Entrepreneurship…Keeping a Pulse on Your Business

Keeping a Pulse on Your Business

The Benefits of Owning a Business

Many of you have found that owning your own business can be an exciting adventure.  You quickly learn new concepts in marketing, media, finance, accounting, operations, manufacturing, customer service, etc.  When compared with employment, once you make a profit, owning a business is a way of retaining all the value you produce versus an employer benefitting from a large portion of the value.

We all understand that it takes time and investment to build a new business.  Therefore, expecting an immediate windfall in profits may be unrealistic.  Patience and perseverance will be your best friends when getting underway.

Keeping a Pulse on Your Business

However, it is important to keep a pulse on your business by establishing check points for your business to pause for evaluation of how far you’ve come, your strategy, your goals, and whether the business remains a viable idea.

Depending on your risk tolerance level and your financing situation, the frequency and necessity of these check points may vary.  However, having a check-in at least once a year is important for any business. 

While many use this annual process to create the next year’s strategy and budget, it may also be used as a time to step back and evaluate the business from a higher level.

There are a few key questions you may want to consider asking yourself during these check-ins.

Hopefully, when coming up with the idea for your business, you thought about the problem your business will solve.  You may have done a great job in identifying a need and providing a solution.  It is important to remember, however, that technology, economy, competition, and markets may all impact a customer’s determination of whether your product provides the best solution.

One of the textbook examples of this is the Block Buster story.  Providing rentals for VHS and then DVD media was a great way to provide entertainment for customers for a long time, however, when digital media started to advance and Netflix started to provide online services, Block Buster was slow to pivot and missed out on the opportunity to adjust their model to address the new delivery method.

Your business might also be in the luxury space, providing a product or service that doesn’t address a human need, but a want.  What does your business model look like if the economy heads into a downturn?  Do you have enough financing to get you through?  Are there other products or services that you could add to compliment your current offerings?

Taking the time to ensure that what you offer is still the best option for your customers will help you to stay relevant and prepared so that your company has longevity.

2.     How does your business generate profit?

While you may have started to identify the areas where your business generates income in question one, it is important to clearly delineate products, services, processes and procedures so that you can easily review them for efficiency and profitability.  Often, we may look at a single end product as the focus of the business, but then miss maintenance, parts, customer support, or other contributing processes that could be looked at as part of the main product or service or could be separated and evaluated on its own.  Truly understanding what you and your employees provide to a customer each day will help to then perform an evaluation of your business.

3.     Which parts of your business are not profitable?

Once you have established all the parts of your business requiring evaluation, then you can look at where you need to focus your efforts, where you need to make cuts, and where you can continue the status quo.

Is there an area of the business that is struggling, merely because it needs to be marketed and advertised?  Do you need to hire additional employees to provide support for a product or to increase your production rate?  Is there an inefficient process slowing down production volume that could be streamlined?  Are you able to obtain financing to invest in an existing business line or to start a new one?  Are there products or services which are no longer solving a customer problem so that it may be more profitable to cut it out completely?  Are there technologies available that could improve efficiency?

These may be difficult questions to ask sometimes, especially if you have an emotional attachment to a past achievement.  However, it is important to step back and review everything with reason and logic to ensure you are setting yourself up for continued success.

4.     Is the business financially healthy?

It’s important to review your business financial position from a place of reality.  Step back and review the position for the business as a whole and for the segments of the business identified above.  Questions to consider asking:

·       Are you generating positive cash flow each month?

·       Are you able to meet all obligations?

·       What fluctuations in volume are you able to handle and still meet your obligations?

·       Where are you investing profits (capital expenditures, financial investments, etc.)

·       Do you have access to additional capital, if needed?

5.     What is your pricing strategy and why?

Businesses have options when selecting pricing strategies.  Are you pricing low to attract volume?  Are you pricing high for higher margins on low volume products?  Do you start at a higher price and consistently provide discounts and sales to customers?  Do you value your product and hold it at a consistent price?  Or are you a mix of the strategies, depending on your products or services?  Do you have a strategy, or have you just been going where the wind blows?

It is important to identify, select, and follow a strategy.  That way you are able to generate a scoreboard of your results to evaluate the strategy.  If you haven’t been operating from a strategy, it may be time to set it up and identify how you are going to measure success.

If you have been following a strategy, then review how it is working for you.  If you change a price or discount, how would it impact volume?  Based on your profit analysis above, are there products or services that need price increases in order to make profit margin?  If you change the number of discounts or sales offered, how will that impact your marketing and advertising costs?

Zeroing in on your target pricing strategy could be a game changer for your business success.

6.     How do you evaluate employee efficiency?

It is important to target the ideal number of employees.  Adding employees might allow you to take on a new product or business, improve customer service and add value to your offerings (allowing for a higher-level pricing strategy), or to allow you to have more time to focus elsewhere on your business or for more personal time.

Labor costs are often one of the largest costs for a business, so ensuring you have the right number is incredibly important.  To assist in determining the right number of employees, you need to identify ways of evaluating employee efficiency.

It may be the number of units sold or produced.  It may be the number of customers served.  It may be the amount of revenue brought in.  It may be task oriented and meeting deadlines for assigned tasks.  Without having a measure to evaluate employees, you won’t be able to determine if you have the best number for your business.  You may be carrying too few employees to meet your needs, or you may be carrying too many and losing profits.

Conclusion

The benefits of being a business owner are numerous; from retaining profit value for your efforts to being your own boss.  However, after putting in all the blood, sweat and tears, we may get attached to our sunk efforts and not see the business in reality.  Therefore, it is important to establish pauses with planned check points to evaluate the health of the business.  This will guide decision making to ensure success for years to come.

Are you a small business looking to learn more about how to be successful?  Check out this article from Forbes on other factors that contribute to your business achieving greatness!