The Frequency of Best Practices with Small and Medium-Sized Businesses

Business failures are all too common.  You may be an excellent doctor, accountant, architect or engineer.  You may be a specialist in your field, but respectfully, it does not mean you know the nuances of running a successful business.  Sadly, mismanagement is one of the primary reasons for business failures.

“Best Practices” are techniques that businesses employ to control costs, stream-line processes and avoid disruptions.  Over the years I have worked for three very large companies; and worked with a great many small and medium sized businesses.  I have found that small and medium-sized businesses incorporate some Best Practices, but not consistently.  However each large Fortune 100 company I worked with incorporated best practices consistently.

On March 6, 2014, CFOTips published a quick 32 question survey to understand the existence of standard best practices in small and medium-sized businesses.  Questions were general, so the concepts would have applicability to all responders, regardless of the business model.  Select results were as follows –

  • To understand the success of your business, it is recommended that an annual business planning process be conducted.  But when asked, only 47% of responders had a long-term plan of where they expected to be in five years; while only 47% of responders had a documented, detailed business plan for the next 12 months.
  • A best practice for an entity is to annually set strategy for the coming year.  This activity requires external information to validate your approach and direction.  Interestingly, only 41% of responders conducted competitor surveys; while 59% conducted customer satisfaction surveys; and 41% conducted employee satisfaction surveys.  Only 59% of entities conducted an analysis of their place in the market, similar to a Strength, Weakness, Opportunity, and Threat (SWOT) analysis.
  • To ensure processes are efficient and reduce expenses, a best practice is to establish policies and procedures and document job descriptions.  Only 41% of responders have policies and procedures for most, if not all processes; and 59% of responders have job descriptions.
  • To ensure your cash flow is not disrupted, a best practice is to have a collections process and utilize it when required.  Based on our survey, only 65% of responders have an established collections process.
  • To reduce the risk, of fraud annually a segregation of duties analysis should be performed.  Yet only 47% of responders performed a segregation of duty analysis.  And to ensure an environment where all employees act on behalf of the company’s best interests, ethics policies should be established, with a system available by which employees can identify unethical behavior.  While 75% of responders have an ethics policy, only 35% of responders have a whistleblower program.
  • To control costs, periodically vendor agreements should be reviewed to understand what you are paying for and what you are receiving.  Yet, only 35% of responders review vendor agreements and company needs periodically.
  • But the most surprising results were related to the prevalence of a business continuity plan.  Only 29% of responders reported a documented business continuity plan for their business.

Note, as less than 100 responses were received, this information should be considered directional only.  How do you compare?

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.

Redesign to Turnaround Underperforming Small and Medium-Sized Business

There are many reasons why an organization may require business turnaround assistance.  Rarely is it due to a single factor.  A business may find itself in need of assistance based on unforeseen external factors, i.e. a natural disaster, competition, new regulation, new taxation assessed federally or at the local level.

Internal reasons for turnaround assistance may be attributed to a period of high growth.  Rapid unplanned growth can be very disruptive, if the focus turns away from profitability.  It is not uncommon for any or a combination of the following situations to occur – customer service declines, as well as customer satisfaction; company reacts to the sudden increase in business and creates processes that are inefficient; contracts are signed quickly, increasing the potential for error; employee overhead rises through increased overtime or additional headcount; and cash outlays jump to manage the increased business.

Years later you stop and look at the business and discover things are inefficient and costly.  An Accounting colleague once advised that often times he is asked to look at an established business to help them correct a low profitability issue.   He reflected on the fact that, “Most of the time when a business comes to me for help, it is already too late.”  You need to understand when a problem exists.

The clearest sign that turnaround assistance is required is after a steady erosion of your business economics.  Profitability continues to decline because –

  • Revenue increases year-over-year are anemic due to continual price pressure in a mature industry;

  • Marketing efforts are not organized and occur sporadically, i.e. the volume of new business, only serves to replace terminating relationships;

  • Employment and administrative expenses increase; and,

  • Competition is fierce.

But even after pointing out the data that shows a sustained economic decline, do not be surprised to hear management colleagues provide the following excuses –

  • The company’s economic issues are attributed to only one department or product.  Just fix that area;

  • There are quick fixes that can solve all our problems;

  • A problem does not exist.  We are just experiencing a rough patch that will self-correct;

  • Recent short-term revenue increases signify that a problem no longer exists; and,

  • We can solve the issues through expense reductions only.

The solution to counter an underperforming small or medium-sized business is a redesign.  Interestingly, the method to redesign a business is the implementation of standard business management “best practices.”

Following are six areas, that when optimized will increase the probability of success for your organization –

Management

Understand the economic drivers of your business; and study the production results of your efforts.  Make a commitment to financial discipline and prudent growth.

It is important that the entire management team of the organization is in agreement that a business redesign is necessary.  I have seen situations where one manager recognizes an issue, while another does not.  To be successful, you will need complete support from all managers.

There will be times when hard decisions will need to be made.  Complete commitment to the process is required.  If during the course of the redesign, things improve for a short period; do not stop implementing the corrective measures.  Trust your analysis.  Improved returns may not mean the problems are solved.

Diagnose the Depth of the Issues

The first step is to critically look at your establishment to understand the state of your business management practices.  As a result of this review you will be able to develop a list of areas that need adjustment.  Some improvements may require only a slight modification to your current processes; while other improvements may represent a large change to your approach.  Once the issues are identified, you will need to prioritize the adjustments to your business model.

Develop an Appropriate Strategy

Understand the market and survey internally and externally, i.e. competitors, customers and employees.  Develop detailed strategies that allow you to minimize weakness, maximize opportunities, and mitigate threats.  Communicate the strategies throughout the organization.

There are many strategies that a company could adopt.  However, if you are in a turnaround situation, your business energies and the corresponding strategies should be focused on efficiency and growth – become the low cost provider; differentiate your product or service in the market; be the value provider; and, adopt a customer centric approach.

Plan and Actively Manage Cash Flow

Cash Flow can be considered the barometer of the financial health of any organization.  An effective cash flow policy includes ongoing financial management.  In a perfect world, your monthly revenues cover your monthly expenses and leave a surplus, i.e. a profit that increases cash reserves.  But the perfect world is a theoretical place.

Success requires planning and a constant review of how your actual results compare to your plans.  Through this approach, you will be better able to make small adjustments to help you reach your financial goals.

Communicate the overall plan company-wide.  Involve employees and managers in the company redesign.  Set a plan and establish metrics.  Monthly distribute a one page document to the employees in the organization that clearly tells how the organization is doing compared to the metrics established during the planning process, i.e. a Scorecard.

A redesign to turnaround a business cannot be completed behind the scenes.  Progress sharing with your employees is very important.

Optimize Support Functions

Most processes work best when there is consistency.  Variations in activities and manual processes create a higher probability of error and expose the organization to unnecessary risks and time wasting.

Out of the ordinary tasks should be the exceptions.  Not the rule.

The task of documenting policies and procedures makes you critically look at processes and identify how things may be accomplished more efficiently.  A natural outcome in the short-run will be a reduction in costs.

Optimize Business Development

Marketing is a service that supports the sales efforts of the organization, by providing tools to foster lead generation, customer retention and relationship development/management.  This area should ensure the business is efficient, effective, and provides top tier product/service delivery capabilities. The focus should be to maximize profitability and increase customer satisfaction while maintaining appropriate risk controls.

Regardless if your organization has an extensive marketing group or not, there are a few staples critical to a successful approach to generating new business: create clear and concise brand positioning; produce targeted promotional materials which may include a selection of brochures, ads, flyers, and e-newsletters; build an on-line presence that may include a social media component; measure and track business results; and, manage the organization’s Customer Relationship Management (CRM) system.

Implementing adjustments to these six areas may represent a change in the way you have been conducting business to date.  New ideas cause disruption.  Closely monitor process change results and adjust, as required.  It is the commitment of your managers and dedication of your employees that will be required to ensure flawless execution and success.

You will benefit from an immediate savings through cost containment, once business operations are optimized.  But a complete turnaround requires successful marketing and sales.  A complete turnaround requires both revenue enhancements, as well as cost containment.

I have found that small or medium-sized businesses may incorporate some of the concepts, but rarely all of the concepts.  However each large Fortune 100 company I worked with incorporated every one of the concepts.  These are proven methods of success.

The blog you just reviewed is chapter one of a book that I published.  This book is a little different as it is experience based vs. academic based, i.e. what has worked in my career.  The book discusses each solution in the context of how it was observed in business.  I wanted a tool that a business owner could pick-up and use with practical recommendations, that can be applied across industries.

If you wish to read more, the complete book is available here –

Redesign to Turnaround Underperforming Small and Medium-Sized Businesses

 

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.

Big Data for Pricing Optimization

If you study Marketing, you learn that pricing is part of the “marketing mix.”  The firm combines price, product, place and promotion in the hope of finding the appropriate relationship to appeal to the target market.  The degree at which these variables are manipulated is based on available data, i.e. geographic assumptions and customer qualities within the geography.  If your product has features that are different from what is currently offered in the market, it may be possible to garner a higher price, if consumers can distinguish the feature differences.

But in situations where offerings are similar, differentiation must be established at the company level. Why would consumers buy from me vs. my competitors, if I offer similar products? In this situation the company must adjust the value it delivers to customers, i.e. its value proposition.  The answer to the question – you should buy from me because of my knowledge, experience and customer service expertise.  It may be possible to garner a higher price, if consumers can distinguish the value difference.

It only makes sense that if you improve the quality of the data used to make decisions regarding the marketing mix components and the value offered, the firm will benefit financially.  Through the use of large data sets that consider consumer preferences and actions “Big Data” analytics may help you achieve this goal.

As reported in Game changers: Five opportunities for US growth and renewal a McKinsey Global Institute study (July 2013), “Amazon has taken cross-selling to a new level with sophisticated predictive algorithms that prompt customers with recommendations for related products, services, bundled promotions, and even dynamic pricing; its recommendation engine reportedly drives 30 percent of sales.  But most retailers are still in the earliest stages of implementing these technologies and have achieved best-in-class performance only in narrow functions, such as merchandising or promotions.” (page 75)

Big Data analytics are typically used for the following –

-improve internal processes;

-improve products or services;

-develop new products or services; and,

-enhance targeted offerings.

Implementing a “Big Data” approach requires hardware, software and highly technical quantitative analysts that have the specific knowledge to glean results from large data sets.  If you were looking to investigate the potential benefits that you may receive from a Big Data analytics program, it would make sense to outsource a test.  If the test is successful and you believe that an internal resource should be developed, you will be in a better position to develop that function internally.

There are a few companies today that offer “Big Data” services – Accenture, Deloitte, Oracle, PROS Pricing, SAP, Vendavo, Vistaar, and Zillant.

Does your company use “Big Data?  How?

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.