Five Steps to Building a Successful Business
By Vicki Suiter
With consumer spending on the decline and production costs on the rise, the average business owner has to wonder how he or she will stay competitive in this type of market. According to Vicki Suiter, Suiter Financial Systems, there are five critical things you can do as a business owner to stack the odds in your favor so you not only survive, but thrive:
Step #1 – Have a plan.
Know where you want to go with your business in the next year and the next three years. What will your business look like? Who is your customer? What are you selling?
A good plan should include the following key elements:
- A specific outcome with:
- Measurable results
- A time frame within which it will be accomplished
- A plan to communicate it to all staff.
Step #2 – Identify the three most important things your company should focus on in order to accomplish the plan.
These are things that will give you the most leverage for increasing revenue or decreasing costs. For maximum effect, this should be a collaborative effort with key staff.
- Make a list of what is working and not working currently and what needs to be different in your business. These usually are things that compromise revenues or drive costs up.
- Of what is not working or needs to be different, rank them in order of most to least important.
- Now look at that list and determine the following:
- Which of these items, if addressed, would have the greatest impact on supporting the company in reaching its goals?
- Which of these will allow you to reach your goals most effectively and efficiently, i.e., which have the greatest impact in reducing costs or increasing revenue?
- Which of these is best for the company in the long-run?
- In what order should they occur?
- Who should be responsible for those projects?
- Each key area of focus should include the following
- Person responsible
- Scope of work
- Cost associated with execution
- Measurable results
- Time frame for completion, with milestones if appropriate
Step #3 – Have an operating budget.
The plan has to have numbers associated with it in order to be successful. A good budget includes:
- Sales Goals – figure out where your sales will come from, i.e., how much product or services you will sell and when.
- Gross profit & margin targets – amount and percentage of income after cost of goods sold.
- Net pre-tax profit & margin targets – what is left over after overhead and before taxes.
- Planning overhead costs for growth and expansion – include costs that you identified in step #2 that will support you in reaching your goals for the year, i.e., what investments do you need to make to the business to reach your goals.
- Labor costs – For labor, calculate what the cost will be by position based on how many hours staff will work, and include all costs for that labor, including taxes and insurance.
- Equipment – The need for additional equipment to help generate revenue most efficiently, such as expenditures for computers, machinery and other large equipment.
- Additional costs – Determine what other costs will be associated with running the day-to day-operations. This is overhead.
Step #4 – Work the plan. Know what you and your staff have to do in order for the plan to succeed.
This is defined by having job descriptions for each person in your company and includes measurable results and projects you’ve defined in the plan.
Good job descriptions include the following:
- Overall responsibility of the job – not person-driven, but position-driven.
- Major responsibilities defined by no more than five key areas, position-driven, not person-driven
- Objectives and results – no more than three to five key measurable results for each of the major responsibilities defined above. They have to be measurable and most relevant to the success of that position.
- Specific projects or key initiatives for that individual employee.
Step #5 – Have feedback systems.
Successful companies manage by results. They know their numbers and interact with staff regularly on performance.
Some good feedback systems include:
- Actual results compared with the budget, including any variances.
- Key numbers that are tracked on one page and include feedback on the three things you identified as key areas of focus for the year. It should also include:
- Budget vs. actual, in summary
- Sales backlog showing amount of signed work outstanding, plus target and variance.
- If bidding work, an estimating summary that shows the close rate on jobs bid, i.e., jobs won or lost including percentages, target and variance.
- Staff reviews of performance, at least once a year and, ideally, every six months. If a staff person is not doing his or her job, don’t wait . Address the problem now. Straight feedback is the best way for a staff person to become successful and develop a team that is aligned.
- Have a plan so you are clear about where you are going.
- Know what the three most important areas of focus are for your company in the coming year that will support your reaching your goals.
- Have an operating budget against which you can compare actual results.
- Get team alignment with the plan by making sure job descriptions reflect what staff needs to do in order for the company to be successful in executing the plan.
- Stay in relationship with your results for the company overall and with your staff. Knowing where you are in relation to where you want to be keeps you on track and improves your odds of getting where you want to go.