Small business infomation

The aim of this information sheet is to provide small business owners with an insight into how an experienced business counsellor approaches the task of turning around a business. The information sheet was written by a highly experienced small business person who also has accounting qualifications. This information sheet demonstrates that improving a small business is often not just a process of crystal ball gazing, waving a magic wand or making some off-the-cuff suggestions. It is a process that often takes a great deal of effort over a considerable period of time – often many months or more.

1. My initial approach is low-key, disarming, and intended to gain clients’ confidence that I am with them to help them for as long as they wish me to be with them.

2. I ask about their background in a personal way, without being obtrusive. This discussion would venture into their family situation. I believe that this knowledge is helpful in offering counselling in relation to their business.

3. My first inquiry business-wise is always directed to profitability of their operation. This is for a number of reasons: (a) I become aware of the depth of difficulty that I, and they, are facing. (b) It gives an indication of how solvable the position is. (c) It gives a very accurate situation of where the business is, its operation, and its strengths and weaknesses. (d) The name of the game is invariably profit because the life of the business is almost entirely dependent on this aspect. No profit invariably means no business. (e) It clearly shows the elements of sales percent, gross profit, expense levels and pinpoints weaknesses and strengths and where to concentrate. (f) It gives me a very quick, fairly clear picture of the business itself. (g) It shows me whether the client understands the concept of profit by a study of the profit and loss statement – often the P & L statement contains data which is in effect not part of a trading P & L statement. It therefore gives a false indication of where the business is and may lead to false efforts to restore the business to profitability. (h) The initial analysis of how to improve business performance starts with this profit and loss statement. (i) Ideally the Annual Profit and Loss Statement prepared by the business accountant is the statement on which to operate. However, if an up-to-date accountant’s Trading Profit & Loss Account is not available, appropriate questions can be put forward which will enable a picture to form of the profitability of the business. All of the above relates to the profitability aspect of the business, but from this information a fountain of queries will result and the path formed to be followed to restore the business to a satisfactory level of performance.

4. Personnel It is important to get a clear picture of how the business operates and the most important aspect of this is to assess the people who are responsible for the running of the business, their skills, their weaknesses etc. Read more about my business story

5. The Market Great emphasis should be placed on this sector of the business for if there is no market, or there is a shrinking market the task is so much harder. Most things can be aided or redirected. However, the marketplace is very much the responsibility of the current operators – it may be possible to assist in improving the market or finding a market for the business products but this is usually a specialised area and the province of existing operators. However, an in depth assessment of the marketplace will help a better understanding of the operation and the direction in which the business should be heading. A study of product mix is important and in a majority of cases 80% of sales are obtained from 20% of product mix. Some products may be better deleted as their contribution to profit is minimal or not advantageous to business performance.

6. Improved Performance The object of a business is to make a profit. At this stage the following will have become apparent: (a) Profit performance is unsatisfactory, or (b) There is a cash flow problem (c) The situation is extremely difficult. I then place the first emphasis on Cash Flow as invariably this will be causing immediate stress and is threatening to the business I therefore assist the client in drawing up a weekly cash flow for up to 8 weeks. This is most important because if something “cuts loose” it quickly becomes the immediate most important problem and invariably rules the operation and decision-making of the operators and takes their eyes off the main objective of making profit. The data contained in the 8-week cash flow will prompt action to immediately “plug holes” to give breathing space, to take the pressure off while corrective steps are taken to improve the cash flow problems. As a Melbourne Business coach step 6 is one of my most important steps.

7. Methods of easing immediate cash flow problems: (a) Assess bank position (b) Peruse Aged Debtor listing (c) Peruse Aged Creditor listing (d) Take into account loan repayments (e) Ensure monthly debts to bank account are taken into consideration (f) Don’t forget interest payments. I am prepared to contact bank and creditors with the client to make an arrangement for payment if necessary. An assessment of debtors and advice on how and where to apply pressure is also important.

8. Now We return to the performance of the business: (a) Assess a “break-even” point – very important. The client then knows how he is going monthly by the knowledge that he knows how much he must sell at what gross profit margin in order to break even. Anything less in these areas will increase the amount of the monthly loss. Anything greater will give him comfort as to the amount of profit he is making on a quick assessment basis. (b) These are the ways in which to improve profit to the client’s business: (i) Level of sales Here we should study product mix high earners and low earners and whether the product range should be increased or decreased. Furthermore a study of new markets, new products, new selling locations should receive attention. These aspects of sales are however very much in the province of the operators who must have a reasonable grip of their market and it’s potential. (ii) Price levels i.e. increase gross margins on products sold. This of course will have an immediate impact on profit. The danger of course is that it may impact on sales levels. A very subtle approach to this procedure is the ideal way to go, i.e. if prices are to increase on meal prices, then do it when the menu is changed. In other industries consideration should be given to selective price adjustments i.e. perhaps not bread and butter lines, so increase these prices less than in the more luxury lines. (iii) Overheads A very careful study of how overheads should be reduced is of the utmost importance. Once overheads begin to rise they invariably outstrip gross profit increases and eventually lead to poor profit performances. Here, stress to clients not to take the easy way out i.e. give lip service only to cost cuts and not actually carry out the exercise. Controlling cost cuts is the greatest protection a business can have to a long and successful life.

9. Client Relationship I endeavour to assess as well as possible the position of the business, its future and the prospect of making improvements or putting the business back on track. I believe an optimistic approach is necessary and should be conveyed to the client. However, an honest appraisal should be given and if the situation is considered extremely difficult, this information should be conveyed to the client. I advise the client that I am a phone call away and will assist further if requested and do so willingly. The relationship must be friendly, positive and constructive. I assure the client that I am “here to help” and an honest opinion is absolutely essential in the client interest. Many businesses can be turned around and to do this the client must have faith in the counsellor and a willingness to cooperate and succeed.

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