Business owners understand that making profits is not easy. Making more profits is even harder. Unfortunately for the many people or business owners, the only place that profits come before work is the dictionary. However, this needn’t be discouraging because it also means that hard work can be turned into profits.
|Improving you business is all about focusing your hard work on the right areas by reviewing, revising and setting new standards. Business owners who take the time to improve key areas of business management make the difference between a stagnant business and a growing one.|
- Improving your business plan
- Better financial control
- The Break-Even Point
- Clever marketing strategies
- Good employee relations
- Staff appraisals
- Staff incentives
Most businesses know they require improvement, the hard part is finding out where. The best way to get around this problem is by benchmarking. Benchmarking involves the measuring the performance of one’s business against that of others in similar markets and entails:
- Establishing standards to help you achieve the best relationships with your customers and the best results within your business
- Observing how others attain these standards
- Applying the knowledge gained to achieve and maintain those standards
Consistently researching other businesses will give you an awareness of the best practices currently in use and how they might be applied to your firm.
A benchmark review will help you to determine how well each aspect of your business is doing, discover the areas that need improvement and develop a plan to achieve these improvements. Improvements can include:
- Less wastage and more efficient processes
- Improved understanding of customers’ needs
- More satisfied customers and improved customer retention
- Greater insight into competitors
- Greater emphasis on innovation and continuous improvement
- Better firm reputation and increased marketing power
- All of these benefits, of course, eventually trickle down to the bottom line and show up as improved profits
Below are some suggestions of key areas that can be benchmarked in order to improve business managing processes.
Customer related areas:
- Quality of product
- Accuracy of invoicing
- Timeliness of delivery
- Speed of service
- Stock levels
- Stock turnaround times
- Quantity of waste or rejects generated
- Cost of sales/ sales per employee
Benchmarking can take different forms other than comparing your company to similar businesses. Benchmarking by comparing your own business procedures against the procedures of other parts of your business is often very successful. Comparing specific procedures with those of a company from an unrelated industry has can also lead to new and creative kinds of procedures.
Improving your business plan
Attention to your business plan should not be restricted to the start-up of your business. Regularly revising your plan can help you to clarify the direction of the business and to create new objectives. A great way of improving your existing business plan is to utilise recently acquired employee’s expertise.
Take a look at your existing business plan and ask yourself whether these key elements are included and, if they are, do they require revision:
- The business description and mission statement- this should include nature of your businesses work, the customer base it is intended to serve, and above all, its ultimate goal. The principles of your company should be clear and concise.
- Management and people profiles- Readers of your plan won’t be interested in a faceless corporation. Make sure you up-date any achievements or qualifications gained by your management team. Your firm’s organisational structure may have changed and this should be included along with solid evidence of the results your employees can achieve.
- A financial portrait and strategy- projections of basic data such as a projected balance sheet, a profit and loss account and an analysis of cash flow may need to be exchanged for more recent data.
- Sales and marketing objectives- it is essential that this section of your plan is up-to-date as Expertise and past success will mean little without a current strategy for bringing your products or services to market
- An executive summary- this must include the highlights of the business plan as it is common for potential lenders to only read this section.
There are also certain aspects of your business plan you might want to cut out. For example, it is important that your plan is not over-optimistic. By researching the current market thoroughly you will be able to re-write your predicted sales realistically. Sometimes, there are risks involved if you fail to meet up to your claims.
Lastly, don’t ignore the competition. Rather, study them and anticipate their plans. In doing so, your newly up-dated plan will be one step ahead.
Better financial control
Business people will recognise the importance of financial control in sustaining and improving profitability. Sometimes, as your business matures it can be easy to lose some of the control you originally had. In other cases, businesses have not had sufficient control from the beginning. Good financial control and stability involves:
- Identifying and frequently monitoring key area of your finances
- Generating numbers quickly and accurately
- Sharing the results with any employees or others who need to know
- Interpreting the numbers correctly
- Taking appropriate and timely action based on your interpretation
To be fully in control, you need the information you interpret to be about what is happening to your company now. Sales, debtors, cash position, trade creditors and employment figures will not be useful a month late. Make sure you and any key managers are receiving weekly or even daily updates.
Comparing your projections and results is instrumental to financial control. Not only will it keep you up-to-date, but by doing so you will better understand how realistic your expectations are.
Consider how effective your business’s system of financial control is. The key to good financial control is to have an effective system for collecting data and generating accurate and timely reports tailored to your needs.
The Break-Even Point
The break-even point can help you visualise the relationship between various costs over time. It identifies the moment where you have recovered your total cost and begin making a profit, and is often displayed as a dollar amount on a graph.
There are two types of costs: fixed and variable. Fixed costs are those that do not change with time or sales and profits, such as the cost of purchasing standard machinery. Variable costs change over time and depend on sales volumes, such as purchasing materials and labour costs.
The following example explains how to calculate your break-even-point, using a hypothetical income statement that looks like this:
Cost of sold items: $60,000
Fixed expenses: $80,000
First, we’ll calculate the contribution margin, which is the percentage of sales available for use toward fixed cost and profit. In the above example, the variable costs are 50 per cent of sales so the contribution margin is 50 percent. The BE point is the fixed costs ($80,000) divided by the % of sales the variable costs represent (50%) which equals $160,000. Here, all fixed and variable costs are covered. To verify, multiply 50 percent by $160,000. The amount is the value of fixed costs or $80,000. The variable cost at this rate is $80,000 or 50% of $160,000.
Clever marketing strategies
Regardless of the industry, marketing is essential. Employing good marketing strategies can be the fastest and best way of improving your businesses overall performance.
When reviewing your sales strategies ask yourself, or your marketing department, these questions:
- Are your products/ services distinguishable from your competitor’s?
- Are you following your marketing plan? Do you have one?
- Are you getting a regular stream of new customers?
- Are customer’s complaints being responded to?
- Do you have a business website? Is it effective?
- Do you know what customers really want from your business?
- Are there any markets that are being missed?
You might also want to consider conducting a customer satisfaction survey to determine just how happy with your products your customers currently are. If you decide to do so it is best to offer an incentive and follow up on all feedback you receive.
Reviewing your customers can be just as reflective of your performance as reviewing your strategies. Look at whether:
- You are receive a disproportionate amount of complaints
- Payments from customers are late
- Gross profit is lower than for most customers
These are all signs that your customer relations may need improvement.
Good employee relations
Reducing staff turn-over can save time and improve your business significantly. In order to remain content in the workplace employees need motivation and encouragement and as a business manager it is your decisions which affect those two things. The best workplace environments are created by managers who:
- Know their staff
- Take training seriously
- Actively encourage communication
- Promote their staff from within
- Create a comfortable environment
When there are so many other pressing tasks for a business manager to deal with, these can often fall to the side. There are however, affordable and time efficient strategies for creating a better work environment, including:
One of the best ways to achieve this kind of environment is through staff appraisals. These can be in the form of standardised forms on which you can set an overview of each employee’s role, including a statement of their main responsibilities, achievements and constructive suggestions for the future.
Staff appraisals might also be in the form of interviews. These should have a formal setting but it should be made clear the objective is not simply to judge past performance in order to put the staff at ease.
Sometimes the most useful outcome of staff appraisals is the feedback gained from talking with employees. Giving staff the opportunity to air their views outside of staff meetings can enable you to identify potential problems in the early stages.
Staff incentives are another great booster for the friendliness of the working environment. Staff incentives need not impact on profitability, but rather enhance it. There already exist many low-cost incentives used by business managers today, for example:
- Flexitime can allow staff greater freedom in their work-life balance. Generally, employers require staff to be at work during certain core hours, with flexibility built in around these times.
- Transport loans can be cost-effective and easy to implement: your company pays up front for travel costs and then recoups the money through monthly payroll deductions can include season ticket loans.
- Gym memberships are now very popular, and if you have a health club near your office, this is a relatively easy perk to implement. Negotiate a staff discount and then pass the savings on to staff.
- Giving extra holidays is an effective way of rewarding long service or loyalty. It doesn’t cost anything, as long as you don’t need to employ a temp to cover any shortfall in work.
- Handing out Performance awards in a relaxed, social setting is a fun, low-cost way to recognise hard workers and gives employees something to strive for. An engraved plaque and a voucher for a local restaurant won’t break the bank and will be greatly appreciated by the recipient.