This article is part one of a three part series covering what a small-business owner of managers needs to look at when examining their company. From cash-flow to leadership this series hits ten major areas that define the core of a company.
As the manager or owner of a company it is essentially your responsibility to ensure that the company is run smoothly. Most small businesses don’t use a Board of Directors to their fullest capacity due to the fact that most owners and managers on some level are control freaks. It’s okay to admit it because everyone in your company is thinking it. So as the Chief Control Freak in your company keeping a close eye on the health of your business is a crucial function of the business cycle. I want to give you a ten point checklist to a healthier company. In part one of this three-part discussion I want to focus on some crucial foundation principles, cash flow, marketing, sales, and quality
(I) Cash-Flow
Cash is king, and simply put if the king has left the building, the company is not too far behind. Undercapitalization is a fierce epidemic in small business; owners struggle to find working capital to keep their companies running, and producing or selling a product or service. On a quarterly basis a company’s cash needs to be examined. Some questions to ask are, where is it coming from? Where is it going? Do we have too much cash? (Yes this is actually a problem) Examine the cash-flow cycle, the time it takes to make a sale, the time it takes to collect from the sale, and how long before that money is out the door. These are your turnover ratios, you may find that on average it takes 35 days to collect, but your vendors are requiring payment in 15 days, you have a 20 day gap of cash, and it’s time to sew that gap shut.
Examine also where that cash is going. Are you paying for inventory, subscriptions products or services that you do not need? Is the equipment that you own leased or purchased? Do you perform a cost-benefit analysis and have internal controls for purchases over a certain dollar amount? This one is the biggest kickers of all, how is your company performing budget wise, if you’re spending more in certain areas it might be time to examine why, and justify the expense. On a quarterly basis examine your staffing needs, keeping a worker on staff that is not performing up to standards, or is not providing positively to your bottom line may need to be let go, and those costs redirected. Finally, can you outsource anything to save on costs?
(II) Marketing
If no one knows who you are, where you are, what you’re about, and what you do nearly nothing else matters. Marketing is a basic foundation of business. Marketing is much more then simply running an advertisement, marketing is about positioning your company to whoever you’re targeting. This includes perception, feel, experience, price, and exposure just to name a few. Review your marketing strategy and campaigns. Are you really reaching who you wanted and are you influencing their decision in your favor? How do your current clients view you? Are they part of your target market? Review you strategy to determine if your core market has changed, and how you can address that change. Maybe who you originally intended didn’t buy you service or product, but someone else did, are you positioning yourself in that new market. Can you expand markets? Do you need to shrink markets? (Expansion does not mean profit one-hundred percent of the time) Are you priced competitively? Is your advertising working, and are you tracking results? When was the last time you issued a press release, and told everyone about your new service or product?
(III) Sales
I wanted to address sales separate because of the complexity of both subjects. After you have addressed any marketing concerns, it’s time to prepare for the return on investment, the sales cycle. From the initial contact, to the actual exchange of goods and service for a promise of cash, or actual cash how does your company stack up? Some industries have long sales cycle, especially when dealing with high priced services and items. So how often are you closing a deal? Are you losing to a competitor? If so, why? Are you speaking the language of the customer? Are you giving them what they need to hear to make the sale, or what you think sounds good? Talk to your existing clients and customers, get a feel for why they do business with you and not the guy down the street. What sealed the deal for them?
Some companies deal with larger corporations in their sales cycle, or a company who does a lot of business with the. If they are a majority of your annual sales (smaller companies often sell to large corporations who use their leverage and size to determine volume of sales, price, and collection periods) determine if you have the capacity to add more clients and diversify your client base. Selling primarily to one client can have an adverse affect in the long-run on your company financial health. If they get bought out, or if new management comes in, you as the supplier may be pushed out.
Also determine if you can diversify your revenue stream. Adding a service contract to that product may increase sales, or diversify your revenue. Adding several products or services together and packaging them is also a remedy for slow sales, it can also help to relieve you of excessive inventory in a product that’s not taking off. First determine though if it is feasible to do this. Do you have the man power, tools, equipment, and space? Assess your risk exposure to the potential downsides. Can you expand into new markets (profitably), and an often overlooked sales technique is harvesting more sales in your current market. Loyal customers are always a good place to look first when it comes to sales.
(IV) Quality
This begins with a review of your product/service. How’s the quality? How’s it viewed in the marketplace, are your clients/customers recommending it, or telling others to avoid it like the plague? Quality is the fourth foundational leg a company needs to stand on. Your sales will dwindle if you lack quality, that affects the cash-flow and no matter how much you market, nothing helps a poor quality service or product. Quality is really simple to examine, what you’re offering is either great, or it’s not. Check, check, and recheck your processes, refine what you offer. You don’t want to be known is the market place as a low-quality leader, because soon you won’t be known at all.
All four of these areas an intermingled, everything works together and cannot work separately of one another. By keeping all of these areas healthy you can run at a minimum a break-even business. In the following two parts we’ll discuss areas that can help propel you beyond your competition and keep your company healthy.
