might end up on the side of the road. The journey of 1000 miles… You know where you want to go. You know what you need to do. So, why are you standing still? It’s not enough to plan and prepare for the trip. It’s not enough to hope for the best. Results only come from action. So now we have this long journey, so many issues to address and so many ideas to pursue. And yet, there are still the demands of the daily routine. So, how will you get started on the journey? The answer is, turn the key. Take action. Once you know your destination and go through all of the other planning steps, it simply comes down to starting the engine. Successful business owners get into a cycle... ACT – MEASURE – REVISE. First, you take action. Then, you measure the results of the action. Then, based on the results you revise your plan. Most importantly, you repeat the cycle, over and over and over. Spend your time on those things that will most impact the business, which are usually the things that most impact your customer. Take action, measure it, revise and act again. Business success, in whatever way you define it, is there for the taking. Much more is in your control than you may think. And for many, the journey itself is as important as the destination. So, start thinking about your destination, fill the tank and check the engine. Get your map and read the signs. Find ways to improve your mileage and avoid the pot-holes. It’s time to get started, turn the key. And if you’re not sure about all of this, give us a call, we’re always for a road trip. Remember, business success is just ahead! May
2005 Eldersburg Business Report - The Truth About Small Business
Financing Doug Howard is president of BDG Payroll, an Eldersburg payroll processing company, and founder of Start-Up Carroll, a group helping small businesses in Carroll County get started.
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On
the road to business success, businesses go through different phases.
Some are just getting on the road (start-up). Others are looking
for an exit. Some are well on their way but they need to pick up
speed (grow). Others are headed in the wrong direction, and need
to find the way to turnaround. Regardless of what mode the business
owner and the business are in, there are some simple steps for getting
the business on track.
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