I recently worked with two different companies on two very large projects. One was a large plumbing wholesaler who, after many years of “being in the showroom business,” but not really being in the business, decided to write a comprehensive business plan that would be their guide to becoming a major player in the showroom business. The other was a large manufacturer who wanted to survey their 600 dealers and learn what they were doing well and not doing well. Both projects were fun and very, very enlightening.
The plumbing wholesaler now has a “play book” that will be their guide for growing their showroom business over the next three to five years. Today they operate about 50 showrooms and do more than $25 million in showroom business. They want to grow these numbers to 75 showrooms and $50 million in revenues. This takes a plan - a guide - a play book, and now they have one. The overall plan includes all of the basic business tools I'm going to talk about shortly.
The manufacturer's survey of dealers garnered a lot of very useful information that the manufacturer can use to help their dealers be better, stronger, and more profitable!
Five of the questions asked on the survey were:
-- Do you have a business plan?
-- Do you do an annual/monthly budget?
-- Do you have a policy and procedures manual?
-- Do you generate monthly financial statements?
-- Do you have written job descriptions and do annual performance evaluations?
The answers ranged from a terrible 45% “yes” to an even worse 18% “yes.” That means less than 50% of the 600 businesses surveyed incorporated these vitally important management tools into the operation of their businesses. No wonder that various people project that more than half of the small businesses operating today will either be out of business or merged into another business in the next 10 years. That's a frightening statistic.
So, instead of waiting to become a statistic, how about dedicating yourself today to becoming more sophisticated, more professional in how you manage your business?
Let's take these six (there are two noted in No. 5 above) management tools and talk about them one at a time.
1. The Business Plan:This is a detailed strategy to communicate to the owner, investors, employees, suppliers and others your mission statement and plans to execute these strategies.
Have you ever found yourself (usually at Christmastime) trying to assemble a child's toy without reading the instructions first? How about driving around aimlessly in a strange town because you followed your sense of direction instead of consulting a map?
Well, it's the same thing in running a business. You can do it “by the seat of your pants” or you can follow a well-thought-out, detailed plan.
There are several books and pieces of software that can act as your guides.
Or you can order my book, “The Complete Business Management Guide for Starting and Staying in Business.” There's a complete outline on building a business plan.
Your plan should include:
-- An executive summary
-- Your company's mission statement
-- An overview of the business
-- The physical plant
-- The marketing plan
-- The human resource plan
-- The inventory plan
Each of these sections will have elaborate details and information.
The first time you write your plan it will take some research and time. But then each year or two when you update it, it is much easier and quicker.
Don't you agree that it's very important to identify where you are today, where you want to go and how you want to get there?
2. An Annual Monthly Budget:Yes, numbers! Budgets are detailed plans that represent set objectives against which to measure results. They are a valuable management tool - a blueprint that will enable you to anticipate what will be, establish specific objectives and chart the right course to help you attain those objectives.
By monitoring results as you pass through the budget period, you'll be able to make necessary adjustments that will keep your plan on target. It will help you determine when to hire or lay off people, expand or cut back, make capital investments, borrow or pay back money. Most of all, it eliminates surprises. Refer to my December 2003 SUPPLY HOUSE TIMES' article “Planning for 2004.”
3. The Policy And Procedures Manual:This is a written document that outlines everything about how your business is to be operated. It is part employee handbook detailing everything the employee needs to know about your company's people policies. And this very important management tool outlines everything from opening the doors to turning on the lights to making and serving coffee. It spells out every detail on how your business is to be run. It's a valuable tool for management, employees and potential buyers of the business.
4. Monthly Financial Statements:These statements are the report cards on how you're doing. The three “must do” financials are:
-- Profit and loss statement
-- Balance sheet
-- Cash flow statement
The profit and loss (P & L), or operating statement, is a picture of the revenues, expenses and profit and loss standing of the business at a given point in time. Many wholesalers don't treat their showrooms as profit centers. They “wash” the showroom numbers into the wholesale branch or company. Not good! How can you determine whether the investment and hard work that goes into a showroom is worth it if you don't keep score?
The balance sheet tells you who owns what. It lists all the assets and liabilities at a given point in time. Do you own more than the bank and suppliers? Is the picture getting better or worse? These are questions you need answers to at least on a monthly basis.
The cash flow statement tells you where the money came from and where it went. It tells you if there will be money in the bank to make Friday's payroll. Pretty important, don't you think?
By getting monthly report cards in each of these areas you can react, respond, adjust and make decisions on how to run the business. A carpenter wouldn't get much accomplished without a hammer and saw, and you won't achieve much without good financial reports.
5. Job Descriptions Or Performance Expectations:This comes under the heading of human resource management. These are one and the same thing. This is a written outline or framework of what constitutes the employees' job expectations. It tells them exactly what is expected of them. When written properly, the performance expectation will focus on the results of the employee's activities - not on the activity itself. All employees deserve to know what is expected of them. And the last thing a boss wants to hear from an employee is, “I didn't know I was supposed to do that.” Every employee should participate in helping write his or her own performance expectation. This way everyone will agree upon the expected results. Once written, allow the employee enough leeway to achieve the results.
6: Job Performance Evaluations:Just like the business needs a periodic report card on financial results, each and every employee deserves a report card on his or her results. At least once a year (twice a year is better) the employee's supervisor and the employee should sit down and review in detail the results of the employee's work. You need to review the good and the not so good. The purpose is to say thanks for a job well done in these areas and we need to do better over here. Employees like and want to know how they're performing. You have an obligation to tell them. If done properly, productivity and efficiency will improve. Morale improves and overall results improve. It's a winning situation for everyone.
These are six very important management tools that you should be using. If you're not, please make it a priority for 2004. If you are using them, you can give testimony to how important they are.