And what does it do to your business?

Way back in 1973, four hostages were taken in a botched bank robbery at Kreditbanken in Stockholm, Sweden. By the end of their captivity, six days later, they actively resisted rescue and afterwards refused to testify against their captors. Allegedly they even raised money for their captor's legal defence.

It is thought that captives begin to identify with their captors initially as a defensive mechanism, out of fear of violence. Small acts of kindness by the captor are magnified, since finding perspective in a hostage situation is by definition impossible. Rescue attempts are also seen as a threat, since it's likely the captive would be injured during such attempts.

The behaviour is considered a common survival strategy for victims. It became known as the Stockholm Syndrome.

Industries can become like that, with individual businesses expecting that they need to conform to an "acceptable" pattern, not to step out of line or be different in any way, trapped by their environment.

And if times are tough, and a business is in survival mode the tendency to do so is reinforced: small businesses tend to pull in their horns, to hunker down, to survive. And in doing so, lose any chance of being different.

Have a look at the industry you are in. Do businesses operate in a common pattern and conform in everything from the way they advertise, the package of services or products they offer to how they promote and price their products and services?

All very well, but what does it do to your business? You do compete, don't you?
If you do compete, but are not different in any way, then ultimately the only way you can compete is on price. And if you compete on price, there is only one way prices can go, and that is down.

What does that do to your margins, and to your profits?

Competing on price alone is nothing but a giant profit leak.

You can get more for your product or service if you are different, if you are unique.

If you set yourself a target of being significantly more expensive than your competitors, what could you offer to your customer that gave them every reason to choose you rather than your competitors?

Before you say it can't be done, let's look at a few examples:

  • Bottled water - putting aside that you pay more for this than you would for an equivalent amount of petrol there are so many different brands on the market, from those in a simple plastic bottle to Perrier with its attractive packaging and social cachet. Yet it is only water. Why would you pay so much more?
  • Butchers - you can go to your local supermarket and take your choice from the shelf, pre-packaged and ready to go. Or you can go to your local butcher and pay a lot more for your meat. What makes your butcher different is the level of service, the fact that they will cut exactly what you require, the value-added gourmet cuts they have available.
  • Flash drives - you know, those little USB thumb sticks you can use to store and transfer data on your computer. They used to be comparatively expensive, now they're ridiculously cheap, but you can still get some that cost $200 or more. And those expensive ones are on back order, and come with a loooot more capability. For which you pay.
  • Cars - cars are about transport or are they? You can pay (I think) around $3,000 for Tata's new car in India to anywhere from about $50,000 to $1 million plus. Once you get above about $50,000 the price starts to jump in increments of $20,000. Once you get up to the $500,000 level it seems to jump in increments of $100,000. Why? Niche markets willing to pay a price.

Just to rub it in, the best and most expensive products don't discount and usually have a waiting list.

Coming down from the stratosphere of exotic cars how could you define your uniqueness? What makes you different? If you were to double or quadruple your prices, what would be the reason to choose you?

Is it the level of service, speed, ease of use, cost reduction, simplicity, appearance, emotional benefit, freedom from pain, attractiveness to others? You can find, or create, something - "Because we're number two, we try harder" (Avis Rentacar).

So throw off the Stockholm Syndrome, break free from your captivity, and compete by being different, by being unique. And charge a price accordingly.

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© Copyright 2009 Adam Gordon, Profits Leak Detective

And how to get future business

"It was the best of times, it was the worst of times; it was the age of wisdom, it was the age of foolishness" - as Charles Dickens' famously opened 'A Tale of Two Cities'.

It comes to mind as I was reflecting on the performance of two different tradesmen we've used in recent times, and the small business lessons that can be learnt from that experience.

One tradie, let's just call him Austin, I found by word-of-mouth. As you will know, word-of-mouth is the most powerful medium for promotion. But, like respect, it is something that must be earnt, not just given. That's important, because in this case I trusted the referral, and didn't get competitive quotes.

Austin came promptly to inspect the job, and to start it when awarded. The job was done professionally and without any fuss or bother. There were no delays, no stop-start as can so often happen when you're looking for a tradesman. I was pleasantly surprised when the bill came in a little below his initial estimate. I was even more pleasantly surprised when, without being asked, I was given a complete breakdown of the bill in hours and materials.

And then there was Nelson. There wasn't much wrong with Nelson's workmanship. It was his attitude, and his approach. Nelson had a problem. Planning was an issue.

Lack of planning lead to a lack of time. Lack of time led to short cuts, to things not being done properly which, when spotted, had to be redone.

It also led to an attitude that we, the client, by insisting on things being done to specification, were trying to take him down, to short-change him. As a client, an attitude like that leaves a bad taste in my mouth.

What can we learn from this little tale?

Well quite a lot really. But first some basics:

  • Customers are the lifeblood of every business. If you don't have customers, you don't have a business.
  • A successful business model is one that focuses first and foremost on continuing benefits to the customer, the customer and the customer.
  • Most businesses make real money only on repeat sales. While an advertisement may make a prospect hopeful enough to try your service, it can't make that customer delighted enough to buy it again. Only you and your service can do that.
  • Harvard Business School research has found that a 5% increase in customer loyalty can lead to 40% to 90% increases in the lifetime value of that customer relationship.
  • The referred customer is most likely to become a source of more referrals. He got there as a result of a referral so he's already been conditioned to refer. The more you use these strategies the more profitable your business will be. Dan Kennedy

A bloke called Ray Kroc once said 'If you work just for money, you'll never make it, but if you love what you're doing and you always put the customer first, success will be yours.'

Who was Ray Kroc? He was an American businessman who took over a small-scale franchise way back in 1954 and built it into the most successful fast food operation in the world - McDonald's Corporation.

So to the lesson:

  • Look after your customer and you'll get repeat business.
  • You'll make more money from repeat business.
  • Repeat customers are more likely to give referrals and testimonials.
  • Referrals and testimonials are the most effective way to get new customers.

Now in my tale of the two tradies which is more likely to get a referral or testimonial?


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© Copyright 2009 Adam Gordon, Profits Leak Detective

If you are looking on-line, so are your customers.

Traditionally when you wanted to find a product, or a supplier the first thing you would have reached for was the Yellow Pages Directory, or some smaller equivalent.

I say traditionally because there seems to be increasing evidence that small businesses are moving to Internet media as a more effective way to attract potential customers and grow their business. For example:

  • The number of people who use the Yellow Pages print directory less than once a month or don't use it all has increased by 55% between 2002 and 2009. (Roy Morgan Single Source Australia: January to March 2002 to 2009)

  • SBwire reported on 23rd August this year on a survey by the Australian Bureau of Statistics, relating to business use of information technology which showed that proportion of businesses with Internet access via broadband connections was 82.5% in 2005-2006. That was a significant increase by 32% from the previous year. Australian businesses are clearly making huge inroads on the Australian online media.

  • Sensis® e-Business Report 2009 showed of those SMEs that are connected to the internet, 96 per cent now have broadband connections, up from 94 per cent last year. With 26 per cent of Australians now using their mobile phones to search on the internet, with searching for information on products and services, using social networking sites and looking for suppliers of goods and services the most popular usages.

  • In the US it is suggested that Google's (and the other top search engines) innovations in local search combined with increasing inclusion of business listing data in the Search Engine Results Pages (SERPs) is causing users' behaviour to change. Users are finding more and more of the information they're seeking directly in SERPs, negating the need to find Yellow Pages.

  • Australian directories such as Myboot.com.au report an increased number of business listings from tradesmen such as electricians, plumbers, handymen, home renovators and builders, together with removals and builders categories.

Does this mean that the traditional Yellow Pages director is heading for extinction? To be fair, the Yellow Pages people claim increased usage. As they would.

So what's the answer for your business? Well, there are two things to check.

The first may well lie in your response to the question above; what do you do when you want to find a supplier, product or service. Do you go to traditional directories or look online. If you're looking on-line first there's a fair chance your potential customers are doing the same.

The second lies in the number of enquiries you have received in the last year from your Yellow Pages ad. Do you know that number? You probably don't, as most businesses don't track these things. So if you had to guess?

One way or another you need an effective way to make sure potential customers can find your business if you are to prosper and grow.

I suggest having a website has become imperative for business. For consumers and businesses alike a company's website is so often the first point of call for information.

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© Copyright 2009 Adam Gordon, Profits Leak Detective

And you will find life a lot easier!

With over 20 years working with small business to help them improve their profitability a number of issues stand out that hold small businesses back. Not addressing them won't necessarily lead to failure, but you will certainly work harder, be more stressed and less profitable than you need to be.

How would you rate your business against these five areas? Why not take that question a step further; give yourself a score out of 5, where 5 is excellent and 1 is "hopeless".

1. Not managing your cash flow - do you manage your cash flow via your bank statement? No idea of where the cash is tied up in your business or how you could do more with less? Not being able to pay your creditors because your debtors are not paying you. Too much slow moving stock tying up cash which could be used for faster moving stock. No cash flow budget. Remember cash flow and profitability are two different things.

2. Not understanding your financial statements - can you really have control of your business if you don't understand the messages your Profit & Loss statements and Balance Sheet are giving you? Is the profitability of some product lines or services disguising the losses of others? How do you know? Are some customers more profitable than others? How do you know? Are all variable costs recovered from the customer who incurs them, or from overheads at the expense of your profits? Who is funding your business; you, the bank or your creditors? Which key ratios do you use to measure your financial health?

3. Not having a plan - Do you know where you and your business will be in three years? Or do you have a focus on short term day-to-day issues, rather than a long term objective? Are your trapped in being busy being busy, and going nowhere? Are the decisions you make based on those day-to-day issues, or getting you where you want to be? It's like pounding away on a treadmill, and where do treadmills go? Nowhere!

4. Haphazard marketing - Yellow Pages ads placed every year with no real thought, no measure of how many sales they generate. Ads placed at random in the local newspaper, radio or TV. Does your message match your market? No thought-through core marketing message or understanding of what makes your business unique, no marketing campaigns. Your target market is "everyone", but are you in markets which don't perform as well as others you could be in? How much repeat business are your getting?

5. Not having business systems and operating procedures - Have you noticed that all good businesses have good business systems and procedures? How much time do you spend each week redoing things that weren't done properly in the first place? Or telling someone how to do something that you've told them before, looking for something that wasn't put in the right place? It's frustrating but it's also a waste of your time, and your money. And it's all because of a lack of documented systems and procedures. Is "we've always done it this way" good enough today?

So how did you go? Is there an opportunity for improvement in your business? Avoiding even one of these mistakes will make a difference to your business, and to you.

If your would like to think about these issues a little further then our free E-Book, "7 Clues to a Profit Leak" looks at these questions and others.
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© Copyright 2009 Adam Gordon, Profits Leak Detective

Shouldn't it ?

Just how do you arrive at your selling price? Do you follow a formula, taking the cost of the product you're selling and adding a margin - 20%, 33%, 50%, 100%? Do you have a pricing strategy or policy? And is it based on your costs, or your market?

Many small businesses base their prices their costs plus a margin. Those that don't usually base their prices on what the competition charges, which is even worse, but that is another story.

What do you do?

There are problems with this pricing strategy:

  • The price has no relation to what the market will bear. You could well be leaving money on the table, or losing sales because the market doesn't agree with your price.

  • Do you know your costs accurately? Many small business accounts do not accurately separate variable and fixed costs. If your mark-up is to be accurate you need to know this. A mark-up based on inaccurate costs is meaningless.

  • The gross margin you show on your product will certainly not be the same as the gross margin on your income statement.

  • Profitability is measured as a percentage of sales, not as a percentage of costs. For example a mark-up of 50% gives a gross profit of 33.3%.

  • It assumes that the customer has some idea of your costs.

There are two foundations to an effective pricing strategy and they are both based on knowledge: knowledge of your costs, and knowledge of your market.

Mark-up prices are based on the direct (variable) costs of a product or service, that is, on what it costs to acquire or manufacture the product. So you buy a widget for $100, mark it up 50% and sell it for $150. But are there other costs associated with the cost of the product such as:

Freight in
  • Delivery to your customer
  • Warranty
  • Commissions
  • Consumables

Many of these costs are often buried in your overheads. If so, part of your mark-up must go to recovering them before contributing to your overheads and, once you've got past the break even point, to your profit. The point is they're variable, that is, the more you sell the more you incur. Fixed costs are just that - fixed. The more you sell the more your margin contributes to their reduction, the quicker you get to your break even point, and the quicker the profits roll in.

For the profits to roll in you need to know your cost structure - accurately.

Your price should be a market price, not a cost price.

Your customer is not buying your product on what it costs you. He or she is buying it on the value it will deliver to them. Will it save them money? Will it overcome a problem, fix something? Will it relieve the pain? Will it enable them to do something more quickly, or more easily? There's a value on that.

What is that value worth to the customer, because that is what they are willing to pay.

Understanding your market place and the problem your product really solves for your customer, and the value it delivers is critical in have in an effective pricing strategy. And if you can't deliver that value at a cost that leaves you a profit, then you should ask yourself whether you should be in that market.

A pricing strategy based on a percentage mark up will only be sufficient accidently.

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© Copyright 2009 Adam Gordon, Profits Leak Detective

The perils of profitless cash flow!

It's a situation that happens quite often in business; the profitability of some operations or products disguises the lack of profitability of others. In a newsletter last year I wrote of a client, a business with a number of small profit centres. Whilst the business was profitable overall about 70% of the small profit centres were losing money. Now is that a profit leak or what?

A quick sum suggests most of these would need to increase sales by more than 33% to just break even, with one needing to increase by more than 120%. That sounds like pretty hard work to me.

Maybe increasing gross profit is not as hard? I'm a great believer in the power of gross profit. So we ran a 'what if' on increasing gross profit in each profit centre, but that didn't help much either. A significant lift in sales was still required.

The problem for my client was that these small profit(less) centres produced a steady stream of cash, unlike the profitable centres where the cash flow was extremely lumpy. I learnt many years ago that cash flow is king. You can't pay the bills without cash, no matter how profitable your business. But there is an inherent difficulty in considering cash as being more important than profit in the longer term.

Cash coming in is all very well but if a business is losing money then with each turn of the working capital wheel a bit is shaved off. You start with $100, it goes around and comes back as $99, around again and you have $98, and so on.

It's not exactly the way to make you flush with funds. You need a margin on the top that goes into your bank account for that.

What would you have done?

If neither increasing sales nor gross profits will change the situation then maybe the company is better of without those particular profit centres. "But we need the cash flow from them to pay the bills" I'm told. I've seen it before, people hanging onto operations despite profitless cash flow.

It is easy to say just close the unprofitable centres, but that doesn't solve the problem of the required consistent cash flow.

Well, negotiate an overdraft with the bank. After all that is what overdrafts are for, to allow businesses to even out the irregular or seasonal variations of income.

What are the options?

An overdraft is an easy solution, but are there others? It's always worth looking at all the options before adding debt, particularly in these troublesome times.

Evaluating options requires a good hard insightful look at all your strengths, all the positive things that underlie the successful side of the business. For example is there a market, a profitable market for your underlying skills, a market which will produce a consistent and positive cash flow? Is there value for others on how you do something, as well as what you provide? Solutions that would allow the irregular but profitable operations to build the bank balance quite nicely, rather than replenishing the sieve-like profitless operations.

In this case our client both plugged the profit leaks by closing or selling off the profitless centres and built a new profitable profit centre around their underlying skills. They developed a valuable product around how they did what they did. And the cash flow it provided is both consistent and profitable. The bank balance is at last building.

Profitless cash flows will imperil your business. Profit leaks can be plugged.

If you would like to discuss how to identify and plug profit leaks in your business, This email address is being protected from spambots. You need JavaScript enabled to view it..

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© Copyright 2009 Adam Gordon, Profits Leak Detective

King Canute isn't dead!

Or at least the type of action which saw him whipping the waves to stop the tide coming in isn't dead. A short article in my local newspaper recently suggested that the Internet was a threat to local businesses, taking sales which in its absence they may have won. It went on to urge people to shop locally.

I'm sure people will shop locally, unless they can get a better deal somewhere else. Somewhere else may be the shops in a bigger town with more variety and more competitive prices.

Somewhere else may also be the Internet.

While the Internet may be a threat to local business you can't ignore it. To do so just condemns your business to on-going profit leaks.

Like it or not, the Internet is not going to go away. All the stats show that using the Internet to buy goods and services has been growing dramatically, and is forecast to keep growing. World Internet usage statistics as at March 2009 report that Internet penetration as a percentage of population in Oceania/Australia is 60.4%, second only to North America at 74.4%. By comparison Europe is only 48.9%.

New data from the U.S. Census Bureau show that 62 percent of households reported using Internet access in the home in 2007. It will only have gone up since then. Australia is not too different from America, and with the increasing broadband speed promised under the National Broadband Network access is only going to get faster, and easier.

Sure, you can appeal to people to "go forth and spend" locally, but that is only like King Canute whipping the waves. I doubt the Internet tide can be beaten into submission.

So how do local businesses compete?

Being well stocked and competitively priced is only part of the response as the article suggested. The article touched on lack of after-sales support from an e-commerce site. That is true. A provider based in another country can't provide the support a business just down the road can provide. There's a strength that you can build on.

But you must do more than just provide good customer service. You need to tell your prospective customers about the products, the service you provide, and the support that is readily available.

There are always two faces to every threat.

Look at the Internet from a different perspective. It is also an opportunity.

As the old saying goes, the best form of defence is attack. That calls for some good marketing. Marketing wasn't mentioned as a strategy in the article. As another old saying states, "Being business without marketing is like winking at a girl in the dark. You know what you're doing, but nobody else does."

Why not come in with the tide and develop your own website as a key element of your marketing strategy?

Developing a simple website need not be expensive. After all, what do you spend on Yellow Pages ads? And do you really know how many sales result from them?

Having a website doesn't mean you are selling to the world. There is no reason why it shouldn't be targeted purely at your local market. Research also shows that along with increasing household (and business) usage people are increasingly going on-line to research their requirements. Most of your prospective customers are turning away from traditional places such as the Yellow Pages and towards the Internet, simply because of the depth of information it can provide.

But your site must be more than an on-line brochure - a waste of time and money. You must tell prospective customers about the problems you solve, and give them a good reason to come to their local business. Make them compelling offers.

The tide is not for turning. Don't ignore the Internet. Turn it into an opportunity and plug that profit leak.


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© Copyright 2009 Adam Gordon, Profits Leak Detective

A finely honed profit tool

You know the old story about Grandma's axe. She'd had it for many years, still insisted on chopping the wood for the fire. The axe was a good one, sharp, good balance, a strong handle. Grandma could really make the chips fly when splitting firewood. And over her lifetime Grandma's finely honed old axe had had three new handles and two new heads. But it was still Grandma's old axe.

Is your business a finely honed profit tool; finding customers, delivering them value, making good profit, and able to do so without stressing you to the max, while giving you plenty of free time to spend with your family.

Or is it a dull and blunt instrument, out of balance, bouncing of the timber it used to split with ease, and likely to give you splinters whilst using it?

You see businesses, just like Grandma's axe, need to be continually updated and improved if they are to continue to be an efficient and effective profit machine.

What makes up the handles and axe head in your business? There are at least five components I can think of:

Your marketing & sales tool: How long is it since you had a good look at your market, whether there were any changes in it, what the competition is up to? And how long since you changed your approach to your market and updated your marketing approach and materials? Are your marketing efforts still getting the same return, or do they need sharpening or replacing.

Your pricing tool: How long is it since you have reviewed your prices? More importantly, how long is it since you reviewed how you set your prices? So many small businesses set their prices by looking at their costs and adding a margin. What has that got to do with value to the customer? Sure, you have to know your costs to make a judgement about the gross margin needed, but that is only one aspect of the process. The customer doesn't know your costs. It's the value you add, the results you deliver that the customer is paying for.

Your production tool: Whether you peoduce a product or service, you need to deliver it as efficiently and effectively as possible, at the right time, place and cost. Could you delivery process be sharpened? Are there elements that could be replaced with something which does the job for you more quickly, with fewer errors or at a lower cost? What are the constraints that could be holding back the value you add for your customers? Are there gaps between your desired performance and actual performance?

Your administration tool: Your business administration, the office if you like, performs the critical task of enabling your production processes to work properly. Without effective financial management, purchasing or HR, for example, what you do to create and satisfy customers just won't work as well as it should. And if your administration is costing too much then the margin sales has to earn is higher, and the job is harder. Are there gaps between your desired performance and actual performance?

Your processes and procedures: Have you ever seen professional axemen who compete at the local agricultural show? They keep their gleaming axes in a special case. The special case for your tools is the processes and procedures by which you use the tools above. But it is only a protective case keeping the tools sharp if those processes and procedures are documented. Because then they will be used the way they are supposed to be used. To quote E-Myth author Michael Gerber "Do you ever wonder where the profits really come from? It's your business systems that add value. It's your business systems that create profit."

Like a good axe, keep your business tools sharp. Update and replace those parts that are worn and not performing and your business will be finely honed; finding customers, delivering them value, making good profit, and doing so without stressing you, while giving you plenty of free time to spend with your family.

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© Copyright 2009 Adam Gordon, Profits Leak Detective

You have made changes, haven't you?

The only constant thing is change. An old saying, but not a trite one. It's not trite because it's true. You don't have to be reminded about the global financial crisis to know that. Dramatic changes can suddenly imperil your business. Gradual changes can cause it to leak away.

So what changes have you made to your business in response?

Let's start at the sharp end, with the customers; the people without whom you do not have a business. They may not have changed as a target market but their expectations may have changed. Their propensity to buy may have changed. Their buying patterns, and frequency of purchase may have changed, as might the average value of their purchases.

Houston, we have problem.

So maybe the symptom of a problem causing a profit leak in your business is that there has been 'no clear improvement in the customer offerings over time'.

Let's face it. You should be continually improving your customer offer no matter what the times. But when there is dramatic change the imperative is even greater. Wait and see is not a strategy to maintain your profits.

It all comes back to value from the customer's perspective, the value package you are delivering them to meet the problem you are solving for them. Whatever they are seeking it is driven by an underlying problem, be it cost saving, improving their operations, making life easier for them, improving their efficiency or whatever.

What could you do? Here are 7 ways to improve your customer offering.

  1. 1. Talk to them - yes, I know you do, but you need to get an even closer understanding of their situation, how the current climate is impacting on them, and their expectations, in order to improve your offering or the mix you offer them.

  1. 2. Offer an option of a downgraded package at a lower price. That doesn't mean slashing your price. Take some features out so you can offer a lower price.

  1. 3. Balance that with an upgraded offer offering increased benefits, at a higher price. In other words, offer a variety of pricing options to increase your opportunity of winning over prospective customers.

  2. 4. Link your offer to a reason for it. People are more likely to buy when there is a reason for offering specials. In recent times I've seen "Stimulus Specials", "Beat the Recession" specials, and in my part of the world, "Flood Recovery Specials".

  3. 5. Develop and offer a freebie that provides value. Try a free report relating to your area of expertise: how to save freight costs (trucking company), how to reduce your water bill (plumber), how to reduce the running costs of your car (auto mechanic), how to reduce your computer down time (IT business). It needn't be long; a single page of dot points will do, as long as they are real.

  4. 6. Try at least one marketing medium you haven't tried before. You probably have a Yellow Page advertisement, and maybe a newspaper advertisement that you run regularly. But have you tried a personalised sales letter (with one of the above offers), an email marketing campaign, a letter box or post office box drop, and on-line offer (as opposed to a boring on-line brochure). I'm sure you haven't exhausted all the available marketing media. And by the way, measure the results.

  5. 7. Be odd. Find something you can do to stand out from all the others they could be buying from. Face it, there's no competitive advantage in me-too marketing. Customers won't talk about you if you are just like everybody else.

Counter those constant external changes, whether they be dramatic or gradual, by continually improving your customer offer and you prevent a profit leak.

And if you would like a hand in developing any of these responses This email address is being protected from spambots. You need JavaScript enabled to view it. to see how we can help.

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© Copyright 2009 Adam Gordon, Profits Leak Detective

Is this a good business!

Some years ago on a business trip to Hong Kong I was taken by our local agent to visit a consumer electronics factory. We were given the usual treatment: morning tea with the Managing Director, demonstration of their products, inspection of their operations and a factory tour.

After we left I turned to our agent and said "There's something not quite right there. I don't think it is a good business." Nonsense, I was told. Mr. XYZ is a very good businessman. And he drives a Rolls Royce.

A couple of months passed, and then I received a telephone call from the agent. "I don't know what you saw there, but Mr. XYZ's business has collapsed. He's broke!"

Now I knew nothing about consumer electronics operations. My manufacturing background was in the metal working industries. But, as happened on that occasion, on going into a business intuition chimes in. You pick up little signs about how well the business is run; little signs that nudge the warning bells.

If you've been in business for awhile yourself you no doubt do the same thing. You walk into a business and "just know" whether it is a good business or not. But what are the telltale sign you are picking up?

I've often tried to analyse what leads me to that intuitive conclusion. It seems to be a combination of factors:

Tidiness - an untidy business is usually a less than efficient business. If it is untidy they are unlikely to have good procedures and systems. Good procedures and systems underpin good businesses. Less than efficient businesses will be earning less than optimal profits. Poor systems may be hiding poorly performing areas of the business.

Waste - obvious waste in the office or operational areas? Where there's waste there is a profit leak.

The demeanour of the people - cheerful and happy people are at work suggest the business is probably a good place at which to work, and a good place to work is one that is working well;

Ostentatious and misplaced expenditure - money being spent on the wrong things. Expensive cars and front offices when it is obvious the operational areas need funding are always a clear sign.

What are the signs that inform you?

Do you look for them when assessing potential suppliers? In this day and age you want reliable suppliers.

Do you look for such signs when assessing potential customers? You want to be paid, and you don't want the customer from hell.

More importantly, do you use the same assessment when stepping back and looking at your own business?

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© Copyright 2009 Adam Gordon, Profits Leak Detective
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