If you really want to improve your business in 2004, then you need to figure out where you want to be a year from now, and make an action plan for getting there. And then you need to get out there and make it happen. Even if you’re already the leader in your industry, you will have opportunities to improve the profitability of your business. It’s not always easy to achieve, but it’s certainly possible. You need a plan of attack.
Specifically, you need to find out exactly what your existing and potential customers want—it’s not always the lowest price. (This will form the basis of your marketing plan.) You then need to organize your business so that you can delight your customers. (This forms the basis of your operations plan.) This requires giving attention to your team members and equipping them with the resources and skills they need to excel in what they do. In other words, you must systematize your business.
Finally, you need a management control plan in place to make sure everything is working the way you designed it to work. This will focus on the things you must get right to succeed. We call these things your Critical Success Factors. We measure how your business is performing in relation to them with the use of Key Performance Indicators. A Key Performance Indicator might be your gross margin percentage, for example. As Michael Gerber, author of The E-Myth Revisited (Harper Business 1995), said, “The reason most businesses don’t work is that the people who are supposed to be managing them are too busy working IN them rather than working ON them.” He means that they’re doing the technical work. They’re working with their hands rather than with their heads. There’s a limit to what the hands can do, but no limit to what the head can do. So here’s how to get started improving your business.
First of all, set a profit target for 2004. Second, look at your fixed costs and make sure you’re maximizing the return on the money you’re spending on fixed costs. Third, review your Gross Margin and decide what it would take to increase your margins. Finally, figure out what sales level (and sales mix) will deliver the revenues you need to meet your profit target. One more bit of advice: don’t try to do all of this on your own. Leverage your time by assembling a team of advisors to help you develop your business plan and help you monitor your progress. We look forward to hearing of your successes!
Paul Svendsen, CPA is an adjunct faculty member of the COCC Business Administration Department. He can be reached at 389-4740.