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Critical issues that surface in nearly every business

November 20th, 2012

I was recently chatting with a member of the Principa Alliance and he shared with me the fear he had about conducting a planning session with a client and being asked a question he could not answer.  I’m sure this is a common fear but it’s unfounded for two reasons.  First, the purpose of a planning session is NOT to answer questions, it’s to ask them or perhaps I should say it’s to create a forum in which your client thinks deeply about his/her business and seeks to map out an action plan to improve its performance.  Secondly, most businesses that I have been involved with are hampered by a handful of issues that are highly predictable.  For this reason you can be well prepared for any question likely to be thrown at you simply by having “advanced” knowledge of the underlying problems.

With that in mind, you do not need to spend more than about four hours reviewing the Business Development Questionnaire before the Planning Session.  The issues that you’ll come across in varying degrees include:

• Differences between owners as to what they want the business to do for them in terms of income, leisure and financial growth.

• Different time frames amongst the owners as to when they’d like to dispose of their interest in the business.

• Operational issues and problems are seen by the owners to be the major problem but in fact they are symptomatic of a deeper issue.  It is a lack of a coherent business strategy and business model that’s the root cause of their problem.

• The owners spend nearly all their time working IN the business not ON it and most of the “on” that they think they are doing is “disguised in” stuff – that is, it’s administrative in nature.

• The financial return to the owners is rarely much more than the hourly rate they pay their Team Members doing equivalent work and when the owners allow for the total time involvement in the business they are frequently earning less than their employees. This is the classic proof that they are working IN their business rather than ON it. If you want to drive this home, particularly for smaller clients, ask them to divide their net income from the business by the hours they work in it and then compare that to the hourly rate they pay their employees.

• Internal operating procedures are not documented and rarely is there consistent application of systemised processes.

• The owners do not have a Management Control Plan that they routinely use to run and build the business. Decisions are made reactively and are ad hoc, usually to deal with a pressing problem rather than the cause of the problem. Management by crisis is the order of the day.

• It is rare for the management group to meet as a Management Board at scheduled times with a Chairperson presiding. There are no Key Performance Indicators used to measure all the critical elements of the business. There is no documented business strategy or plan and no cash flow or profit plan.

• There is no formal organisation structure with people being assigned specific areas of responsibility. No written job descriptions, no formal performance standards and no formal employee evaluations usually accompany this.

• The management group each has acknowledged technical skills but a real understanding of financial management issues is generally not one of them.

• Financial accounts are rarely looked at as a management feedback mechanism and rarely do the owners of a business really understand the full significance of the accounts and the importance of timeliness and accuracy.

• The focus of management is usually on building sales revenue by attracting new business rather than building profitability. The focus is almost always on revenue rather than profit.

• There is no formal service or product strategy in place. The owners have only an informal feeling as to where the profits of the business come from. They have never done a Pareto Analysis on the basis of customer type, service or product group, distribution channel

• The owners have never formally talked to their customers about service issues and they have no formal system for measuring basic things such as acquisition and defection rates, the lifetime value of customers or surrogates of customer delight. Negative feedback from customers is almost always perceived to be a problem with the customer rather than a problem with the processes of the business.

• There is far more time and money spent on trying to attract new customers than on working to deepen relationships with existing customers. Rarely does the business have any formal structured system for after-market sales.

• There is a significant difference between their Team Members’ perception of the quality of their customer service strategy and that of the owners. Usually, Team Members are frustrated with system failures that make them look stupid and they take the brunt of customer annoyance with the standard of service offered.

• Pricing is usually done to “meet the market” with little or no consideration to the dimensions of value the business can offer customers. As a general rule prices are at the lower end of the market spectrum.

• The business has never done any formal analysis of its true cost drivers. The tendency is always to look at any situation or possible opportunity in incremental terms. Owners have quite a clear understanding of the gross profit from incremental business but they can not easily see that all new business stretches capacity and will ultimately drive up enterprise overheads.

• They have little or no insights as to what their competitors are doing or their strategies. They have given little if any serious thought to the way in which the competitive landscape is changing.

• A lack of direction, a lack of training and a lack of documented systems for operating procedures frustrate team members.

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