Numbers To Build Your Business

How do you build your business?  Do it by the numbers. It may sound simple, but it’s hard work.   Use numbers to track how your business is performing.  They also help determine your future direction.

Every business has key performance indicators (KPI's).  Some KPI's apply to all businesses while others apply to specific types of businesses.

The KPI's are metrics you can use to track different aspects of your business.   In the simplest form, owners look at their checkbooks, see that checks are not bouncing, and feel their business is doing well.  At the other extreme, automated systems can generate countless reports.  You can spend hours reading the reports .  Did you know that you can generate almost 200 reports in QuickBooks alone?   Only some of these are critical to driving the business.   Others are used to find mistakes or to generate helpful information for your staff. 

The best option is to determine what numbers are important to drive your business.  For all businesses, Revenue, Cost of Sales, Overhead Cost, Outstanding Accounts Receivable, Income, and Short & Long Term Debt are musts, and should be reviewed monthly. These numbers speak to the overall stability of your business.  Beyond these, the KPI's differ based upon the type of business.

Retail businesses should review numbers that will help in marketing, sales, inventory, and pricing.   These include: number of visitors, source of visitors, percentage that buy, number of items per sale, and dollar value per sale. Review these numbers regularly.  Compare them against prior months.   These numbers can help you increase profit, carefully direct advertising efforts, and boost sales.

Contractors benefit by reviewing the number of prospect contacts, source of prospects, number of proposals, number of proposals won, and cost of estimates vs. actual costs by project.  They can then adjust marketing, sales, estimating, and pricing as conditions warrant.

Service Providers should review the number of clients, source of clients, billable staff utilization and pay rates, and billing rates to make better decisions on marketing, sales, hiring, and pricing.

No matter what your business, conducting it by the numbers gives you the most insight which helps you build business and ultimately its value.

We can help you determine which KPI's are appropriate for your business.  Monitoring your KPI's helps you control and grow your business.   It takes time to find, select and implement the right systems to collect and report relevant KPI's.  We have worked with clients to do this.  We have the experience to expedite this process for you.  For more information, contact us.   
 

Make 2012 Your Best Year

As you launch a new business year, it’s a great time to lay the groundwork for success!   Below are some steps to create a successful year:

Conduct a Financial Check-Up

  • Check your Profit and Loss, Income and Expense reports.
  • Review your sales reports to identify profitable and sub-par performance areas.
  • Analyze sub-par areas and decide whether to eliminate or strengthen them.

Review Your Business Plan and Overall Strategy

  • Set aside time in January to plan.
  • Review your organization capabilities and your staff expertise.
  • Identify new products and services you want to add.
  • Revise or create a plan for increasing business in your areas of strength.
  • Set achievable stretch sales targets for the year.

Prepare a Budget

  • Compare last year’s projected budget against actual expenses.
  • Prepare a new budget and conduct regular budget reviews.
  • Be sure to factor in upcoming expenses and allow for changes in marketing strategies.
  • List areas to cut if profits or cash flow run below expectations.
  • List contingent opportunities to add if cash flow runs higher.

Create a Marketing Plan

  • Evaluate last year’s marketing mix and the performance of your marketing channels.
  • Review and freshen up your marketing message.
  • Create a marketing plan that will support objectives for the upcoming year.
  • Plan your marketing activities to support your sales efforts.

Reach Out to Customers 

  • Review and update your customer contact information.
  • Renew contact with lapsed customers, and touch base with your existing customers.
  • Let your customers know about the changes you have made to your business
  • Ask for referrals from some of your best customers.

There are only so many hours in a day.  Need help accomplishing these tasks?  Let's talk

Increase The Odds of Business Success

Small businesses face a host of challenges.  Only a small percentage reach their fifth anniversary.   Most people start out with a dream, roll the dice, and jump in feet first.   You can reduce risk and increase your chances of success by taking the steps outlined below.

Plan to Succeed. A well thought out Business Plan can mitigate seven of the top ten reasons businesses fail. It allows you to organize, prioritize and shape your thoughts. It is a roadmap to the future. A Business Plan is a living document which changes periodically. When you write your thoughts down, it is easier to see the holes and to fill them before implementing. A Business Plan also allows you to share your thoughts with your advisors and employees so that everyone is on the same page. 

Establish Goals. Goals help you measure success. Goals should be reasonable and a stretch to achieve. If they are too easy, the results are meaningless. Unachievable goals are counterproductive.  Failure to meet them demoralizes the staff and may cause them to question the competence of the company's leadership.

Monitor Cash Flow. Cash flow is the life-blood of business. As a business owner, you sign the checks and use the company credit card.  You  commit the company to spend money. When planning to spend consider Need vs. Want and Invest vs. Spend.  Ask yourself, “Do I need it or do I want it?”  If you want a $50,000 car when a $30,000 model will suffice, stop and think. Ask, “What’s the return on my investment?” The answer will help you make the right decision.  If you need to buy raw materials that you will turn into a profitable deliverable that a customer has ordered, then do so.  The question you need to answer is, “Where will I get the best return in terms of new business for the money I am investing?”

Track Your Progress. How do you know who’s winning if you don’t keep score?  Determine what metrics drive your business and monitor them on a regular basis.  It involves more than looking at your checkbook balance each day or running an income statement each month.  You need to break down your sales process. It may include:

  • Number of customers
  • Revenue per customer
  • Revenue per sale
  • Productivity per revenue generating employee
  • Sales by products type
  • Profitability by product type
  • How customers find your business
  • Who refers business to you
  • Who you refer business to

Stop rolling the dice. Begin to plan, establish goals, monitor cash flow, and track your progress.   You will have a huge impact on your business’s future.  If these concepts are not currently in place, the beginning of the new year is a great time to institute these changes.

Our experience in developing and implementing business development plans increases your odds of success, contact us for a complementary consultation.  Learn more

Do You Know What Your Competitors Are Doing?

In this fast paced business climate, your competitors are constantly changing the way they do business. As a result you need to monitor them as well as your own business.   How do you do this?  Use Competitive Intelligence.

Competitive intelligence (CI) is not only for the Fortune 500. Small business owners need CI as much or more than major corporations. Small firms face the same competitive pressures and exposure to factors outside their control because they are still defining their business plans and directions. CI can be a powerful tool to help them navigate the competitive landscape.

CI can be defined as the legal and ethical gathering, analysis, and interpretation of available information for decision-making and action. CI helps organizations understand their place in their industry and to prepare for unexpected factors that affect them and their competitors. There are many forms of CI, including market research, consumer purchasing patterns, executive profiling and industry analysis.

Consider a few examples where a better understanding of the marketplace could help business owners develop new strategies for growth.

  • A long-time, family-owned Italian restaurant is faltering. Six months ago, a chain Italian restaurant set up a free-standing location less than five blocks away. The question is, “How much business are we losing to this competitor and what can we do about it?
  • A group of friends have translated their love of the outdoors, adventure, and craftsmanship into a custom canoe company. They know what makes a good custom canoe and they know the amenities that outdoorsmen want. Their question is, “What does the canoe market look like and how do we find our niche?”
  • A widget producer with two major contracts has just been surprised by one client wanting to renegotiate price. The question is, “What brought about this surprise change and how do we prepare if it were to happen again?”

Small business owners face hundreds of similar questions as they work to grow their businesses. A commitment to thorough, regular CI can spark ideas for remaining competitive. Sample CI strategies might include:

  • Customer surveys or focus groups to reveal the needs of the company’s target customer
  • Research of competitive pricing strategie
  • “Mystery shopping” trips to experience competitors’ treatment of customers
  • Monitor competitors' online presence

Good CI should not only focus on today’s problems, but also should develop an early warning system that businesses can use to prepare for unexpected events, such as the appearance of a new competitor. The more prepared small business owners are to change direction, the less vulnerable they will be to events outside of their control. If you don't have the time or expetise to gather competitive intelligence, we can assist you in determining the best way to gather it.   Contact us.

Three Typical Problem Customers

When the best customer is NOT the one you already have—meet the Demander, the Abuser, and the Dodger.

The Demander is the client who takes advantage of your services. No matter how much you deliver, he demands more and wants to pay less. Increase the amount of time you service this customer and cut your prices, and you will develop a pattern of losing money.

The Abuser is abusive to you and your staff and can sap your energy. The longer you deal with this person, the more you lose. Think of the extra hours listening to the customer complain, trying to please the customer, talking to staff about how to please the customer, and complaining about the customer. All of these add up to dollars per hour. What price are you willing to pay to retain this customer?

The Dodger is the client who avoids paying for services rendered or products delivered. If she has a history of paying late or has fallen far behind, you probably don’t need her business. She’s playing with your money! If you continue to extend products or services without being paid, you may be putting your business at risk.

We suggest you periodically evaluate your customers to determine which category they fall in.   Sometimes, it is better to "Fire a Customer". 

4 Steps to Consider Before Firing A Customer

Identify and evaluate problem customers to determine when it’s time to restructure the relationship— or when it’s time to cut your losses and move on.

Put a stop to problem clients who take advantage of you, abuse you, or fall behind in payments. Appraise the cost of keeping the accounts, consider restructuring the way you conduct business, evaluate the benefits of customer
retention, and “fire” the customer if necessary.

Analyze your Accounts. Before you sever ties, gather your customer data in order to assess the costs and benefits of retaining your customer. Evaluate the cost of goods and profit margins for that customer, payment history, and the amount of time spent by you and your staff in dealing with the customer. You should come away with a clearer picture of the actual cost of doing business; you may find the account you thought yielded $100.00 per item or per hour is actually yielding much less.

Change the Way You Conduct Business. If a customer demands lower prices, will he agree to purchase in bulk in exchange for a lower unit price? A small discount for early payment might be incentive enough to get late-payers on track. Changing the way you provide services or goods may be better than cutting the customer off your list.

Other Benefits to Consider. If an account is unprofitable, is there another purpose the client is serving? A local bank providing a small loan to a retailer may not generate much return, but the customer may “talk up the bank” to everyone who comes into the store, and refer many good customers. If the customer was an early supporter of your business or continues to bring new customers to you, consider that as well. Also consider the percentage of business, but don’t let it deter you from saying goodbye. It may be difficult to lose 25% of your income, but consider the results if you replaced that client with one or two who are easier to work with — and more profitable.

Fire Your Customer. If you conclude you would be better off without a customer, be as tactful and diplomatic as possible. Explain that you are not in the position to meet certain service expectations without raising your costs; that you have worked to satisfy a complaint or provided full restitution and there is nothing more that can be done; or that you must discontinue providing goods and services until those outstanding invoices are paid. Then use the time and energy you save to market yourself to new and better clients.

If you don’t have the time or resources to accomplish this, we can help you identify and select an appropriate resource to get the job done. Contact us.