Four Steps to Improve your Company’s Performance in 2014
1. Know your Financials
Companies are dynamic organizations with a myriad of business functions occurring simultaneously. In order for the company to grow, each business function must operate collectively to produce an output in excess of the input. Gross Profit, Net Profit and Cash Flow monitor these relationships. They provide vital information about the health of the company. Specifically they can tell you:
(1) If you are selling your products/services at a high enough price to cover cost to produce.
(2) If your overhead cost are in alignment with the profit received from the sales.
(3) If you are profitable enough to sustain operations, pay shareholders and create equity for reinvestment .
(4) If your cash timing (collections and payments) are in sync and will provide the necessary cash flow to make payments on time.
By monitoring these financial performance measurements, managers can proactively address issues before they become a crisis.
2. Review your Processes
Operations affect every aspect of a company. If the product/service does not meet quality expectations, is not delivered in a timely manner and/or within the cost allocation, both revenues and profitability will suffer.
Efficiency is the outcome of numerous documented procedures, integrated seamlessly and completed without error or waste. Many company failures are caused by inadequate processes and communication breakdowns.
Processes develop over time as the company grows and are often the result of errors and problems that occur along the way. However, this method has inherent flaws (1) the system is comprised of a series of individual solutions to specific problems and may not be fully cohesive (2) the company may have lost time, money and possibly even staff during the error/solution process.
Given the disadvantages of developing processes in a haphazard fashion, the more effective method is to develop the entire system right from the start. By investing in the infrastructure early on, the company will have everything in place to grow to the next level.
3. Assess Employee’s Performance
In a small business it is common for employees to become close friends with the managers and owners of the company. In fact, it is often those very bonds that produce an unstoppable teamwork that gives the company a competitive edge. However, those same relationships can become counterproductive when the priority of maintaining the friendship supersedes what is actually in the best interest of the company.
Business owners do not necessarily recognize this, as it culminates subtlety over a period of time and can be the result of many factors. As companies grow and change, existing job positions may require skills and expertise beyond the person’s capabilities yet employee’s shortcomings are accepted. The person may have never been the best selection for the job but for budgetary reasons, existing relationships or some other justification beyond skill level they were hired. A long time employee may be promoted beyond their capabilities (often known as the Peter Principle where tenured employees are continuously promoted until they reach a level of incompetence). Now they been with the company for many years and rather than letting them go management tries to change the job to meet their skill level.
As uncomfortable as it may be to address the situation, today’s small companies unfortunately have no choice. In a small business every employee plays a crucial role and if someone is underperforming the entire company suffers. Very few small businesses have expandable profit margins allowing them to “just keep” someone on the payroll. Moreover, the company is not gaining new skills and expertise within the current talent pool, which exemplify the company’s needs, as they exist today.
4. Think Strategically
The lack of strategic planning in the smaller sized companies is often attributed to a lack of time and understanding. Strategic planning does not necessarily need to be a complicated process involving elaborate planning tools. In its simplest structure it can be described as the development of a long-term company positioning based on that which provides value to customers and shareholders.
Strategic planning allows companies to assess fundamental industry shifts and how customers and competitors are responding to those changes. Flexibility is an inherent characteristic, required for continuous change and adaptation.Therefore, the best place to start is to develop an awareness of the fundamental changes occurring within the industry and begin to align those changes with the organizations’ core competencies.
To this end, answering the following three questions can provide any sized organization with a starting point. (1) What Business are we in? (2) What changes are occurring in the industry? (3) How do we continue make money?
These four steps outlined above address financials, processes, employees and industry trends. They are the foundations of the business and the key indicators of success. Set aside some time at the beginning of the year to consider each area discussed. Come December 31, 2014, you will be glad you did!
To learn more about:
Performance Measurements visit www.BusinessSimplyPut.com and look for the eBook titled, “Simple Math Calculations to Monitor Company Performance”.
Strategic Planning visit www.BusinessSimplyPut.com and look for the eBook titled, “Planning Your Company’s Growth A 10 Step Guide to the Strategic Planning Process”.