Imagine a business that was trying to grow, but was making no profit, generating no cash, and not paying its owner-directors a proper salary or dividends.
By going over their business, end-to-end, and they found 27 areas where their business could be improved, and by implementing their 27-point plan, within a year they had turned their business around to a PBIT (profit before interest and tax) of 17% of sales.
They then tackled their interest payments: with help, they were able to find lower-cost working capital so that they could pursue their plans for growth, and still have enough to pay themselves a decent return.
Business improvement should be part of your business strategy
There is as lesson to be learned here about thorough and systematic business improvement: no matter whether your business is rocky like theirs, or doing reasonably well, there can be a huge benefit in having business improvement as part of your business strategy.
It can help you to:
- Find new opportunities for growth;
- Squeeze out additional margin, profit and cash;
- Reduce your loans or overdraft;
- Increase your working capital; and
- Pay yourself more.
And all of this will serve to increase the value of your business when you come to sell it and move on.
Areas of where your business can be improved
There many be benefits to be found, some small, some larger, from every area of your business:
- Revenues: existing customers, new customers, pricing, use of assets;
- Cost of Goods Sold: development, production, procurement, service, logistics;
- Overheads: costs and shared services;
- Balance Sheet; receivables, payables, inventory, property, plant and equipment; and
- General Management: planning, delivery, performance, operational capabilities, stakeholders and other external factors.
Focus on the issues where the return is worth the effort
So, as part of your annual strategy review, maybe you should crawl over your business, end-to-end, looking for areas where it can be improved.
The only caveat is, recognising your time is your money, you should only work on those areas where the return is worth the effort.
And while there may be one-shot improvements you can make, such as outsourcing an overhead function to make a net saving, there will always be those areas that need to be addressed gradually, step-by-step.
These are areas where a Continual Improvement programme can really help.
Posted by Peter Johnson, Business Advisor with SGBA. If you would to talk to someone about your business, including your business improvement strategy, call Peter on 07714 093406 or email him at email@example.com.