17 Apr, 2012
How To Build Performance, Profit And Purpose Into Your Business Planning – By Nic Rixon
I have spent much of my professional life as a business coach and mentor to business owners of mid-range businesses; talented and bright people who work hard and play hard and know what it is to achieve great results.
But it never ceases to amaze me how few people know why they are in business or what their exit strategy will be.
Determining an exit strategy helps owners to relate their present business practices to their longer-term financial and retirement goals. It helps them to think bigger and sharpen up their vision for the future.
A profitable business needs to have three things in place:
- A Business Vision that answers questions such as:
‘What’s the business goal going to look like?’
‘What’s the business goal going to feel like?’
‘What does the turnover need to be?’
- An efficient business growth model that will enable optimum performance and profit.
- A culture that supports and looks after people.
Very often, the larger a company grows, the less efficient it becomes. Turnover may rise, and overheads may increase, but witrh every new staff appointment the profit per heasd goes down.
Take a fresh look at performance targets and profit margins
Corporate businesses are very focused on financial goals. They have key performance indicators (KPIs) in place to ensure that everyone is working efficiently. But mid-range businesses are more likely to operate on gut instinct and feelings. Financial targets are less exact. It’s more about: ‘we did £1m last year; let’s try and do £1.5m this year.’
For example you may hire a salesman. He or she sells 100,000 units per day. You take on another salesperson; between them they sell 180,000 units per day. You take a third person and between them they sell 250,000 uni; and now you need to hire admin support too.
So now there are four people selling fewer units per person than when you only had one salesperson. But what the business owner sees is: ‘We are now selling 250,000 units per day so we’re going in the right direction. Let’s keep going.’
By the time the department has expanded to a team of six, it is selling 500,000 units – and the business is no longer making any money.
Why Does this happen?
Because the business hasn’t identified the process needed to allow the sales team to deliver to the optimum; or calculated and communicated what the maximum profitability of the team could be.
The point is, you don’t hire the next person to add extra sales – you bring them on board because the efficiency of your business demands it. It’s about working out your optimum ‘run rate’ in relation to maximum capability.
- What’s your company’s maximum sales capability?
- What’s the current percentage efficiency?
- How efficient are you at delivering the result?
- How does this relate to your exit strategy and where do you want to be in X years’ time?
Safeguarding your future
Once the vision is the focus, the business processes can be put into place to deliver it. Having a clear vision that is both cultural and commercial is crucial to your long term growth. It has to explain where you’re going, when you need to be there by and why it is important. Vision comes first and then function follows.
If you give managers the ‘why’ – they will work out the ‘how’ – and take pride in doing it. That means looking looking after your people and making sure they have what they need to do the job well. It’s not enough just to run a few training programmes and a subsidised canteen.
So make sure you look after your people – properly. Make your vision their vision – and their future – so that they are as motivated as you are to achieve their targets because, like you, they need to know what they want and why they are doing it.