If you look at Australia’s Top 10 companies you’ll see four banks, two miners, one insurer, one Telco, one supermarket and a hardware chain. Their products aren’t at all glamorous. Australia’s Rich list is the same story – miners, paper recycling, transport logistics and shopping centre landlords. People think that big corporations win because they’re big or that entrepreneurs are crazy. That thinking ignores what it is that they do really well – the methods of their business operations. So here is the list of that madness and why ignoring these fundamental business regimes could be costing you money.
1. A reason for being in business
“I want to be the boss” – OR “Nobody else is doing it.” I always flinch when I hear either of these. It’s very difficult to be a good boss. Besides if you have no staff who are you bossing? Also there might a good reason why no one else is doing it – there isn’t a market or you haven’t met them yet? Small business owners typically work far harder and for less pay than employees in the start-up phase (which can last for years.) You give up things like holidays, sick leave as well as that steady pay cheque. Do you feel passionate enough to weather the bad times and long hours? A friend of mine, planned it would take 7 years to launch his business. It took 11 years. When you ask him why he didn’t stop he’ll tell you “I had invested too much”. Do you think you can keep up that level of commitment for your business? While no-one plans to fail – do you know your financial, mental and physical limits? Will you be strong enough to call it when your limits are reached?
2. Do you have your business statement written down in 1 sentence? An operating plan extending 2 years? Do you review both at least every 12 months?
Being a business owner is exciting and tremendously rewarding but it is all encompassing and you’ll need to have an idea of where you might land, how you’re tracking against the plan and what adjustments you need to make along the way. After all when you board a plane you don’t expect the pilot to say ‘Let’s take this thing up and see what happens!” Take for example the business statement- “to own a beautiful art gallery showcasing the local artists…” After two years, the owner was wondering why they weren’t more financial and why sales were slow. His gallery was beautiful; its artwork was locally made and outstanding in form. What the owner had failed to realise was his own success, that his business vision / reason / mission statement (whatever you call it) had become redundant. Arguably, it was never the right one as the owner wanted financial success but there are no words about finance or even success in it. When was the last time you really reviewed your business statement? Does it match want you want? Have you outgrown your business reason? In the art gallery example ‘showcasing local artists’ limited his stock choice to the local community but why would they buy their own artwork? The owner had no plans for a website yet he is in regional Australia. So how was the world going to know the gallery existed and how it match his desire to be international? An hour’s worth of tweaking produced a new stronger business reason. “To be an internationally successful art gallery recognised for its outstanding artwork and support of local artists.” Does your business statement limit your operating plans? Do your operating plans match your statement?
3. Do you track your business daily, weekly and monthly?
Many owners measure their business – some probably to excess although, many have not identified the right measures and most don’t distinguish between lag and lead indicators. Number of sales is the universal measure used in business. It is a lag indicator as you can only measure it after the fact. Typical lead indicators for sales would be number of enquiries, number of appointments and number of consultations. To get the lead indicators for your business you need to know the outcomes that lead to the next step to the final result you’re tracking and how many of each outcome it takes to get to the next step in the chain. Having lead indicators lets you track your plans closely, where to focus energies and make adjustments. They also break down the goals into daily tasks which can be more meaningful than monthly, quarterly or yearly figures – especially for staff.
4. How different is your idea / product service? Who are your customers?
You might have been fortunate enough to have started your business with something different. However, like the 99% of businesses in the world, someone will invariably be offering similar if not the same as you. Don’t think “best in class” or ‘cheaper by 10%” – consider why that stranger would want to buy what you’re offering and why from you? Can you explain in 30 seconds to someone outside your industry or age group? How are your potential customers coping without your services? How do they get the task accomplished today? The answers to these questions are not just one time. They need to be re-visited regularly. Ideally you would do this research at the same time you revise your operating plans.
5. The Back Office – the most boring, the most neglected and the most costly part of your business.
When I’m asked “what’s a Back-Office?” I already know that the business is spending more than necessary. The Back Office is the part of your business which gets your product to your customer and their payment back to you. This will include admin assistants, telephony, printing, mailing, computers, accounting, websites, manufacturing, shipping, supplies and anything else you classify as ‘other’. Australia’s top companies / rich list endlessly work on the costs of their Back Office to make sure that every time they sell a widget it’s the most cost effective they can be – thereby increasing the ‘profitability’ of every sale. Do you really know and understand the costs of your Back Office? Here’s my basic set of questions I use to start a business improvements review.
- How are you selling it? Through third parties (retailers, wholesalers, distributors), Which third parties? Why? What is the margin structure?
- How are you producing the goods? How long will it take to get to market?
- How are you going to deliver it? Mundane things like shipping costs, regulations and distribution. How much stock do you keep on hand?
- What happens if a customer has a problem or wants to return an order? Lack of quality control is a real cost issue.
- If you have a website, when was it designed and built? How up to date is your website?
- What’s your capacity to handle orders?
- Does your price cover your Back Office? Have you included both the COGS and Expenses into your pricing? It is common for a small business not to factor the Back Office into their pricing.
- Where do you spend your time? Is this the best place for you or you on a false economy?
6. Finances.
Who does the critical review of your business’ finances? Do you only do this at tax time? June is the best time to review your finances for the start of the New Year not the current year. How often has your accountant mentioned this? If they haven’t then you may need to consider a change. When was the last time you had a good look at the various insurance policies you have or should have? When I got our insurances reviewed we found that we could reduce our life insurance premium by 40% by switching platforms. Plus, the new policy provided Income Protection meaning that we could cancel the other policy and save that premium. And your banking? How often do you meet with your banker to understand what products they have? If you use a business credit card and you don’t pay it off each month then this is a very expensive loan and you really should your financial tools. Plus have you reviewed the various packages of cards and reward plans – will any feedback $$ into your account? If you still have a fixed rate of interest – you should review it. Fixed rates are falling so there maybe cost savings in re-fixing even accounting for the break costs. Banks are now desperate for deposits – so check if you can offset your borrowings by linking a term deposit to your business overdraft. Are Invoice & Payments T&Cs strong? Do you zealously follow up your outstanding accounts? No matter what the story – it could even be good customers – if you extend credit, then as very bank knows a percentage will go delinquent – guaranteed. What can you afford to write off? If you can’t afford to write-off anything then you need to think about upfront deposits, progress payments or discounts for early payments and/or direct deposits. If you already have outstanding accounts talk to your customers and stay in contact with them because if you’re not talking with them who is? Ask them for an repayment plan to settle the rest. Don’t do more work for them until you have a settled account or if you can’t avoid working with them ask for full payment upfront – don’t forget you’re already a creditor (banker) to them. When outstanding accounts start avoiding your calls, then it’s time for you to do something – either write-it off or move to collection agents.
Get help
So there they are – the methods to madness. How they apply to your own business will depend on so many factors such as you, the environment and your product that no article could cover. However, if this story confirmed that it’s really hard for you to stay awake on these subjects then consider getting help. There are great resources online where you can get more information and services. Tips for getting the right help
- Ask any prospective expert what improvement they think is achievable? Does this figure sound feasible to you?
- Be wary if the fee is a % based on the improvements they achieve. Firstly, this may mean aggressive improvements that may not suit you. Secondly you won’t see the sustained benefits for several cycles so you will pay for the spike, or even a theoretical result, and not the long term benefit.
- If they offer an ongoing service – ask how many reviews are included in their annual fee? How far apart are the reviews done? Will you be able to send them the monthly reports and get feedback? A week in politics may be a long time but a year in business can be death.
- Ask for referees AND ring them. You need to ask the referees what business are they in, how long have they been in business, how often and how long have they used the expert. Do they recommend them? Referees often tell you things over the phone that can be a deal maker or breaker for you.
I hope this article has given you a sense of the other things that go into having a great business alongside the funky product and great marketing strategy.
The Boring Bits of Business – Resources
There are many information resources available on online for you to research and review. Don’t forget the traditional boring places – your government agencies. Your tax dollars fund these services so why not use them? The Australian Taxation Office has an excellent website with up to date information and lots of free downloads. – http://ato.gov.au/businesses/default.asp?menu=43539. Bureau of Statistics – http://www.abs.gov.au/AUSSTATS Offices of Fair Trading NSW – http://www.fairtrading.nsw.gov.au/Businesses.html QLD – http://www.fairtrading.qld.gov.au/businesses.htm VIC – http://www.consumer.vic.gov.au SA – http://www.sa.gov.au/ WA – http://www.commerce.wa.gov.au/index.htmMy quick tip: Pre-set your photocopiers and printers to do double-sided copying. This is not only green but it reduces your paper costs by nearly 50% without you spending a cent!
