Today’s environment is uncertain. No-one really knows to what extent recent world events will impact our economy and for how long.
Whilst you may not be able to change the economic environment, we can help ensure that your business is running at its optimum and out-performing the competition. Now is the perfect time to start planning your business strategies for 2013.
With Christmas and the New Year fast approaching, most retail businesses will be focusing on consumer spending over the holiday period, but business owners should also be focusing on the steps they need to take to keep their business operating efficiently and profitably.
In fact, economic conditions and lack of business ability were the two main causes of business bankruptcies in 1998-99, according to the Insolvency and Trustee Service Australia statistics.
Australia’s leading provider of industry based information solutions, Entrepreneur Business Centre, has developed a practical and effective benchmarking process tailored specifically for Australian businesses like yours.
Benchmarking allows business owners to effectively analyse and compare their business to others in their industry and as a result, formulate and implement strategies which can help improve their overall business performance.
Naturally, the strategies and key performance indicators used will vary depending on the particular industry and whether the business is, for instance, retail or service oriented.
Benchmarking – The key to improving business performance
Benchmarking enables you to systematically measure your business’ performance against similar businesses and then, by adopting and adapting any functions or procedures found to be more effective, improve your own performance.
It sounds difficult but in reality, it is a fairly simple process. There are four key steps to successfully benchmark your business. These are:
1. Analyse your current business
2. Compare against other businesses
3. Formulate new strategies based on your findings
4. Implement strategies.
Using these four simple steps, you can analyse and improve any aspect of your business and plan for a more profitable future.
Following are seven strategies, in four key areas, where benchmarking can be used to improve your business:
1. Managing Your Cash Flow
Carefully monitor your cash flow: While Christmas and the New Year might make it tempting to overspend, resist! Focus instead on analysing what your costs are and how they can be reduced while increasing revenue. You might also want to try some cost-cutting initiatives such as doing as much work in-house as possible rather than outsourcing.
Source cheaper supplies: Let’s face it, we are in a buyers’ market. Try shopping around for alternative suppliers of goods and services. Try tendering out the supply of goods and services to help ensure that suppliers give you the best possible prices. Broadening your supplier base also reduces the risk of over-reliance on one or a few suppliers.
Try to negotiate with your suppliers for extended trading terms. They may prove accommodating. If not, negotiate for a settlement discount on your goods if you pay your invoice within a certain time limit, say 30 days.
2. Financial Management
Tighten credit terms and pursue debtors: Analyse your average collection period to ensure it isn’t increasing. Depending on your specific industry, gen erally less than 45 – 60 days is considered satisfactory. However, if your collection period is growing, then you could be financing your suppliers’ businesses at your expense. Ensure you have an efficient system to follow up on slow payers and send out regular reminders to slow bill payers.
Analyse your key financial ratios to see how well your business is performing overall – These include your return on assets (net profit before tax divided by total assets) and current ratio which looks at the level of current assets available to meet current liabilities (current assets divided by current liabilities).
You should also look at your gross profit margin which calculates the average profit per dollar of sales before operating expenses (gross profit divided by sales). If your gross profit margin is low, you may need to look at your direct costs or better manage discounts offered to customers. You can also use the gross profit margin to assess how much you can increase your prices without adversely affecting profitability.
3. Constantly Assess & Implement Marketing Strategies
Execute more focussed marketing campaigns to build market presence – Analyse your previous marketing efforts and compare with your sales history to see whether you are getting the same returns on your advertising.
You should advertise when demand for your goods and services will be at their highest. For instance, if Christmas is your best time, you should be advertising now, when your customers are most receptive to spending money. Make sure you target your market correctly and advertise where it will be the most effective.
Look for ways to improve your prospect follow-up process – Try analysing your conversion rate from enquiries to customers. You have already spent valuable money advertising to get the phone ringing, so make sure you treat every call as a potential sale.
Always get their contact details so that you can follow up on their enquiry at a later date. Make sure you implement some sort of customer database system to enable continual monitoring and follow-up of your prospects and customers.
4. Managing Personnel
Re-assess any expansion plans, such as hiring new staff, and avoid knee-jerk reactions to outside influences as this can harm your business in the long-term – New staff can dramatically increase your costs so ensure you will get a corresponding increase in productivity/sales.
Use your financial ratios to assess whether your business can afford the additional cost and compare staff costs versus productivity and profitability against the industry average. You might also consider hiring staff on a part-time or casual basis until any increase in revenue can be assessed.