Every successful business creates a tempo or pulse. Changes come in the form of highs, lows and plateaus within sales, marketing, operations, or staff. Understanding the next change is critical to success. Looking at your business as a series of systems that have to work together to remain healthy and grow, drives a holistic viewpoint. Focusing on one area only, like financials will lead to neglect in other critical areas of the business.
See the whole picture
It is possible for business owners to make changes in productivity strictly by reviewing the bottom line. This is somewhat true. The adage, “everyone knows that sales heals all” indicates that with enough money thrown at a particular problem, success is inevitable. The problem with such a practice relates to long-term value and sustainability. Companies will not survive and begin to experience diminishing returns through management by cash flow only. Management has to carefully review each area of their business and make changes to improve efficiency or enhance value.
Understanding business drivers
Strictly looking at productivity as gross sales, negative change in revenue production is really a byproduct of hidden underlying problems. Perhaps the calculated list price of a good or service is based on raw costs and minimum margins rather than consideration of market maturity and competition. This becomes a problem when cash flow is inadequate to purchase inventory or demand is directly linked to discounting. Companies can fail merely because effective net margin is unattainable. Another example concerns individual sales efforts. Sales personnel depend on a blend of targeted product mix, product knowledge, brand awareness, competitive pricing, and distribution to sustain their efforts. Their compensation plans should drive attention to corporate initiatives and goals. If they don’t, confusion and poor performance results.
How to prepare against the flat line
In many small businesses performance and growth stagnates as operational costs eclipse net profit. A company will basically flat line with no revenue growth and perhaps no loss of market share. The best strategy is to be a forward thinker leveraging historical trends in performance with expectation of future need. When rising raw costs or increasing competition threaten growth, management has to look at potential change to ward off lulls in production. This is where business planning and strategy begin to shine. Without specific planning a company will begin to flounder and start the knee jerk reaction of cost cutting versus leveraging core competencies.
Where to begin
Just thinking about implementing new policies and procedures to develop a holistic view of your company can be daunting. The first step is a preliminary assessment by identified core functionality of the business. The assessment will uncover relational issues between departments, weaknesses in infrastructure, and other potential areas of concern. We advise a third party approach rather than an internal audit because results are unbiased and based on diagnostic skill sets that are not normally a part of small business. Either method will yield results and begin the process of restructuring.
