In large corporations people with specific skills are matched to specific tasks. Big businesses employ buyers for buying, sales people for selling, accountants for preparing budgets and reporting on performance, human resource people for managing staff, marketing people for generating marketing material, middle level management overseeing these people and reporting back to upper level management.
Small business owners have to simultaneously wear many of the above caps and it is this very pressure that can cause small business to crumble and fail. After all, how can one person be an expert in all of the above? They can’t, but how well a business prospers depends on the attitude and actions of the person controlling the business. Let’s call this person the Managing Director (MD) who, more often than not, is also the owner of the business.
As humans we react to the “urgent rather than the important” and this very trait costs small business hundreds of thousands of dollars of lost profit. Due to every day pressures many important tasks just don’t get attended to unless they become urgent, and one vital task that suffers more than any other, is the task of business planning. In working with a large number of jewellery store owners it never ceases to amaze me how many agree that planning is important and know they must put some time aside to plan but don’t exercise the discipline to prioritise planning. The end result is it never gets done.
I speak from experience. In May 1980 I substantially improved my family’s income only after I took a full week off to plan the following three years of my businesses future. By the end of the week I had a specific plan to double my personal income within six months. I achieved that. How? By planning, staying focused on my plan and treating every wall I come up against as a challenge. After the week of planning I arrived back at work excited and charged with a positive attitude. I got my team excited with the challenges I had set and I didn’t let anyone throw cold water on my plan. For the first time in my life I had taken control of my business destiny. I took control of the business, it no longer controlled me. By planning and taking control of your destiny you can radically change your business results and your personal lifestyle.
Whilst I spend a lot of my time planning and implementing business growth for clients, space available for this article only allows me to give you the framework of a plan. You must seek the expertise required and apply your own thumbprint to a plan. Who, Why, How and What are the most important questions in business planning.
Who should do this planning?
It falls squarely on the shoulders of the owners to ensure their business prospers. As an owner you must take responsibility for your business success or failure.
Why should I spend time planning?
A small business is only a means to an end. It should exist to support the lifestyle of the owners, not dictate the lifestyle, as it so often does. For the duration you are in business the business must generate enough cash to provide for your retirement as well as your current lifestyle. To only give you a liveable income is unacceptable given the risk of being in business. It is not by accident that the successful businesses I work with, devote time to planning, actioning the plan then reviewing the results on a regular basis.
How do I plan?
The starting point is for you, the owner, to clearly identify and document what your personal financial 3 - 5 year goals are. They may be to upgrade your home, buy a boat, become debt free, put your children through university etc. Then look at whether your business on its current performance can provide you with the income to support your personal goals. If not, now is the time to plan changes to your business to support your personal goals. If you are waiting for the economy to improve, don’t be fooled. It’s up to you to take control of your own destiny, to provide you and your family the quality of life you deserve. No one else has that responsibility.
Take time out from your business. You cannot plan your future when you are being called to the shop to fit spring bars. Go off the premises, stay at home (and don’t answer the phone). Take all the financial figures you need to examine where you are at and to plan where you want to go. If you don’t know where you are currently at, or where you are going when setting out on a journey, you won’t know which way to start going.
What do I plan?
In short there are three distinct categories that all management fall into - stock management, people management and financial management. You need to plan changes to improve the way you manage all three categories. It’s true, “If you only do tomorrow what you are did today you will only have tomorrow what you have today”.
Stock is one of the most critical areas that needs management. To buy without a plan will not only create cash flow problems but also will not allow you to improve your business. It’s fair to assume that if you continue to buy as you have in the past you will achieve the same results as in the past. Plan to increase the quantity sold, the average sale and your mark-up (it only takes a 10% increase in average sale and quantity sold to more than double the personal income owners can achieve from their business). Put a plan in place to achieve an increase in gross profit, then monitor the weekly results. Buy stock to sell, not to fill the store. Buy some better stock that will improve your average sale (it takes fifty $39 watch sales to generate as much profit as one $2000 ring sale - that’s right, fifty times as much work!)
There are three sub groups under this heading - suppliers, staff and customers. Plan to build closer relationships with key suppliers. After all, you rely on them as much as they rely on you. Form strategic alliances with your top 15 suppliers (who by the way will be giving you 75 to 80% of your entire profit). Sit down with these top suppliers and plan how your can increase sales and purchases of their stock. Create Win/Win agreements with suppliers.
Review each of your team members with a view of building an unbeatable team. Commit to train and motivate each member of your team to bring out their full potential, realizing that if you have a team member you cannot improve then you have failed, either by wrongly selecting them in the first place or your inability to manage them. If you have to replace one of your failures then DO IT! You do neither them nor yourself any favors by allowing them to stay.
Each of your customers is your number one customer. Treat them as such and they will reward you with repeat business and loyalty. Come up with five additional customer services you can give to your customers that will make them feel special . . . then do it.
This has two sub categories - before the event and after the event. Before the event requires you to set Cash Flow Budgets and Buying Budgets. Failure to do these will inevitability lead to ongoing cash flow problems. The days of thinking Christmas is a save all are long gone with Christmas being the single biggest contributor to cash flow problems in February to June due to over buying.
After the event you should know your sales, average sale, quantity sold, mark-up achieved on sales, gross profit generated, by day, month, and year per store. In today’s business environment not knowing this is flying blind. If sales are up or down, is it due to the average sale or quantity of sales made? If profit is up or down, is it due to sales or mark-up? Not knowing this information prevents you from taking action to stem the loss or improve on the increase.
To summarize, you as the owner have the responsibility to provide your family with the very best standard of living possible and to provide for a high standard of living during retirement. You have the responsibility for the income of your team members, they look up to you for job security and leadership. You can do better and it all starts with a change in your attitude that will allow you to include planning as an important part of your business day. One day a month away from the front line is not too much to devote to reviewing the previous month’s performance and setting the incoming month’s action plan.
You have only two options - you can do nothing more than you are currently doing and expect no more than you are currently achieving, or you can change what you are currently doing which will change the results. This is your choice, but remember, one thing is for sure, change does not take place without change. Start planning today to enjoy a better lifestyle tomorrow. As they say “If it’s to be, it’s up to me.”