The majority of business owners and executives are fit, health conscious, exercise regularly and wouldn’t think of missing their annual “physical” with their doctors. Yet when it comes to treating their businesses with the same care and attention, some fail miserably!
What many don’t realize is that just as with people, businesses display symptoms which if caught early enough can trigger corrective action and prevent sudden and unnecessary failures. If problems aren’t resolved the results can be fatal, often coming as a surprise, not just to the public and customers but to owners and executives of the companies themselves. There are numerous examples, but here are just five that were shocking and totally unexpected:
i. ATARI, the Video game pioneer ii. AOL, the first Internet Service Provider iii. AIG Insurance, the largest Insurance company (bailed out by the US Government in 2008) iv. Polaroid Corporation v. Research in Motion, makers of the once invincible Blackberry smartphones, now barely surviving.
At this time, when mid-year results are often released I recommend that if you haven’t already done so you take a hard look at the health of your business. A close examination of how the business is doing in just 7 key areas should reveal whether it’s healthy or urgent action required.
1. MISSION / VISION
Ask yourself, senior managers and employees: does your organization know why your business exists? Is there a clear understanding of your mission / purpose? Has your business set goals and do you have an action plan for long term growth? Equally important, do you measure, review or evaluate your results regularly?
If the answer to any of these questions is No, then you probably need to implement an intensive Strategic Planning session as soon as possible. A consultant or Business Coach with expertise in this area can get you started and produce results fairly quickly, but will also bring a set of “fresh eyes” to your situation.
2. SALES GOALS AND TREND
Are your organization’s sales goals realistic and achievable based on your mid-year results? Of course you also need to evaluate whether sales are above or below target and last year. A review of individual results compared to sales goals is important and how this ties in with any commission or incentive plans. If you do not have an incentive plan for sales people you should consider what the effect of such a plan would be on increasing sales.
Clearly, if sales are below target and/or last year you need to drill down, determine the reasons and implement an action plan to ensure you will achieve your sales goals for the year. This is also a good time to ensure that your sales process is designed around your customers’ needs.
3. MARKETING REALITY CHECK
If your business is healthy there are two basic questions you will be able to respond to with a “Yes”: i. have you fully defined your market and are you aware who your target customer is? ii. is your business providing the products / services that your customers need or want? If you cannot answer either of these questions or the response is No, you need to go back to the drawing board and come up with solutions that will allow you to answer “Yes, definitely.”
Other Marketing issues that you should consider are:
- The effectiveness of your advertising and promotional strategies – are they generating sales?
- Do you have a branding strategy and do customers readily identify the name of your business and consider it the preferred source from which to buy?
- Do you measure results to ensure you are reaching your customers?
4. CUSTOMER SERVICE
In today’s competitive markets many businesses struggle to consistently deliver Customer Service excellence. Here are some of the questions you need to ask:
i. Do you have a written, easy to implement Customer Service Policy?
ii. Do your employees understand and follow your Customer Service Policy?
iii. How does your policy compare with that of your competition? i.e. Money back, service or Price Match guarantees?
iv. Do you measure customer satisfaction at point-of-sale or through regular surveys?
v. Have you implemented any changes in policy based on customer feedback?
5. HUMAN RESOURCES
This is often the area in which businesses have the greatest difficulty, in spite of the fact that people are arguably your most important resource. Many owners and managers are so caught up in day-to-day operational challenges that they overlook the solution to or cause of their problems – their people! This is one of the most important areas in reviewing the health of your business.
- Does your business have a recruitment and succession plan?
- Do you and your most senior managers play a role in and schedule time for interviews and hiring?
- Do you have written job descriptions for every position?
- Are performance appraisals done at least annually for every employee?
- Does your business have formal and comprehensive training programs?
- Do you have a complete benefit program, on par with or better than your competitors?
6. FINANCIAL MANAGEMENT AND PLANNING
The financial condition of your business is often the most important factor in determining the health of your business as if it isn’t profitable, growing or doesn’t have enough cash or access to credit to cover expenses it could be on the point of failing! If it does not measure positively in any of these areas you and your management need to turn your full attention to resolving the problem.
Here are the key measures that together, immediately tell you whether your business is financially healthy or requires attention:
1) Current Ratio = Current Assets / Current Liabilities. A ratio of 1.5 or greater is considered healthy as the business can comfortably meet all its financial obligations due within 1 year.
A high ratio of 3 to 4 means that the business is sitting on a lot of cash that could be invested in funding growth or new businesses and if persistent, should be questioned!
2) Debt Ratio = Total Debt / Total Assets. If the ratio is greater than 1, the company is at risk of becoming insolvent and going out of business and requires “all hands on deck.”
3) Profit Margin = Net Income / Sales as a percentage. This is the true “bottom line” ratio as it’s after taxes, depreciation etc. The higher the margin the more profitable the business is in terms of converting sales into profit. The margin varies widely by industry and it’s a useful comparison of performance compared to competitors. As a rule of thumb ratios of 2.5 – 3% in retail and 4 -5 % in general manufacturing are considered acceptable.
4) EBITDA = Earnings before Income Taxes, Depreciation and Amortization. This can be expressed in both dollars and as a % of sales. It is often regarded as a more accurate measure than Profit Margin because it measures profitability before distorting items like taxes and amortization which can be affected by tax losses or capital depreciation.
If either Profit Margin or EBITDA are negative (the business is losing money) or considerably below industry standard, this is a warning signal to management that more in-depth analysis is required and action plans implemented.
5) Debt to Equity Ratio = Total Liabilities / Shareholders Equity. The ratio varies widely by industry (.5 in PC vs. 2.0 in auto manufacturing) but is an important measure as a very high Debt/Equity ratio could be a sign the business is headed for insolvency.
7. WEBSITE AND SOCIAL MEDIA
It’s part of the new reality all businesses face that without an attractive, inviting and informative website it is more difficult to compete as competitors won’t be standing still and will have an active internet presence and probably Social Media marketing programs. If you don’t have a website, haven’t updated it in a while or are not getting enquiries and sales from it, you need to focus on this area – Online retail sales in North America are headed for the $250 billion level. Web shopping for services is equally hot and an increasing number of customers do prior research online even when they purchase in person.
Social Media has become a major factor and “Facebook and Twitter aren’t even close to played out yet. Consumers can increasingly “like” or follow a favorite retailer and get discounts or tips on deals. JCPenney is using Facebook to actually sell goods and more than 12 million consumers “like” Victoria’s Secret on Facebook, making it the most popular retailer on the site.” ______ Forbes, April 2011.
Our advice – find out what your competitors are offering online and develop a program to equal or surpass their offers or like many other businesses, you will be left behind!
BizGrowth Coaching Inc.
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