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Growing Your Business-Getting the Right Processes

  
  
  

We’ve talked in this series about Growing Your Business- Getting the Right People and Getting the Right Strategy.  Today, we’re going to talk about Getting the Right Processes.

 

Growth always increases the complexity of your business.  So, to get the right people, doing the right things right, you need processes in place to maximize your efficiency and effectiveness.

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Here are three things you need to know about processes:

 

1)   Process makes a business competitive.  Companies with defined processes are better able to evaluate their strengths and weaknesses and identify opportunities for improvement.

2)   Process enables growth.  By leveraging defined processes, it become easier to deliver new products and services quickly and efficiently.  Processes provide a blueprint for new employees and enable cross training to minimize business interruption.

3)   Process drives profitability.  A company with defined processes can find opportunities to improve efficiency without sacrificing quality and consistency.  They can identify duplication of effort and spot areas that are being overlooked.

 

 

Here’s a story of how implementing new processes made a huge impact on my client’s profitability.  This company was losing money in 2014.  They had bootstrapped the company, but now had to borrow money from different sources just to fund payroll.  They didn’t know where the losses were coming from. 

 

  • Process 1: They hadn’t taken the time to be sure there financial statements were accurate and that revenue and expenses were properly categorized.  They established a month end close where part of their closing procedure was verifying that all revenue and expenses were properly categorized so their financials were timely and accurate.
  • Process 2: They didn’t have a process to examine what portion of their payroll was converted to billable revenue.  So, they didn’t really know how much of their payroll was unprofitable.  They created an excel spreadsheet to show monthly payroll and how much of that could be allocated to their contracts.
  • Process 3: This Company did not have a process to make sure their completion schedule of their projects matched their billing schedule.  They didn’t know if they were over billed or under billed on any of their projects.  So, they created a second excel spreadsheet to show what percentage they were complete on each project and then billed accordingly.

 

The process changes, in this case, yielded a huge change in the profitability and efficiency of the company.  They had accurate and timely financial statements to make good business decisions and they cut payroll and increased billing based on the new excel spreadsheets, which in turn dramatically improved profitability.

 

What process changes have you made or need to make to enable your growth and increase profitability?

Top 5 Tips if You're Preparing to Sell Your Business

  
  
  

Baby boomers preparing for retirement are driving the sale of small businesses like never before.  As a business owner, no matter what size or stage your business is at, you must plan and implement a strategy to have your business ready for sale.  Here are 5 tips for your to consider when selling your business.  I have several clients that are at various stages in this process.  For some, the time horizon is less than a year away and another is looking at 10 years from now.

 

preparing your business for sale

 

  1. You've got to have a plan.  Most people don't think about this until they are approaching retirement.  By then, it may be too late.  What amount of money in after tax dollars do you need to have financial independence and how many years do you have to get there?  In addition, preparing includes having a succession plan for your departure. Preparing your business for sale won't happen overnight.  It takes time.
  2. Having complete and accurate financial records is critical to give any buyer confidence in purchasing your company and negotiating a higher price for you.  This starts with detailed annual budgets.  In addition, company prepared financials for the past three years and tax returns will be requested during due diligence.  Any inconsistencies in those records gives the buyer leverage to reduce the purchase price.  You should establish a cutoff for monthly financial reporting and then prepare balance sheets and income statements monthly to track your progress against budget. Accurate historical budgets gives credence to your company's projected profit.
  3. Schedule regular board or internal review meetings.  Buyers want to see records showing good governance (including minutes of meetings) and accurate financial information.  This information reduces the risk taken on when purchasing the business.  
  4. Buyers value businesses with long term leases for key locations, protecting intellectual property with patents/trademarks and having employment agreements for key employees.  This also reduces the risk associated with purchasing the business.
  5. To the extent you can, enter in to long term contracts, such as supply and distributions agreements, with important customers and suppliers.  Make sure those agreements are assignable to a potential purchaser.
There are many other areas to consider when selling your business.  But, these are a critical portion of obtaining the maximum value for your business when you sell it.

How strategic are you?

  
  
  

I took a vacation in July and decided to read Mastering the Rockfeller Habits by Verne Harnish.  It was recommended to me by a friend who uses it in her business.  I recommending reading it.  It was one of the best books I've read recently.

Mastering the Rockfeller Habits are:

  1. Establish your top 5 priorities that you focus on daily, weekly and one BHAG (big hairy audacious goal).  It's the balance of short term and long term.
  2. To be sure you're acting consistent with your priorites, obtain data that you can measure in real time.
  3. Set regular meetings to be sure you and your team are properly aligned with your priorities and are accountable.
strategic planning
I have a client who has had an internet based sales strategy.  He has been very successful in his business, but has sensed there was a better way of doing business.  He has about 2400 prospective/current clients with 4 sales people and the client list grows regularly.
Over time he has come to understand that 80% of his business comes from 20% of those clients (yes, you remember the 80-20 rule).  His sales people continue to focus on the 80% that don't contribute as much business. They have lower productivity and lower close rates.
By changing his sales people's focus from an internet based strategy to a relationship based strategy, he is slowly changing how his sales people do business.  By building relationships with that 20% of his client base, he will become more efficient in his sales process and will grow sales.  He had to change his priorities and that of his sales people.  He looks regularly at the data provided by SalesForce and holds regular meetings with his sales people to get them properly aligned with his way of thinking.  It's not coming as fast as he would like, but he makes steady progress.
We all spend too much time working in the business instead of working on the business.  Set aside some time, read this book and implement the principles in it, to increase your effectiveness.

Business and Finance News Update

  
  
  

Our business and finance news round-up is here. We hope you enjoy a few top articles discussing relevant issues to the business and financial worlds.

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