I’ve been looking at the key attributes of a profitable, growing and sustainable business following a challenge from a tradie who had bought a business and suddenly found himself a Managing Director. He was overwhelmed, and not sure where to start.
What advice could I give him?
I took the view that he needed to understand the key attributes of a good business as a whole, rather than just have important individual skills. The latter will help you run a “self-employment” company, but not necessarily build a business.
The first two key “must have” attributes I looked at in my previous post. They are:
• A Sound Base – direction and capitalization, and
• Customer Acquisition
Now to discuss the final two “Must Haves”.
“The road to success is paved by good information.” You will make better decisions if you are informed on a regular basis by the facts regarding your business finances and a few other key indicators that measure the health of your business.
All the good businesses I have seen over a lifetime have a good (i.e. accessible and accurate) Management Information System that gives them the information they need to make sound decisions.
These Management Information Systems report on a regular basis. Their owners have identified a limited number of Key Performance Indicators (KPIs) that are critical to their business. Information is provided in an easy to understand basis; often graphical because many people interpret information visually.
Such businesses take one further step, one that is easy to bypass, but that makes all the difference to turning data into information on which to make decisions.
They ask “Why is it so?” and report on it. A typical couple of KPIs for trade-based businesses may be the number of quotes submitted and their Success Rate. They are important lead indicators of future cash flow. If there are changes in either it is important to know “why” in order to make the right decisions.
An attribute of a good business is that it makes good decisions. It does so because it has ready and regular access to the right KPIs.
Good businesses keep getting better. They do so because they are continually looking to benchmark themselves against other businesses, not only in their industry but also against those who perform well in other industries.
Guided, if not goaded by what they find, they work on all their key processes, only one or two at a time if necessary, to ensure they can deliver faster, cheaper, easier to their customers. Improvement is a constant series of small steps that compound over the year to make a real difference to their operations.
Continuous improvement is practised, by definition, continuously. It’s a good discipline, but sometimes it isn’t enough. When might you need something different, what Alastair Drysdale (www.akenhurst.com) calls a discontinuous improvement?
Discontinuous improvement can be dramatic, but it can be safer than continuous. In times of rapid change, continuously improving something which the market no longer values may be the worst possible thing to do. It doesn’t have to involve a leap in the dark, and like continuous improvement need not be expensive to undertake.
It is almost certain there is already a profit leak in your business if you find an opportunity for a discontinuous improvement.
If my tradie works on developing the attributes of a sound base (direction and capitalisation), prioritises acquiring customers, sets up and uses a good Management Information System to make sound decisions and practises continuous improvement he will not be overwhelmed by his new business. He will build a good business.
What about you?
There’s nothing like an outside view. So often we are too close to what we have written to properly assess our response. The outside view sees what we don't see.
Or buy "Small Change, Big Result", my manual on how to increase your success rate with proposals and quotations; make a few small changes, and reap the rewards.
© Copyright 2018 Adam Gordon, The Profits Leak Detective
Some profit losses are pretty obvious - so you fix them.
BUT, what if you don't know profits are leaking, cash out the door?
Possible leaks could be anywhere.
Are there some clues or symptoms that are tell-tales?