How is your business doing?
Take time to assess numbers and understand your bottom line.
by Chia-Li Chien | Sept 15, 2013
Business owners have so much going their way. Control, flexibility, personal and professional satisfaction. As a matter of fact, most business owners I talk to for my annual Business Value Drivers survey cite those reasons as some of the major motivators for getting and staying in business. The other main reason, of course, is the ability to build business value—the financial potential.
Of course, business owners take on risks that many other professionals do not face. Financial potential swings both ways—the potential for great gain and the potential for great loss. So how do business owners manage that risk? What can they do to make the pendulum stay on the upswing?
In my experience, a business owner must manage that risk through three different channels:
To oversimplify it a bit—if you have a product or service, you’ve got to have someone who will buy it. Those people are your customers. So here’s a trick question—do you know who your customers are?
Do you know who your best customers are?
What or who creates your profits? (Remember, a pure sales number is not the whole picture.)
A while back, I was working with a company that wanted to expand its client base from 500 to 1,000. They hadn’t really assessed their data, couldn’t tell me their average sale per customer, and the cost of customer acquisition vs. customer retention and/or growing a customer vs. customer growth. None of it.
Because often, it’s up to the business owner to find this information, and the business owner is too busy working IN the business and not ON the business. So, I asked this company’s team to determine the average sales per customer and the buying habits and profiles of their most profitable customers. Then, we were able to target only the type of potential customers who were more likely to be above average spenders. By carrying out a narrow, focused and targeted marketing effort, the company would not need to acquire as many new customers, which would save marketing expenses, and the customers that were acquired would be more profitable than the average customer.
In the 1980s, Vanguard defined itself as a mutual mutual-fund company. Vanguard was unlike most mutual companies at the time as ownership was structured so that it was owned exclusively and jointly by the mutual funds it distributed. In other words, their clients became clients-shareholders. Since maximizing profits meant maximizing returns to the clients, Vanguard was committed to the philosophy of cost minimization and high-quality customer service. Success was measured by cost savings and client satisfaction. Vanguard’s corporate culture continued to focus through the years on attention to cost, teamwork, and client satisfaction. By 2006, the average expense ratio of Vanguard funds was 20 basis points, compared with the mutual fund industry’s average of 126 basis points.
Attention to who their customers were, service excellence and cost minimization set Vanguard apart. See my previous article, Are Your Customers Being Served for details on creating a solid and satisfied customer base.
Every business and every person is different. It’s up to the business owner to have a vision for the business and then find the right people to support that vision. It’s not an easy order. And, it’s fluid. At times, the business vision (model) may need to change and there may be people who are not capable of changing with it. Other times, people may change, and because of what is going on in their lives, they may need an internal position change or even to move on.
Are you treating your employees well or stretching them to do the job of two or even three people? Top down leadership determines company culture and employee moral. Those two factors determine, in large part, customer satisfaction. Customer satisfaction impacts profits. Your attitude toward your employees is reflected in your employees’ attitudes toward your customers. Your attitude makes a huge difference.
I have seen, in almost every business I’ve worked with, that when there is no investment in employees, that company’s marketshare declines. So, maybe it’s time to put the right processes in place to (as much as possible) assure you are hiring—and keeping—the right people.
Those hiring processes should include:
• A well-thought out job description
• An interview process
• Candidate rating system
• Personality assessment
• Onboarding process
• Continued training, education, evaluation and feedback
While putting hiring and employee retention processes in place will take time, effort and investment in the company, by hiring and keeping the right people vs. the wrong people, your company will save thousands of dollars over time—and make thousands more. Having the right people will build your business—and your business value.
And speaking of business value, how do you determine your growth, or bottom line? How do you assess your numbers? For example, if you stop evaluating your numbers when you see a rise in revenue figures, you could miss the fact that even so, your bottom line is declining, which could mean, incrementally, the cash flow is not there when the business needs capital. When it needs investors.
I will tell you the one thing you need to know about investors—their only concern is their return on investment (ROI).
It’s not about you ‘selling” them on how great your business is. You guessed it. It’s about what they see when they look at your bottom line. Your bottom line is their assessment of your business health and potential value. Your bottom line is greatly impacted by your customer base and the employees you have in place. It’s also a matter of valuing your intellectual properties and scalable processes. Tools for measuring and putting these strategies in place are widely available. Or maybe you have one of these tools but haven’t started using it yet...
Determining your bottom line, your business value, who your best customers and employees are often requires an outside point of view. Most business owners don’t know what to look for financially—capital needs? Expenses? Revenue? There is value in having someone or an outside team of specialists to guide you through, to help you see what creates your profits and why your business offers a good ROI for an investor.
Let us know how we can help you. A three-day, on-site assessment often reveals not only the challenges a business has, but the solutions for moving forward, business growth and increased business value as well. I’ll be glad to discuss how we can assist you and your business.
About Chia-Li Chien
Chia-Li Chien, CFP®, CRPC, PMP; Chia-Li “like JOLLY,” Succession Strategist of Value Growth Institute, dedicated to helping private business owners increase their company equity value. She is the award-winning author of the books Show Me The Money and Work toward Reward and a faculty of the American Management Association. Her blog and newsletter was named a Top Small Business Resource by the New York Times You’re the Boss blog. Contact her at email@example.com or (704) 268-9378 .