Business Growth Articles

The 5 critical steps to turning your business into a profit machine. Step 1

The first in a five-part series, in this post I will explain why the first of the 5 steps is critical to achieving your goals

A business owner’s guide to building a healthier profit line and turning the business into a highly saleable asset.

Before we begin, imagine its 12 months or two years from now. A potential buyer walks into your business and asks to see how things operate….

You happily walk her through your business pointing out how these days it runs without you, how you have systemized each and every process, how from anywhere in the world you have the ability to log in to the management reporting system and instantly have a snapshot of the key profit drivers.

Then with the click of a mouse you demonstrate this; you can clearly show that the company is indeed one worth buying, profits are healthy, and the business is one which has consistent sales and proven processes to continue selling.

You certainly have got her attention now; after looking at countless other businesses she was beginning to lose hope, that maybe buying a manufacturing company was not such a good idea.

Now she feels like she has just found the Holy Grail!

In this scenario, you are in the driver’s seat; whether you sell and for how much is your call. You have factual evidence that you do indeed have a healthy & profitable business.You can clearly demonstrate that it runs without you, you have processes in place to ensure that the business will continue to be profitable regardless of who owns it.

Wouldn’t that be nice? Is it realistic? Absolutely! Now you may think this doesn’t apply to you or your business as you have no intention of selling, however being investor ready is much more than that; by following the five steps outlined in this guide you will build a business that will run without you, giving you a very saleable (and valuable) asset and the freedom to choose what to do with it.

To begin with, you will have an exit strategy when/if you need to sell and at the very least you will have real equity in your business.

Did you know that the majority of businesses for sale are in fact “unsellable”?

Having previous experience as a business broker I can tell you most business owners that asked me to sell their business:

1) Did not have anything more than a job with overheads and

2) They were in fact the business, if they didn’t turn up things didn’t happen.

According to research undertaken by Andrew Vincent of “Your Business Success”only 7% of business owners earn more than they could as an employee AND sell their business at a premium. Also in the same article by Andrew Vincent it is stated that “according to theAustralian Bureau of Statistics, over the four year period from 2003-2007, 777,106 businesses ‘exited’ (i.e. quit, went broke, some sold).

That is an average 3,736 businesses per week”.

That’s a lot of broken dreams….

But that’s ok, you’ve already decided that you are not going to be one of them and if you follow these 5 steps there is no reason why you won’t be one of those few who earn handsomely AND sell the business at a premium (if and when youwant to).

A word of caution before we begin however: the steps outlined below are deceptively ‘simple’.

When you read them, you’ll probably say to yourself, ‘That’s pretty obvious’.

Andof course, when they’re detailed like this, they ARE obvious. If they weren’t,you’d have to be concerned.

But that’s actually not the point.The point is that just ‘knowing’ these five steps is very different from actually APPLYING them.

How many times have you had the intention of working on strategies to grow the business, systemize it, improve efficiencies etc; only to get dragged into day-to-day issues?

Then getting frustrated because this is what you pay your staff to do? Sounds familiar?

I see it all the time. Actually, your employees are possibly just as frustrated as you are.

To perform optimally, they need to know and be involved in the company’s strategic vision, helping to create the vision & the strategy so that they own it and believe in it. Without this vision, they don’t know where they are going and then you get upset because they haven’t arrived yet.

When I work with business owners this is one of the first things I help them to do; decide on the vision and the strategies required to achieve the vision. Then,through a series of workshops I help with their implementation.

Obviously, whether you decide to utilize my expertise & experience to implement these 5 Critical Steps to being investor ready is totally up to you; they are actually broken down to their most basic form to allow you to follow them on your own.

The question is: will you have the discipline required to methodically follow each and every step, to focus on that potential buyer two years from now?

Remember, if you fail to plan, you plan to fail.

As we work our way through this guide you will see some examples of how I have successfully implemented the five steps over the years; the reason for this is twofold: to clearly demonstrate that I can actually help if you decide to call me,on the other-hand if you decide to go it alone, you will have real world examples in each step to help you “become investor ready”.

So let’s get started, what are these five steps?

1. Strategic vision:

Do you have a clear objective for your business?

If not, think about what it is that you want to achieve both personally and in business, then begin to plan the route to get there.

Maybe it’s more time to enjoy family or maybe you have aggressive expansion plans for the next five years before selling the business and retiring on the great price achieved.

The important thing is this; it must be what YOU want to do, then become passionate about it, make it your focus. Put the systems in place to help you achieve your vision, whilst focussing on the desired outcome.

What goals will your business achieve today, next week, next month, next year? Do your employees know what these goals are? How will they be achieved? Are they in fact achievable? Do you have the resources; if not what do you need to do to obtain them?

It is imperative that first of all both you and your people have a clear vision of the goals to be achieved and what is expected of each team member. To do this you need to provide the map and what each team member is expected to do on the road to your destination. Communicate the vision and the strategies to achieve the vision.

Set milestones and don’t forget to celebrate each one with your team.

Make the Strategic Vision S.M.A.R.T.

Specific – what exactly you are going to achieve e.g. $5 million in Sales, 40% increase in profit etc.

Measurable – To get results you must measure them, gauge where you are now versus where you want to get to. E.g. do you know how many enquiries you get weekly, monthly? What is your conversion ratio? How often do your customers buy from you? What is the average sales value? By focusing on these profit drivers alone you will greatly increase the value of your business.

Achievable – Make sure that your goal is achievable otherwise it will be unlikely to get employee buy in.

Relevant – the goals must be relevant to your business – its reason for being a goal must be valid.

Time-based – it is essential in order to achieve your goals that they have a timeline e.g. “We will implement a sales training program focussing on improving conversion ratios by 1 March 2011 for all sales staff” and not “We will do some sales training next year”.

Your Strategic Vision should be documented in detail – this is a live business plan,a road map with clear directions, a how-to manual, which should be reviewed quarterly and updated yearly.

A suggestion here: to ensure successful implementation, start this process with a full day (uninterrupted by phones/email etc) off-site meeting with your key people; ideally use a facilitator to keep the meeting on track and to give unbiased opinion. You could use your external accountant here or a business consultant.

Over the years, I have been involved in both world-class Strategy Workshops and run of the mill “doing it because everyone else is” or “my accountant said it’s tax deductible so we just treat it like a perk for senior management”. I’m guessing you know which company actually achieved their goals.

Begin the meeting with a PEST (Political, Economical, Social & Technological) analysis followed by a SWOT (Strengths, Weaknesses, Opportunities & Threats) analysis.

Allow staff to be totally honest here without fear of retribution, take the feedback on board, avoid being negative. This insight is a critical success factor to achieving your Strategic Vision. Utilize it!

Then do the same thing in regards to your competition: PEST analysis followed by SWOT analysis.

What do you do better than everyone else, why should customers buy from you?

Strive for Operational Effectiveness i.e. doing what you do better than the rest of your industry.

Ideally your strategy meeting will be followed by several workshops to work on issues which become apparent, as well as take advantage of obvious opportunities. Treat each of these workshops as seriously as you did the strategy workshop, no shortcuts.

Ok, so that’s the end of Step 1, tune in next week for Step 2 or simply subscribe by clicking the button on the right and you will be notified when it is published. In the meantime have a serious think about your vision, what you want your business to achieve, then work on what strategies you need to develop to achieve it.

Have a great week,

John

About the author of “5 Critical Steps to Making Your Business Investor Ready”:
With over 26 years in manufacturing and a good many of those in management roles I have successfully implemented the 5 critical steps several times. As a business growth consultant I help business owners become investor ready. It is also something I am very good at and enjoy doing.

What I offer is to work side-by-side with you and your senior management team to:

  • Prioritize problems/issues to be resolved
  • Agree on expected outcomes
  • Agree that this is something I can resolve
  • Agree on the value of these outcomes i.e. extrapolate the added value of the exercise to your company and what this is worth.

To put your mind at ease, if the work that needs to be undertaken is not within my expertise I will say so.

If I don’t honestly feel that I can help you get to that day with the potential buyer where you really do have a saleable (and valuable) asset then I will decline the contract.

Imagine again its 12 months or two years from now.

A potential buyer walks into your business and asks to see how things operate….

Will you be investor ready?

John

0425 781 752

johnmaher@tpg.com.au

http://au.linkedin.com/in/themakeithappenguy

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