Entrepreneurs are usually so anxious to get their enterprises going that they don’t pay enough attention to planning for the long term future of their operations. This is why so many entrepreneurial businesses work satisfactorily for the first year or so but often need a complete re-think just to keep the business going after that.
Who’s the boss?
Take a 50-50 partnership as an example. The two partners are fired up with enthusiasm and both have lots to do when they launch the business. The weakness in this structure only becomes apparent with the passage of time when the flaws begins to cause problems:
One partner works much harder than the other
One partner is a much better manager than the other
The team is confused over who makes the decisions
One partner is away and a crisis arises
The partners argue and can’t reach a consensus
Every business needs a chief, a head, a CEO. This person needs to be agreed upon from the beginning and should be the one best qualified by experience, training or ability for the position. An ‘equal partnership’ is an invitation to entrepreneurial disaster, if not at the beginning of a business then at some critical moment down the track.
The one big customer
Many entrepreneurial businesses have their origins in a previous vendor/customer relationship. Bob has been selling a company’s line of cosmetics to Alan’s department store for five years when one day Alan asks: “Bob, if I gave you a three year contract could you source these products for me for twenty percent less?”
Bob seizes the opportunity and once he’s organized his sources he resigns from his employer of the past five years and sets out on his own. His future is assured. He has his own business and a customer that will keep him going for at least the next three years. Where can he go wrong?
Being dependent on just one or two big customers can be a big mistake. Unless it can acquire more customers and use them as the basis for growth before the foundation customer’s contracts expire Bob’s business is heading for a crisis from day one.
The original customer or customers can be affected by a decline in business conditions, by the departure of the entrepreneur’s key contacts, or by a better offer from somewhere else. And when they go, if Bob hasn’t built up his customer base Bob’s business will go too.
The lowest-price model
Entrepreneurs are always on the lookout for a bargain, and they know that offering the lowest prices is a good way to get the attention of consumers. What better way to get a new business off the mark quickly than to offer ‘the lowest prices in town’ or ‘we’ll beat anybody else by 10%’. Unfortunately, it’s also a way to go out of business quickly.
A business needs cash flow to grow and inadequate margins will invariably lead to cash flow starvation. Just a few unexpected expenses can empty the bank account and bring the whole enterprise to a grinding halt.
Price sensibly and base your business model on being able to charge enough to pay your expenses, generate a profit, and even build up a cash reserve. Being an entrepreneur isn’t about low prices; it’s really about having something so good that people will pay you for it.
And speaking of money
Cash flow problems aren’t limited to entrepreneurs, of course. But since most entrepreneurial enterprises are also small businesses they can easily rush into opening their doors without enough capital to fund their operations past the first couple of months.
Start-up capital has to be sufficient to see the business through its first year even if the sales and cash flow forecasts seem to indicate the money will come flooding into the cash registers from the first day of trading. Entrepreneurs tend to be optimistic about such things, but once a business runs out of capital it runs out of business too.
During the planning stages have the draft business plan reviewed carefully and impartially by someone who knows about businesses and has a realistic perspective on both the fledgling enterprise and the marketplace. Be absolutely certain that its operations will generate sufficient cash flow to meet projected expenses.
There’s one way to get a picture of just how disastrous an overoptimistic business plan can be. Take the projected financial results for the first year, then double the expenses. Do it again but this time halve the income. Since the original figures for expenses were probably too low, and the income estimates were probably too high, this isn’t an entirely impossible situation.
The market and the players in it
Entrepreneurial zeal often leads those planning a new entry into thinking that there’s got to be room for them somewhere, when they’re really about to enter a market that already has sufficient players to satisfy demand.
Study the market carefully before entering it as a player. Entering a market that’s already oversupplied means only one thing; somebody’s going to go out of business and that’s usually the newest entry. Even a market that apparently has openings may be saturated in certain strata – how many value players are there? How many boutique operators and how many discounters?
This is a familiar trap for tradespeople going out on their own. Only so many houses or swimming pools are going to be built in a community in any given year. New entries into these categories face a serious struggle for survival as any customers they attract will have to be taken from established competitors, usually on the basis of lower pricing.
The same dangers apply to the ‘instant growth industries’ – often franchises or semi-franchised operations, that spring up each year and have their day in the sun, only to fade quickly and disappear forever like 8-track stereos. By the time a trend has achieved high visibility it’s usually past its peak, and that means little or no room for late entries.
Real entrepreneurs are phoenixes
When entrepreneurs make mistakes they’re often big ones, but they at least have the benefit of happening quickly. Entrepreneurs don’t hang on long to businesses that aren’t working; they cut their losses and turn their entrepreneurial eyes in other directions.
They also have the ability to learn from their mistakes. If they didn’t plan well enough the first time they’ll do a better job of planning the future of their next business. By avoiding the ‘big five’ mistakes outlined above, entrepreneurial businesses will have a much greater chance of survival and even success.
Sales Reps Need A Plan
/in Sales /by Wayne MoloneyWithout a plan, sales reps have no choice but to do their own thing – which` may not necessarily be what your company needs them to do to achieve its sales targets. Undirected sales reps are likely to be too often found in the office or out on haphazard travel, spending time with the friendly accounts and pushing the easier to sell (but not necessarily profitable) products.
With a good INDIVIDUAL plan that has some discipline built into it for the rep the chances for sales success increase dramatically and ensure the focus needed at the individual level to get the right things sold to the right customers.
A good sales rep plan can be built if you keep these things in mind.
Base it on business goals, not whim – the company sales plan must be clear on what needs to be achieved. That puts the onus on you to have done your homework and developed an annual strategic plan for marketing that includes sales and gross profit goals and strategies for increasing sales to current customers and developing new ones. If management doesn’t know what it wants from its sales team, how can the sales reps know what is expected of them? How can you measure their effectiveness? How reasonable is it to complain of their ineffectiveness?
Include strategies to guide action – too often sales reps are given no more direction than to “Get out there and increase sales by x%”. If management ‘planning’ is at the level of just tacking on an x% increase in sales volume in the budget without having developed the strategies for achieving it, that doesn’t provide any direction for sales reps. In this situation reps are likely to fall short of their goal even though the budgeted increases may be realistic. Their sales plan will start with some strategic objectives but must then detail the activities expected of them that will allow them to achieve these objectives.
Each rep needs their own plan covering which customers they are to contact, when, how often, and so on.
In B2B you also need to decide on the person they will need to contact/persuade. Is this the Chief Executive, a Managing Director or a head of department? And will you need to talk to somebody else first before you get to this person?
If the rep is in a territory making calls it is often helpful to create a routing plan that directs him through the territory on specific days and weeks to make the most effective use of time and minimise backtracking. Planning this aspect can help significantly in getting reps out of the office and into the field.
Other things that could be set into their plan to be accomplished in a given period (such as each week or month) are number of client phone calls to make, number of contacts, appointments set, appointments conducted and value of sales to close.
Monitor results – since the plan has covered the goals and strategies down to task level, such as which customers or prospect groups are going to be approached, how frequently and so on, then each activity and the resulting sales can be monitored and checked to see if they are reaching the plan.
Don’t make recording activities a burden to the rep but recognise that tracking a few key performance indicators is essential to keeping your company sales plan on track and will form the basis of your assessment of a reps performance. Reviewing can take place on a monthly basis. Sales management excellence involves reviewing the results against the plan to determine missed opportunities and areas for improvement.
A genuine sales effort requires regular planning, tracking, and review to achieve the targeted results. Every sales rep requires their own action plan to direct their day-to-day activities and set up their accountabilities. An individual plan will force a rep to become more disciplined in his or her approach to selling and provide better opportunity for successful selling. SOURCE NOTE: RAN One
Add Benefits to Increase Sales
/in Sales /by Wayne MoloneyWhen someone makes a purchase they buy more than just a product or service. At the time the product or service is probably the most important element, but they also buy a range of benefits that can over the long-term become their reason for being satisfied or dissatisfied with their purchase and with your business.
These are called ‘added’ benefits because you add them to the products or services that you sell. They can make a big difference in how customers see your business and be an important differentiator between you and your competitors.
Make a list of the added benefits you provide. These can include:
A product guarantee or warranty that reassures customers
The service given by the sales team during a purchase
The availability of your backup service – 24 hours, 7 days?
The speed with which your company fills customers’ orders
The follow-up from your business after the purchase
How your location suits customers – is it convenient?
Their perceptions of your business – stable, efficient, friendly?
The quality of your product offerings – all your products and services
Manufacturing locally – appeals to their sense of patriotism
Your premises – attractive, clean, bright?
Some added benefits cost you nothing or very little. The way your sales team treats customers is a function of staff selection and training, and that doesn’t add much to your total wages costs. Others, such as the condition of your premises can be as costly as you want to make them.
It’s up to you as the manager to determine how far you’re willing to go to deliver the best package of added benefits with everything you sell.
Once you’ve listed your own added benefits, list the added benefits provided by your competitors. If they’re more successful than you at selling the same or very similar products the reasons could well be their added benefits package.
Conduct some simple research using groups of your own customers, and those of your biggest competitors if possible. Let customers tell you how they value the benefits you add, and how your benefits compare with your competitors’. Ask them for their suggestions as to what additional benefits you could provide to increase your sales.
Incorporate their comments with your own perceptions and analyze every added benefit that you and your competitors provide. Note why these benefits are attractive to customers and whether each is expensive or inexpensive to provide.
Are there some that are impossible for you to match (for example, location)? Which are you now providing but capable of improving? Which are you not now providing but could provide with minimal additional expenses?
Remember, you’re trying to put together the best package of benefits and probably won’t be able to match the competition in every category.
Now be creative and devise some new added benefits that aren’t on your lists. These can be time-related – offer a free inspection or service in twelve months, financial benefits – a guaranteed trade-in value on the old one when repurchasing, or an add-on such as ‘spend $30 more and get $100 worth of genuine accessories’. Add some benefits nobody else is offering and stand out from the competition.
Once you’ve worked out the full contents of your added benefits package you have to find a way to communicate them to your existing and potential customers. Start by educating every member of your team – not just salespeople but everyone in your business. Give each person a list of your added benefits so anyone receiving an enquiry is familiar with all of them.
Summarize these benefits for customers. You could put them into your monthly invoices, display them on the walls of your office, use them in your advertisements, or include them on the calendars you give away at Christmas. Just be sure your customers know what else comes with every purchase they make.
By putting together a really attractive package of added benefits and making sure everybody knows about them you’ll be able to increase sales at the expense of your competitors.
Too small for a Business Plan?
/in Business Strategy /by Wayne MoloneyEvery bit of evidence indicates that for a business to thrive and grow, and to ensure that it is protected from uncertainty, it does need a plan; the plan shows that one has thought about the opportunities and threats, about the objectives and the targets, and that there is a system in place for measuring progress so that in the event that there is deviation one is able to take immediate corrective action.
Unfortunately, I hear all too often “we are too small to need a plan” or “we don’t have the time to spend on that sort of thing”. These are the words uttered by companies that later find themselves in deep financial difficulties because they failed to anticipate what could happen. I have worked with a number of such companies now, and unless one has a stockpile of cash and a very understanding bank, or an alternative source of funds like re-mortgaging the house, the line between survival and failure can be very thin.
Consider this. Is it better to invest your time in stabilising the business and growing the profitability, confident that you have the contingency plans in place to deal with most eventualities, or in fire-fighting and dealing with the issues as they arise, uncomfortable in the knowledge that one is waiting for the next crisis to happen?
The Business plan has three primary functions:
Action Plan. A business plan will help you to pull apart the pieces of the business and examine each piece by itself. So instead of one large problem, you have a sequence of smaller problems. And by solving the small problems, the large problem is automatically solved. So writing a business plan can help to move you to action by breaking down a seemingly insurmountable task like growing the business into many smaller, less intimidating tasks.
Road Map. With an existing company the business plan is an invaluable tool to help keep you on track and moving in the direction you want to go. In the hurley-burley of daily business, it is very easy to lose sight of your objectives and goals — a business plan can help to keep you focused. A business plan can also serve to help others to understand your vision, including suppliers, customers, employees, friends, and family.
Sales Tool. Perhaps most importantly, a business plan can serve as a sales tool. The business plan indicates how much cash will be needed to fund future operations, it also provides the framework for the “what-if” analyses; what would happen if you were able to increase revenues by 25%, what would happen if you lost that major customer, what would happen if you were able to cut costs by 3%.
Included in the business plan are the Sales and Finance Plans. These document need not be exhaustive, but they do provide a valuable excuse to think about the future, and to spend time working ON the business rather than working IN the business. We all want our businesses to be working for us, and not as most commonly happens, for us to be working for the business.
Business Roadmap have years of experience in developing businesses and can help you develop a practical business plan that will be your roadmap to success.
8 Ways To Rejuvenate Your Business
/in Business Strategy /by Wayne Moloney1. Write (or revisit) your business plan. You may already have a business plan in place, but with the uncertain economy it’s a good idea to revisit your goals and objectives for the next six months, the next year, the next five years. Make your business plan a living document and update it at least quarterly, or even better, every month. It will help you stay on track and more easily adapt to changes in customer demand.
2. Be known as an expert. You know you are an expert, but if you write, speak, and network like one people will automatically associate you with your niche. You’ll make a much greater impression as the speaker at an event than simply shaking hands and handing out business cards. And you can further build expert status by writing articles for publication, having your own newsletter, or starting a blog.
3. Define your niche. Many people feel that being more general about what they offer makes them more marketable. Often the opposite is true. Most people want to work with a specialist, and one of the best ways to stand out in a crowded market is to be very specific about what you do and whom you do it for.
4. Become (or hire) a marketing expert. At core marketing means building relationships, being able to speak clearly about the benefits of your offerings, and having conversations with people who might need your products or services. Search the Web for tips, use Pinpoint to find expert help, and talk to other professionals about the marketing efforts that work best for them.
5. Follow-up with new contacts, maintain connections with current ones. You’ve likely collected numerous business cards, but what have you really done with them? Following up is critical to business success. Consider these ways to keep your company in the front of people’s minds:
– Send individual e-mails recalling specifics of your conversation with an invitation to visit your Web site.
– Invite contacts to periodic open houses to see what you do firsthand.
– Distribute a newsletter or blog that builds your reputation as an expert.
– Promote special offers to pique contact interest in what you offer.
6. Provide information in addition to your offerings. Build customer trust by providing clear, succinct information about your products and services, with emphasis on the benefits to customers and your expertise in meeting their needs. Providing helpful tips on your Web site where appropriate establishes your credibility and helps customers see how what you do can provide value to them.
7. Keep prices competitive, offer incentives. Everyone is looking for a deal these days. Whether it’s reducing your prices, offering something free as incentive on your Web site, or providing additional services to customers when they contact you, doing something above just selling your product or service can give you an edge on your competitors.
8. Promote results and benefits, not processes. Most people don’t care how you help them reach their goals, as long as you do it with integrity, efficiency, and within their budget. Instead of talking about how you work, be clear about your expertise and the changes people can expect from working with you. Get into the habit of asking clients for testimonials and referrals and consider writing (or hiring someone to write) case studies on successful engagements you’ve had. The most effective promotion comes from satisfied customers.
Entrenpreneurs – Take Care When Starting a Business
/in Business Strategy /by Wayne MoloneyEntrepreneurs are usually so anxious to get their enterprises going that they don’t pay enough attention to planning for the long term future of their operations. This is why so many entrepreneurial businesses work satisfactorily for the first year or so but often need a complete re-think just to keep the business going after that.
Who’s the boss?
Take a 50-50 partnership as an example. The two partners are fired up with enthusiasm and both have lots to do when they launch the business. The weakness in this structure only becomes apparent with the passage of time when the flaws begins to cause problems:
One partner works much harder than the other
One partner is a much better manager than the other
The team is confused over who makes the decisions
One partner is away and a crisis arises
The partners argue and can’t reach a consensus
Every business needs a chief, a head, a CEO. This person needs to be agreed upon from the beginning and should be the one best qualified by experience, training or ability for the position. An ‘equal partnership’ is an invitation to entrepreneurial disaster, if not at the beginning of a business then at some critical moment down the track.
The one big customer
Many entrepreneurial businesses have their origins in a previous vendor/customer relationship. Bob has been selling a company’s line of cosmetics to Alan’s department store for five years when one day Alan asks: “Bob, if I gave you a three year contract could you source these products for me for twenty percent less?”
Bob seizes the opportunity and once he’s organized his sources he resigns from his employer of the past five years and sets out on his own. His future is assured. He has his own business and a customer that will keep him going for at least the next three years. Where can he go wrong?
Being dependent on just one or two big customers can be a big mistake. Unless it can acquire more customers and use them as the basis for growth before the foundation customer’s contracts expire Bob’s business is heading for a crisis from day one.
The original customer or customers can be affected by a decline in business conditions, by the departure of the entrepreneur’s key contacts, or by a better offer from somewhere else. And when they go, if Bob hasn’t built up his customer base Bob’s business will go too.
The lowest-price model
Entrepreneurs are always on the lookout for a bargain, and they know that offering the lowest prices is a good way to get the attention of consumers. What better way to get a new business off the mark quickly than to offer ‘the lowest prices in town’ or ‘we’ll beat anybody else by 10%’. Unfortunately, it’s also a way to go out of business quickly.
A business needs cash flow to grow and inadequate margins will invariably lead to cash flow starvation. Just a few unexpected expenses can empty the bank account and bring the whole enterprise to a grinding halt.
Price sensibly and base your business model on being able to charge enough to pay your expenses, generate a profit, and even build up a cash reserve. Being an entrepreneur isn’t about low prices; it’s really about having something so good that people will pay you for it.
And speaking of money
Cash flow problems aren’t limited to entrepreneurs, of course. But since most entrepreneurial enterprises are also small businesses they can easily rush into opening their doors without enough capital to fund their operations past the first couple of months.
Start-up capital has to be sufficient to see the business through its first year even if the sales and cash flow forecasts seem to indicate the money will come flooding into the cash registers from the first day of trading. Entrepreneurs tend to be optimistic about such things, but once a business runs out of capital it runs out of business too.
During the planning stages have the draft business plan reviewed carefully and impartially by someone who knows about businesses and has a realistic perspective on both the fledgling enterprise and the marketplace. Be absolutely certain that its operations will generate sufficient cash flow to meet projected expenses.
There’s one way to get a picture of just how disastrous an overoptimistic business plan can be. Take the projected financial results for the first year, then double the expenses. Do it again but this time halve the income. Since the original figures for expenses were probably too low, and the income estimates were probably too high, this isn’t an entirely impossible situation.
The market and the players in it
Entrepreneurial zeal often leads those planning a new entry into thinking that there’s got to be room for them somewhere, when they’re really about to enter a market that already has sufficient players to satisfy demand.
Study the market carefully before entering it as a player. Entering a market that’s already oversupplied means only one thing; somebody’s going to go out of business and that’s usually the newest entry. Even a market that apparently has openings may be saturated in certain strata – how many value players are there? How many boutique operators and how many discounters?
This is a familiar trap for tradespeople going out on their own. Only so many houses or swimming pools are going to be built in a community in any given year. New entries into these categories face a serious struggle for survival as any customers they attract will have to be taken from established competitors, usually on the basis of lower pricing.
The same dangers apply to the ‘instant growth industries’ – often franchises or semi-franchised operations, that spring up each year and have their day in the sun, only to fade quickly and disappear forever like 8-track stereos. By the time a trend has achieved high visibility it’s usually past its peak, and that means little or no room for late entries.
Real entrepreneurs are phoenixes
When entrepreneurs make mistakes they’re often big ones, but they at least have the benefit of happening quickly. Entrepreneurs don’t hang on long to businesses that aren’t working; they cut their losses and turn their entrepreneurial eyes in other directions.
They also have the ability to learn from their mistakes. If they didn’t plan well enough the first time they’ll do a better job of planning the future of their next business. By avoiding the ‘big five’ mistakes outlined above, entrepreneurial businesses will have a much greater chance of survival and even success.
Analysing Your Industry
/in Marketing /by Wayne MoloneyIndustry trends can change quickly and require intensive and ongoing analysis to determine just what’s happening.
For instance, a sudden drop in an industry’s sales commission rates combined with a reduction in minimum order size and a big increase in outstanding debtors would indicate a shift of power to consumers and a consequent weakening in prices.
All very important if you are in that industry and trying to work out your new price list or produce a catalogue of merchandise for the next season.
Trend analysis is conducted on many levels – global, national and local. In today’s business world you need to have an understanding of all three types of trends to position your business for greatest advantage.
It’s beyond the ability of most SMEs to conduct their own research for a comprehensive analysis of their industry. Fortunately there are many sources of statistics and data on most industries that are available to tap for the information you need.
This article is a brief introduction to the methodologies of DIY industry trend analysis.
Define your industry
Start by defining your industry in as much detail as possible. For example, builder is far too broad. Something like ‘Specialist builder of architect designed first floor additions’ is more like it. Now the research can begin.
Trade Journals
Every industry has its own trade publications. These can be produced by industry associations or by publishers targeting members of a particular industry. If you happen to be a ‘Specialist builder of architect designed first floor additions’ you really need to know about more than just building firms; trends in alterations and additions will also be essential to know.
This type of publication is often very restricted in its geographic coverage. There could well be a separate publication for each state or region, and it’s a good idea to get as many different journals as you can to obtain the widest possible picture. Your local library will often be a good place to start searching for a list of available titles.
Even the advertisements in a trade journal can be a good guide to an industry’s trends. “New” or “Just Released” can indicate a hot new product or service that will have an industry-wide impact in the near future.
Editorials and other ‘comment’ types of content are also likely to give indications of major trends that are just now or will soon be affecting an industry.
The Financial World
People who invest large sums of money in the financial markets are very big on monitoring industry trends. Analysts pore over data on every industry segment to see what’s successful and what’s on the decline, often to a very high degree of detail.
Much of this information is available free or at very low cost in business journals and financial newspapers and is a good source of knowledge about national and international trends.
If you’re an active investor and have a stockbroker you can always go to them for industry advice; they have access to analytical reports that often don’t go into print.
The Internet
Log on to the internet and go to your favorite search engine. Key in the name of your industry and wait for thousands of websites to show up. You’ll soon find that too much information is the problem.
This is why you have to refine the definition of your industry and get down to specifics. Google’s ‘Advanced Search’ lets you stipulate additional words or terms to search for as well as those words you want to leave out of the search.
In our example of a hypothetical building firm, a search for ‘builders’, and ‘first floor additions’ would narrow it down tremendously.
Be sure you only visit sites with information that’s up-to-date. Too many older documents are still alive long past the time they became irrelevant. If a date isn’t there don’t accept it as being current information. Also, be careful to note the national origin of each bit of information you gather.
Your Report
The next step is to summarise the information you’ve found in dot points. Treat this as if you are writing a report for someone else and stay objective, even if you may initially disagree with what you’ve found.
Put all the facts down, noting the source and the date for later reference. Look for the trends to show themselves – lines of thought that converge in such areas as growth or contraction, rises or falls, stability or uncertainty and patterns will begin to emerge.
These patterns are your industry’s trends, culled from a range of sources and opinions. No doubt you’ll find some contradictions between individual sources but that’s to be expected. Extremes are unlikely and so is it for any industry to go from one year to the next unchanged.
How you use this information is up to you. A trend is only a direction and trends can reverse as quickly as they begin. But if you try to plan the future of your business without knowing your industry’s trends you’re likely to later find yourself wondering why your competitors seemed to know what was coming and you didn’t.
Danger Lurks In Your Inventory
/in Process Improvement /by Wayne MoloneyInventories are usually made up of many types of stock. There are fast-moving and slow-moving products. There are products with a high profit margin and products with low profit margins. Some products are in demand and other products past their peak. To simply look at an inventory as having a single ‘value’ can be very misleading.
At the bottom end of the inventory process is a warehouse full of dead items past their prime and can’t be sold for anything like their cost of acquisition. It’s truly amazing how much of this ‘dead’ stock is retained on the books at cost price and lingers in the warehouses of so many companies, adding to the value of their inventories but doing nothing for their sales.
An inventory is a dangerous thing. If it’s not properly managed it becomes the equivalent of money that’s depreciating at an increasing rate and can actually drop below zero value. Be aware of the danger and don’t let this situation develop.
How important is inventory as an asset? It’s probably the largest asset of most SMEs, but it’s by no means the most valuable asset in the business. The most important assets are those that turn the inventory into cash – the sales team, the marketing and the business’ customer relationships. That’s what keeps the business ticking over, not just a bloated inventory waiting to be sold.
Some businesses manage to trade quite profitably without an inventory of their own. ‘Just in time’ manufacturing processes created a whole new outlook on parts inventories that made maintaining huge stockpiles of components obsolete and saved manufacturers a lot of money. This line of thinking can be successfully applied to just about every inventory situation.
This taught businesses the importance of accurate sales forecasting – knowing what the demand for a product would be and when it would arise. Orders for components could be placed according to the projected demand and the need to retain year round inventories was eliminated.
Most proprietors at least know their sales volumes and would no doubt like to retain them. The catch is how can they do this and at the same time operate with a reduced inventory? If every item in the inventory turned over at the same rate this might be a problem, but a careful analysis of what’s in any inventory will find some fast movers as well as some items that have a much slower path to customers.
Go through the inventory in detail. Look at the age of what’s in stock as well as how quickly each item turns over and the search will soon find some real opportunities to cut down on the number of items there. It’s also possible to discover some items in the inventory that haven’t moved for so long they’re virtually obsolete. So it’s not just the total value of an inventory that’s important; it’s what it consists of bit-by-bit.
Now look at the profit margins the business earns on each item in the inventory. Relate this to the turnover rate for each item and some surprising facts will emerge. Finding items that turn over slowly and generate low profit margins should ring a huge alarm bell that perhaps these products can be either dropped from the range or sourced from suppliers ‘on demand’.
Inventory on its own doesn’t sell itself. Certainly a business wants to be able to provide its customers with fast-moving, high margin items with the least possible delay, and that’s where the focus should be. In most SMEs the ‘80/20’ law applies to the products they sell – 80% of the turnover comes from 20% of the products. It makes sense to have those 20% of products dominate your inventory and find alternative ways to handle the less-important 80%.
If an organization’s inventory is made up mostly of those ‘80%’ products it’s time to do some housecleaning. All they’re doing is depreciating from year to year and that capital could be better employed in selling more of the 20% products. Even if items in the old inventory will someday be moved, wouldn’t it be better to let someone else have the joy of buying and stocking them? Liquidate them and free up the capital for more productive uses. They can always be repurchased when and if required.
Always remember that an inventory represents cash just sitting there. It’s not cash in the bank; it’s cash that’s been invested and on which needs to generate a return. Everything in an organization’s inventory has a cost attached to it – just acquiring and warehousing it can be expensive, and the longer it’s unsold the higher the costs become.
Improving Productivity Starts with Improving Management
/in Human Resources /by Wayne MoloneyAlthough being a few years old, the 2007 report covered businesses in the U.S., Australia and Europe and from my recent experience the finding still hold true. It reports a disturbing average of 18% of working time wasted among the surveyed businesses. The U.S. came in as most efficient with ‘only’ 14.1% of working hours wasted while Australia topped the charts at 19.4% wasted.
Analysis of contributory causes revealed that more than three-quarters of inefficient working in 2006 could be attributed to just three causes:
Inadequate workforce supervision (31% of all wasted time)
Poor management planning and control of work (30%)
Poor communication (18%)
The remainder of wasted time recorded was the result of IT problems, low morale and a skills absence or mismatch.
When managers were asked to select from a range of actions they considered could increase workplace productivity the top 2 they chose were investment in workforce skills and investment in management skills. But this may be putting the cart before the horse.
The interesting thing is that all three major contributors to time waste are directly referable to internal management practices. Wasted time may be up, but as the report recognises, the root cause for that is inadequate management supervision, disjointed planning of production processes and inadequate communication of the information employees need to work at their most productive level.
Managers can’t dodge their share of responsibility for the amount of time wasted each year by under-producing employees. When it comes to improving productivity the first area to attend to should be reforming poor management practices and getting managers up to speed in some basic skills.
Workforce Supervision
How to supervise a group of people effectively is a basic HR skill for anybody in a position of leadership or management. Managers should have at least some training in critical HR areas such as employment law, selecting people with the right workforce skills, setting compensation packages, training and developing employees and carrying out performance reviews. These HR skills underpin your ability to get the best out of your employees and improve organisational performance.
Management Planning
The ability to work to a business plan that sets out the broad goals to be achieved in a given period of time, organise all the inputs required to achieve the goals, coordinate the activities and monitor progress towards them are all essential managerial skills necessary to achieve business growth, yet the ability of many managers in these areas is problematic.
Inefficient practices are rarely improved by simply automating them. Introducing technology before optimising the process it is intended to improve merely results in automated inefficiency. But how many managers take the time to analyse just how efficiently their key processes, such as supply chain operations, are working? How many take the effort to develop procedure manuals to ensure employees do things in a consistent and approved manner?
Communication
Managers often have issues with formulating and delivering clear verbal instruction. This can be addressed to a large degree by having the right support resources in place: a clear organisational structure; well defined job descriptions to avoid confusion about responsibilities; policies and procedures manuals to provide a definitive answer on the approved method of doing things; and investing time in inducting and training new employees. Implementing measures like these will reap huge long-term productivity benefits.
Employees do usually try to achieve what they think the job requires of them. To get them achieving the right things you need to be very clear in the instruction you provide, whether that be at the level of explaining how to perform a process or what goals the business is trying to achieve and their role in contributing to their attainment.
Poor productivity can be the result of just plain time wasting by employees but more likely it’s the result of poor planning, inefficient practices and an inability to clearly communicate what needs doing. Whether through coaching, talking to a business advisor or putting themselves through one of the many SME management short courses on offer, a manager has a responsibility to make themselves the best they can be before laying problems of poor productivity at the feet of their employees. At Business Roadmap we can help you determine the skills training required by you or your managers and either directly or through our partners, deliver suitable courses.
Common Mistakes in Marketing – Here’s 8 to Consider
/in Marketing /by Wayne MoloneyMistake 1 – Cutting back on marketing expenditures when revenues drop
Marketing expenses are always the easiest to cut back in a hurry. However, reduced levels of advertising and promotions inevitably mean further reductions to income levels, so before cutting back in a hurry think about the consequences.
When revenues drop it should stimulate any business owner to make a careful examination of all expenditures, including marketing, but don’t allow it to trigger off a complete halt in marketing spending. That’s a guarantee that things will only get worse.
Mistake 2 – Failing to do ongoing analysis of marketing results
If you’re spending money on marketing but don’t know which elements are working and which aren’t you’re probably wasting both money and opportunities.
Research, even on a modest scale, can tell you where your dollars work hardest and where they just aren’t working. Use this information to redirect your marketing budget so that you’re confident adequate support is being given to profit-generating sectors and funds aren’t being wasted elsewhere.
Mistake 3 – Having all your eggs in one basket
It’s called the ‘marketing mix’ for good reason. All marketing is best done with a mixture of components. If all your marketing funds go into just one channel – say sponsoring local sports teams, you’re missing out on returns you’d get from other channels.
Try for a balanced effort that doesn’t place too great a percentage of your marketing funds into just one area. Leave some of your marketing budget as a reserve for opportunities that arise during the year so you’re able to capitalize on them without overextending.
Mistake 4 – Being a D-I-Y marketing expert
Unless you’re incredibly gifted and have heaps of time to do everything you should use the services of marketing professionals to prepare your advertisements and other corporate material.
The same goes for your marketing strategy. Things change all the time in marketing and having a professional take a look at what you’re doing will give you a new and probably very useful perspective.
Mistake 5 – Going on ‘gut feel’
You might think your marketing campaign is the best in the world. You might be convinced your products, pricing and promotion are all perfect and couldn’t be bettered. And, you might be right, but how do you really know?
Basing your marketing on research, having professional assistance in creating your campaign, and monitoring results with ways to measure outcomes are the only way you can be sure you have a good chance of getting it all right. ‘Gut feel’ is no substitute for careful planning and evaluation.
Mistake 6 – Thinking you’ve had enough exposure
It’s easy for business owners to think their marketing communications have had enough exposure and decide to end a campaign, even a successful one.
Just be aware that the rest of the world doesn’t see as much of your marketing activities as you do, and it’s wise to keep using the same marketing tools until your research shows that response has dropped significantly
Mistake 7 – Doing what the competition’s doing
It’s smart to keep an eye on what your competitors are up to, but it can be fatal to see them succeed in something and blindly follow suit with your own firm.
For example, if a competitor decides to specialize in a certain area and it seems they’re doing well out of it you might want to redirect some of your own resources into the same field. Or perhaps they decide to cut their hourly rates for new clients and you feel you should do the same. The risks are simply too great.
People aren’t after a ‘me-too’ source of professional work. They want to enjoy developed expertise delivered with outstanding service. They want value – not cheaper rates.
Mistake 8 – Chasing new business at the expense of your client base
Your current and former clients represent your greatest source of income relative to expenditures. It takes five times as much effort to acquire a new client than it does to retain and existing one.
Spend some time developing a good CRM (Customer Relationship Management) procedure for your firm and always give existing clients priority. After all, if you went to a potential supplier and were told: “Sure, I can get it for you today. My other customers will just have to wait”, would you be impressed?
4 Ds That Can Destroy Your Business
/in Business Strategy /by Wayne MoloneyHeart attack, car accident, illness, a resignation, family dispute. Most of these are unanticipated, but by no means unusual or uncommon events, fall under ‘The 4Ds’ – Death, Divorce, Disability or Departure. The occurrence of any one of them can instantly throw a business into disarray.
Unpleasant though they are to consider, when one of them befalls the owner of a business that doesn’t have a plan in place for dealing with the fallout, then the result can be more than unpleasant – it can be catastrophic. Disorganisation, loss of business opportunities, loss of customer or market share and a decrease in employee morale and productivity are the least of the repercussions.
Family or partner discord, heirs left unprovided for and the demise of the business are real possibilities as well.
When Kenneth Wilson, the owner of Wilson Products Inc. died unexpectedly his three daughters found themselves in charge of his US$12 million aircraft parts business. While all three had grown up around the company they had never been trained to take on the management of the business and no other arrangements to cover a hiatus in personal management by their father had been arranged either. The business was completely vulnerable and, with the aerospace industry also going through rapid change, the business floundered. By 2005 it had to file for bankruptcy. With US$20 million in orders on the books for work through to 2010, the Wilson’s couldn’t find a buyer, and the company’s assets were auctioned.
Where management knowledge about how the business works is restricted to one person the death of that person leaves the business rudderless. Continuity of management can be maintained only if there has been a long term plan for training up family into their eventual managerial responsibilities or using a board of advisors that has had a long term association with the business and can steer it until more permanent arrangements are made.
Death can leave heirs financially unprotected. Will business partners pay the owner’s heirs the value of their interest in the business? Maybe. But not in the case of Terri Gettman. When her father died without any written plan outlining what was to happen to his minority stake in a paper making machinery manufacturing business, it was an opportunity for the other partners to cut the family out of the business without due recompense.
Rarely do you see divorce listed as a cause of business bankruptcy, but with nearly half of all marriages ending in divorce, in circumstances that frequently turn ugly, subsequent litigation has destroyed many privately held businesses. In the absence of any type of divorce planning, such as a buy-sell agreement, all assets may be legally required to be divided 50-50. To come up with the cash to pay their divorce settlement owners have had to sell their business. That may not be the worst part of the story. In a court enforced sale the owner may have to accept a discount price. In one case, with offers from two potential buyers to choose between, the owner was forced to accept the lower bid because it was for cash on the spot. The judge agreed with his ex-wife and her lawyer, who argued that it wasn’t fair for her to have to accept whatever financial risk might be attached to the higher bid because, unfortunately, it had provisions for an extended payout.
Disability and departure are equally problematic for the survival of a business that hasn’t developed a contingency plan to handle them. Partners can decide to leave for a number of reasons. They may decide to leave for another opportunity or simply to take life easier. But the same issues remain. Who is going to do the work? What is owed the leaving partner? Where is the money coming from? Both disability and departure can bring huge financial and emotional pressures in their train.
Planning for the 4Ds
Emotionally charged as it may be to contemplate the 4Ds, planning for them should be an integral part of overall business and personal financial planning for business owners.
The last thing you want to happen is to be forced to sell your business in a hurry because of unforeseen circumstances or to leave the business in a dire position when you die. Failing to consider unpleasant circumstances or to plan for dealing with their consequences is a sure way to put the future of the business and the welfare of the family stakeholders at risk. An estate plan, a buy-sell agreement, a succession plan, a pre-nuptial agreement can each feed into an overall transition plan that protects the business and its dependents in the eventuality of one of the 4Ds occurring to the owner.
The key to avoiding difficult situations arising from the 4Ds is to start succession planning as early as possible, revisiting the plans on a regular basis and dealing with ownership and management issues separately.