Question: As owner, I feel like I”™m always looking over my shoulder, wondering what will get in the way. What are some things to look out for and what should I do about them?
Thoughts of the day: Major issues can get in the way of success. Be smart about how you grow your company. Here are seven common obstacles to growth and how to address them.
1. The wrong people.
Counsel employees about the importance of keeping up with change. Regularly review skills companywide. Post jobs to assess talent availability. Build individualized training plans. Look for gaps requiring new hires.
Make it a privilege to work for your company ”“ one that is earned. Give your workforce the opportunity to grow and show what its capable of. Promote people who demonstrate values of ambition, drive, teamwork, honesty and commitment to the company”™s future.
2. The market has moved on.
Engage every department in looking for new markets and new ways to serve existing clients. Ask customers what else they need. Get vendor updates on what”™s new. Attend trade shows for new ideas.
Commit funds for marketing. Expand profits by selling new products to old customers and old products to new customers. Look five to 10 years down the road.
3. The cost to produce has changed.
Do annual cost reviews. Put someone in charge of negotiating discounts with vendors. Get more efficient. Remember that cost cutting only goes so far.
Eventually you”™ll have to increase prices and pass along price increases. It”™s better to do smaller price increases each year versus one big increase every few years. If customers balk, beef up marketing to look for new opportunities.
Keep an eye on what competitors are doing. Stay away from price wars ”“ nobody wins. Define a niche, a specialty, an add-on, something that makes your product or service more appealing.
4. You don”™t have a good handle on finances.
Learn how to read balance sheets and income statements. Build KPIs (key performance indicators). Teach everyone in the company to use reports to quickly spot problems.
Use budgeting tools. Forecast income by product. Estimate costs that vary as sales volume goes up or down. Know how much you need to cover overhead.
Forecast peaks and valleys. Know when you”™ll need cash. Build in margin for taxes, loan principal, shareholders and employees, and reserves. Tie salary increases and bonuses to company profits, not revenue.
5. Theft, loss and waste.
We all like to think that we have good people we can trust. And for the most part, we do. As things get busy it”™s easy for things to slip by.
Use tools and rules to help keep good people from doing stupid things. Let people know you want what”™s best for everyone. Wasted hours, lost materials and accidents mean less profits to share.
When there is a problem, address it swiftly. Line up the facts. Get employees involved in resolving problems. Don”™t let things slide.
6. Not enough of the right sales.
Some clients are your company”™s future; some are its past. Look for customers that are forward-thinking, well-run, well-funded and concerned about the health of their vendor partners. Give them the top priority.
Let poor-quality customers know you”™re concerned. Look for late payers and low margin accounts that demand a lot and don”™t want to pay for the privilege. Replace them.
7. Not enough capital.
Every business needs reserves. Three months of overhead is good. Six months is better. We call it the “sleep at night” fund.
Don”™t try to pay down credit lines quickly at the expense of cash on hand. Put $1 toward each. Build up current assets as you reduce current liabilities.
Ask your banker to explain the ratios they look at to assess the health of your business. Set goals to improve those ratios. Build up hard assets, such as owning a building, that can back-stop your lending needs.
Looking for a good book? Try “The Facts of Life, What Every Successful Business Owner Knows that You Don”™t” by Bill McBean.
Andi Gray is president of Strategy Leaders Inc., strategyleaders.com, a business-consulting firm that specializes in helping entrepreneurial firms grow. She can be reached by phone at 877-238-3535. Do you have a question for Andi? Send it via email to AskAndi@strategyleaders. Visit AskAndi.com for an entire library of Ask Andi articles.
“Do annual cost reviews.” Most entrepreneurs unfortunately, esp. in the US where it is not taught as much as in European business schools, understand so-called marginal costing. They price themselves out of their markets because they do not understand when to sell “below cost” but still above what NOT selling the same item would still cost. While a simple enough concept, to derive cost margins is a difficult and to an extent subjective process, esp. as fixed costs can be variable given a long enough time frame (or vice versa) and few ever learn this in time (i.e. before panic sets in and clouds reasoning when the going gets tough).