Usually, when starting up a business, careful thought goes into preparing the business plan. But far too many business owners neglect to revise their plans in the light of experience, or reassess the direction that their business is going in on a regular basis. This is one of the key causes of business failure. It is like a pilot preparing a flight plan then ignoring the effect of changing weather after take-off.
Regular reviews of your long-term goals and business strategy are vital to the overall running of the business and can also help to keep these goals clearly in focus. This requires the ability to look objectively at your current position, your short-, medium- and long-term objectives, and how they will be achieved.
This guide is all about managing the direction of your business to your advantage – something that large organisations focus on but that is often perceived, wrongly, as totally irrelevant by many smaller businesses.
The immediate relevance of long-term goals
Though they may seem far-off, your long-term goals should drive what you do today. For example, if you want to grow the business by 50% in the next five years, your objectives might be:
However, if your objective at the end of that five-year period is to sell out and retire, you have additional objectives to achieve:
‘Most small business owners have a false idea of what their business is worth,’ says Peter MacGregor, a business adviser with Ranworth Associates. ‘A lot of them believe that a turnover of £1m means that a company is worth £1m. But it is the profits that count; potential buyers want to know what return they are likely to get on their investment.’
On the other hand, if your plan is to hand the business on to family members, you must be sure it is in a fit state to be passed on, and that the individuals who will be taking it on are up to the job. What training do they need now to take over effectively?
Have goals – but make them flexible
So what are your long-term goals now? Have they changed since you started the business? If so, is this because the market has developed, or because your aspirations or circumstances have changed?
Has the way you do business, and the way your business is set up, altered to reflect new long-term goals – or are you ploughing the same old furrow in roughly the same way?
Long-term goals should reflect your personal needs, your business ambitions, and the apparent direction of the market. But they are not set in stone and should move with the times as well as reflect what you’ve achieved to date.
Once your long-term objectives are set down on paper, you can see more clearly how to achieve them and over what period. ‘A lot of small businesses fall short not so much because they lack objectives, but because they do not give themselves enough time to achieve them,’ says MacGregor. ‘It is no use starting to think about selling your business a couple of years before you want to retire. You should start at least ten years before you plan to exit the company.’
Strategy as a whole is about setting a target within a sensible timeframe and looking at the stages the business will have to go through to get there.
Sometimes it involves making major new decisions, changing business direction, and changing staffing levels and styles. But you cannot move forward unless you understand where you are now.
Analysing your current position
As well as deciding where you want to be in ten years’ time, you need to know where your business is today and where it might be tomorrow. A useful tool for assessing this is a SWOT analysis, where you list all your business’s internal Strengths, Weaknesses, and the external Opportunities and Threats, no matter how insignificant.
Properly applied, this kind of analysis can provide you with a clear insight into where you stand now and what might happen in the near future – it can help you drive your business forward in the most effective direction. A SWOT analysis is a tried–and-tested tool, but most people usually use it only in a marketing context, when it would be better used in the context of business as a whole. It is also a useful way of foreseeing some of the problems you might encounter over the coming months.
For example, the introduction of new legislation to clean up an industry might be perceived as a threat at first – more paperwork and red tape looms. But this threat could also throw up opportunities that may change your long-term strategy. You could take the opportunity to grow fast by acquisition – buying out smaller rivals who don’t want to deal with the new legislation.
Thriving on change
A key issue in driving your business forward is how you manage inevitable change. Many small firms change direction only through reacting to outside events. Yet proactive, considered change can be the key to long-term business success.
A few years ago, a company that made cast-iron guttering to catch rainwater proclaimed itself the best in the business. Arguably it was, until PVC guttering began to dominate the market and the company, unsurprisingly, went out of business. As a business owner, the question you have to ask yourself is: can you handle change? Are people still going to buy the products and services you sell now in three or four years? Will your skills and strengths still be relevant? If not, where will the challenges come from and how? Should you meet them, sidestep them, ignore them, join them or retreat from them? Can you diversify? Can you be more nimble than your current larger and more cumbersome competitors and so steal a march on them?
It is all about how flexible your business is. It isn’t a case of simply making changes; it is making them at the same pace as, or ideally in advance of, your competitors. And all of this should form part of your business plan and be reviewed on a regular basis. Managing change is one of the most important skills a business owner can have. While nobody can completely accurately forecast the future, you can identify many opportunities and threats and take appropriate action, particularly on matters over which you have some control.
Factors within your control
There are many factors which you have control over, such as staffing, pricing, suppliers and so on. These should be re-assessed at least annually. How do your prices compare with the competition’s, for example?
Review your customer base regularly. Is the profile of your typical customer changing? If so, how will this impact on your marketing efforts? Are their needs changing as outside factors change – for example, as a result of new technology?
Look closely at the products or services you sell. Are you cross-selling (selling additional products to a customer) as much as you could be? Are you encouraging customers to upgrade as much as you might? What are your most and least profitable lines? Are they competitively priced?
Reassess your staff. Could they be more productive if they had more training, or better equipment?
Periodically, you also need to reassess the costs in your business. For example, changes in the energy and telecoms industries may allow you to drive costs down by simply changing your supplier.
Even if you are happy with your current suppliers, a good practice is to have an up-to-date list of alternatives, in case a supplier goes bust, or their quality slides. Though not always the driving factor when it comes to choosing suppliers, price is an important issue. Every six months make a point of checking that you are still getting value for money from your suppliers by getting costings from alternative suppliers. If prices are falling generally, you may be able to renegotiate your package more favourably.
Factors outside your control
There are always other issues outside your control – known as the STEEPL, or Social, Technological, Economic, Environmental, Political and Legal factors. What is changing now or will change in the immediate future in the outside world that could affect the direction your company takes?
For example, take a compressed air supply firm. If the Health & Safety Executive suddenly issues an edict that affects the way gases are handled or distributed, it would have a profound effect on the business. So keep in touch with industry bodies and read your trade press for indications of what might be on the horizon.
You also need to know what is happening in your industry as a whole, because it may affect you. Is it expanding or declining and how will you handle this? What is the competition up to? Are any looking vulnerable – or aggressive?
How one company handles reviews
How often should you review your business plan and strategy? The answer, of course, depends on the size and nature of your business and the sector in which you are operating. Don’t fall into the trap of over-analysing and underachieving. But a minimum is once a year –preferably twice.
For Manchester-based Web design firm Moonfish, a rapidly changing industry has meant reviewing business plans and strategy options quite frequently.
‘When we first started out, our main objective was to focus on the type of work we would be doing,’ says chair Kate Drewett. ‘This was at a time when the business demand for Web design was very much an unknown quantity. It was a steep learning curve, but as we’ve grown and carried out regular assessments, we have made important changes.
‘These included bringing in new business advisers and solicitors. When a company grows, your requirements can change quite dramatically and you need to be sure that you have the right people in place to advise you and look after legal matters. Even something as simple as monitoring turnover and making the relevant changes to banking arrangements is essential.’
Moonfish’s management are firm believers in SWOT analysis since, being in the marketing business, the company has a tendency to be self-analytical.
Seasonal or yearly variations can have a profound effect on businesses like Moonfish, and these can also vary from year to year. It is another external factor that can be anticipated and planned for. ‘When we first began trading in 1995, the momentum of Internet growth in the UK was so powerful it failed to produce any significant seasonal variations – businesses were totally preoccupied with establishing their Web presence. Then after the dotcom crashes in early 2000, there was a sense of firms holding back and waiting to see what everyone else did.’
Making time to review your position
Many small business owner/mangers are too busy fighting fires to make the time to consider their current position and where they are going.
‘The key to assessing your current and future business direction is setting the time aside to think about it,’ says Kate Drewett. ‘This can be more important to the future of the business than most of the day-to-day issues that so easily sidetrack you.’
One way of monitoring business performance and making sure it stays on track is to post a copy of the budget figures from the latest business plan on the wall, and write down the actual weekly or monthly figures beside them. This will help you focus on your finances and engender discipline. It will also help remove the temptation to try to do more and more business to settle financial problems, which can lead the company into much deeper cash-flow problems.
If problems look likely to occur, take advantage of all the business services, help and resources that are available. Be prepared to pay for professional business advice, on a regular basis if necessary. The costs of hiring good accountants, lawyers and business advisers will be more than repaid in the long term.
