Starting the year by putting your business in good shape

080120102253No gym required (though this post might provide food for thought as you pound that treadmill) instead some wise words from the mandarins (sorry still on the Christmas puns).

How can you keep your profit high in a tough market whilst improving customer service and managing your cost base? Well there’s a sentence full of business jargon, lets illustrate that in terms that make more sense for a small business….

The tendency in a tough climate is for new projects from clients to get delayed whilst you still have to keep spending the same amount of money on staff and overheads. That’s not great for cashflow or profit but there are a number of things you can do to help the company through it:

  • review the processes by which you manage the business
  • review your client base and the things they buy from you … what trends can you see over a 2-3 year period? has there been a radical shift in the recessionary climate (ie what was true in terms of customer behaviour in boom years may well not be true in lean times)
  • have a look at the market and your pipeline and work out whether you need to set up new products & services and perhaps stop some of the old ones … or even consider a more radical reinvention of the business
  • learn from sectors who’ve adopted what are called ‘lean manufacturing principles’ … kinda like ‘just in time’ production (works for services as well as product based businesses).

Why think about this now?

Well quite apart from it being a good idea to review the business annually, ideally in one of your quieter patches in the year it’s also a sensible idea to set some goals for the year ahead and review the mechanisms by which you’ll achieve them. In a tough climate the rules may well be different so you shouldn’t assume that the things that used to work for the past few years will still hold true. For example do you?

  • meet regularly as a team e.g. weekly teleconferences or meetings either for the company as a whole or by team or project … in these meetings you should be reporting on progress of main business activities, any delays or overachievements vs. forecast & deadlines
  • track the orders you receive, projects you pitch for (and who wins them if you don’t) and the accuracy with which you meet delivery deadlines and customer satisfaction?
  • have mechanisms for maintaining quality of output?
  • manage expenditures against a budget (or do you just spend money as projects or areas of the business demand it) ie are you proactive or reactive when it comes to managing costs?
  • have a mechanism for charging project costs to your client as appropriate?
  • have a process for reviewing outstanding invoices and chasing for payment as required

Looking at the way you do things:

  • look at which of your products and services sell best and look for common factors in these – are they new products or well respected older ones. What do customers value – quality, speed, price etc? Now look at the cost of these key products and work out the profitability of each one … there’s no point selling large quantities of things that take lots of energy but don’t make enough profit, that’s just running to stand still
  • mapping out the way you make products & services and the other processes you employ for running your business is one way to visualise the way you do things. It also helps you spot ways to do things more efficiently … there may be processes you can combine or key components that you could use in more products or services
  • once you’ve looked internally look externally … who are the leaders in your sector and how do they do things? What can you learn from them?

Review can lead to reinvention … this is a good thing … don’t get sentimental about the way you do things but do retain the things that make you unique (and that customers value!).

That said you don’t want to squeeze all the ideosyncrasies out of your company … you’ll reduce the chances of serendipity leading you into new places. Our favourite antidote to excess efficiency is The Salaried Masses – it’ll remind you why you like being an entrepreneur rather than an employee and with luck will stop you boring your workforce!

Finally, one more thing. Don’t cut your marketing budget … it’s often one of the first victims of cost cutting exercises but it only works in the short term. If you’re not marketing your goods you’ll struggle to acquire new clients or even to remind existing clients of why they prefer you to the competition. Those who invest in marketing in a tough climate tend to emerge ahead of those who don’t when the market picks up … there are lots of studies that prove this!

2 thoughts on “Starting the year by putting your business in good shape

  1. Nice timely post! – the key thing for any business – is listen to your customers and watch the market! – checking out processes like Lean will help – but really it’s all about adding value to your client/customer. What the financial crisis showed us in 2009 is that when times are tough customers get choosy! – they want to maximize their returns from their outlay! A key thing in this is checking out your competition! – what are they up to – what marketing activities are they doing – how are they getting market share (better processes, new/diverse products etc).

  2. Pingback: Plan your finances in 2011 | MyCake financial management

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