Last time we defined business transformation and its role in a thriving business. How can you know when your business might need a transformation or major tune-up? Here are nine warning signs that you may be overdue.
- Is your financial data accurate and correctly organized? Lack of good financial reporting is a widespread problem, and it’s easy to understand the cause. Your chart of accounts was probably developed early in the evolution of your business. Your CPA is focused on tax returns, rather than management information. Without clear financial reporting, how can you understand the true performance of your business?
- Do you have accurate data for product costing and pricing? I can just about guarantee that one of your products or services is losing money. Do you know which one it is? There are some good reasons for selling a product at a loss (you can probably name at least three), but you should do so knowingly. If you aren’t capturing and reporting income and expense by product line – and making sound pricing decisions – you may be leaving cash on the table.
- Do you have an up-to-date plan for cash and funding? To be successful, your business must be profitable. But that’s not enough. Your business must be cash-positive – or you’ll have to plan for funding to support your cash-negative operation. Do you really understand your cash cycle and how to optimize it? The road to ruin is littered with profitable businesses that ran out of cash.
- Do you track business performance measurements, and share them with your management team? Most successful businesses set annual goals and measure progress toward them. But it’s not enough to track top-level goals, like revenue or profits. You also need to identify, measure and control your key performance indicators – the activities that determine your progress toward your top-level goals.
- Have you developed a professional middle-management team? In the early days of your company, you may have promoted friends, family or good technicians into management roles. At some point in the life of your business, the demands of the job will outgrow their capabilities. Are you ready to evaluate objectively, and make the needed adjustments?
- Do you continuously adopt new business tools and technology? The pace of technical innovation is increasing daily. There are new tools for selling, financing and operating your business. Whether your focus is on productivity, quality or speed of delivery, you need these new tools in order to stay competitive. Evaluating and implementing new tools takes a lot of management time. But if you don’t take the time, your business will be left behind.
- Do you conduct a periodic assessment? Do you step back quarterly, or even once a year, to see the big picture? Do you have access to industry performance data, so you can review how your business stacks up against your competitors? Chances are, you do a review only when your bank asks for it. Wouldn’t it be better to see the warning signs early, before the train jumps the tracks?
- Can you see the trends and changes in your market? Nearly every mid-market business failure follows a similar story. At one time the owner was doing things right. Then something changed – the economy, the competitive landscape, technology. The owner failed to see it, or failed to respond and the business suffered. Don’t let this happen in your company. Make sure you know your market better than your competitors and are getting outside perspectives from trusted advisors.
- Do you have a written business plan? Every entrepreneur swears up and down that he or she has a business plan. Some truly do, but if you were asked to show your plan, would you pull out a crumpled slip of paper with a few figures and notes scribbled on it? Was the plan developed in collaboration with your team? Most entrepreneurs hate to be bound to a plan – but a written plan helps your whole team pull in the same direction.
If you answered “NO” to any of these nine questions, take it as a warning that you probably need to make some changes.
Where do you begin?
A sustainable business makeover will take three steps. Next time we’ll look at “Step One – You Can’t Make Good Decisions with Bad Data”, and describe three ways to find out what’s really going on in your business.
To your success, Steve Milan
Steve is a founding partner of FUSE Financial Partners, LLC in Charlotte, North Carolina. He specializes in aligning business operations and finance with the visions and goals of the business owner. Contact him at [email protected]. Read more about Steve here.