Make it your business to know your business
By Andrew McCormick
In the first part of this Two Part series Andrew McCombie, managing director of Cornerstone Consulting, explains how you can get your business back on the right financial track.
Being in business for yourself is very rewarding. At times it can be hard work and
difficult. The trick for running your business in a rewarding and successful way is to remain focussed and to “know your business”.
Often when a business has been operating for a while it arguably loses a bit of the focus which once drove it. This is due to external and internal factors.
For example, the industry may have changed significantly through new technology or staff may be less motivated than they once were.
If this is the case, now is a good time to refocus.
“Knowing your business” is a broad statement.
In simple terms it means understanding the why, what, who and how of your business from a strategic point of view and aligning this understanding with how the business is actually going in reality.
Try the following practical process of evaluating and implementing successful strategies within your business:
Vision → Current Reality → Actions → Implementation → Review and Manage
Let’s start with vision.
Vision is the why, what, who and how.
Vision encompasses the purpose, values and goals of your business. The advantage of having a clear vision is that it creates a sense of direction and opportunity. It also provides valuable information for key stakeholders, including managers, employees, customers and suppliers.
If you do not have a vision for your business it makes it difficult, if not impossible, to take successful action. Vision is like a long term strategic plan.
The idea when thinking about your VISION is to think about the key elements of why, what, who and how. There is no need to get stuck in technical definitions of vision, mission, values, goals and so on.
Ask yourself some of the following questions, which will lead into more questions as you delve deeper into the issues:
- Why did you start this business?
- Why do you do what you do?
- What are your long term goals?
- What level of profits are you aiming for?
- What is your business model (for example, low cost high margin)?
- How do you want your customers to perceive this business?
- How do you want to manage your internal systems and policies eg for maximum efficiency?
- Who are your customers and do they have a clear understanding of your business (can you explain to a stranger what it is you do and what distinguishes your business from competitors)?
- Who have you built this business for (children, investors, community, retirement)?
A good way to answer these questions is with a brainstorming session. Sit down with four or five trusted people and pose questions to the group, put the answers on a whiteboard, be creative and unlimited in your responses.
The results will be surprising and revealing.
The ideas and messages which stem from this exercise will refocus your vision for the business and form the basis of any eventual action plan.
The next step in the process is understanding the Current Reality of your business.
By understanding how your business is actually going right now and comparing this to
your vision, you will gain an insight into what action to take.
Measuring the current reality requires looking at the business in more detail, it means
looking at quantitative and qualitative factors of your business, for example:
- Review of profit and loss reports
- Balance sheets
- Staff satisfaction levels
- Customer satisfaction levels
- Ability to delegate effectively
- Stock levels
- Cash flow
- Working capital utilised
- Debtor and creditor cycles
- Marketing plans versus actions
- Standard costing methods
- The value of the business
The list is infinite and the above factors merely scratch the surface of a business.
To assist in this process it is often useful to pose questions which are related to the
Refer to the table below for examples. This method pinpoints the specific information required and how to best go and get that information.
For example, if your vision was more time with your family, then it’s quite easy to assess whether you have achieved this goal.
However, if your vision was five times return on investment of working capital, then the
information required to determine the current reality is drawn from financial reports, measuring current working capital and comparing this to your bottom line.
There may be many issues that arise as a result of getting to know your business.
The important thing to bear in mind is what to do with the knowledge gained from
understanding your current reality.
And this is where Actions come into the process. Actions should be implemented and reviewed over time. These topics will be discussed in Part 2.
*Andrew McCombie is an experienced
business advisor with a background
as a Chartered Accountant and Tax
consultant. As the founder and
managing director of Cornerstone
Consulting, Andrew created an advisory
firm which helps small to medium
businesses by providing practical and
insightful strategies for success.
Ph: 02 99653772