Growth orientated businesses maintain close focus on the customer as the driver of profitability. Selecting the right customers, managing them profitably, and retaining them through optimal allocation of resources becomes a fundamental strategy for those businesses pursuing growth in a meaningful way.

 To manage and sustain profitability, proprietors need to come up with the right marketing strategies backed by the right market metrics. In this regard, the assessment of lifetime customer value (LCV) is a dynamic metric that is little understood by many fledgling entrepreneurs.

 Many believe incorrectly that that long term customers tend to spend more, cost less to service, have greater propensity to generate word of mouth, and pay a premium when compared to short term customers. They think that by cultivating loyalty alone, a business can increase its overall profitability.

 A key question that proprietors should seek to answer is…”Are loyal customers profitable customers”?

 So, what is the link between loyalty and profitability?

 Evidence shows that not all loyal customers are profitable. Often this can be as a result of the customer moving to a less expensive channel (e.g. website) when they expect lower prices, and this offsets any cost savings for the business. In a nutshell many of these loyal customers are price sensitive and expect something in return for their loyalty.

 Owners are also often mistaken when they believe that by creating loyalty programs they can make their customers more behaviourally loyal, with higher profitability to follow. The link between loyalty and profitability is much more complex than often perceived.

 All customers are not equally profitable and consequently, loyalty programs should ideally be designed to reward customers depending on their level of profitability.

 A two tier loyalty system is a desirable strategy.

 Tier 1 rewards are aimed at all customers based on their current and past purchase behaviour. It should be designed simply to reward existing clients and attract new customers and be based on total spending – rewards based in proportion to spending.

 A fundamental goal at this level is to build loyalty across all customers and to collect valuable customer transaction data for behaviour analysis.

 Tier 2 rewards should be forward looking; be aimed at influencing the future purchasing behaviour, be more selective and reward customers to influence their behavioural and attitudinal loyalty.

 By carefully monitoring the type of purchasing, the purchase frequency, and the contribution towards profit, owners can more accurately determine the mode and frequency of marketing initiatives to drive lifetime customer values.

 An important first step is to identify the most profitable customers and those who are most responsive to marketing efforts. The next step is to work out the right mix of different channel contacts for each customer – what are they responsive to? Is it email, web contacts, direct mail, telephone or face-to-face? And, how cost-effective are these contact methods? Following on from this it’s necessary to determine how frequently each customer should be contacted and then to look at what other factors normally affect their buying behaviour. For example, multichannel shoppers are likely to be more active and receptive to contact providing the business with higher revenues and a longer and stronger customer relationship.

 Consideration of indirect profit contribution is also essential, as customers need to be valued not only on their direct contribution but also in relation to savings in new customer development and acquisition costs as a consequence of the capture of new customers by way of referral. 

 There is absolutely no more important customer than the one who willingly talks positively about your business and will refer quality customers to you. It therefore becomes critical to identify whether your customers are “users”, “choosers” or “braggers” –  for further insights on ways of growing “braggers”, please refer to the “Helpful Hint – Just How Powerful is Word of Mouth Marketing”.

Summary

The bottom line is that the customer matters. Developing LCV is about sustaining successful customer management strategies in the long run. Although it might be possible to keep customers happy and loyal in the short run, the greater challenge lies in achieving LCV with both growth and profits in the long run.

 Key action steps are summarised: 

• Adopt strategies to influence behavioural and attitudinal loyalty
• Select the right customers for future targeting
• Identify and segment customers with the highest potential for future profit
• Target customers for multi-channel shopping
• Allocate marketing resources – optimise across channels
• Pitch the right product to the right customer at the right time
• Adopt a sales matrix that includes up-selling, cross-selling and down-selling
• Prevent attrition of high value customers
• Identify customers who provide value through referrals
• Adopt viral marketing strategies

Succession planning involves transfer of management and/or control of a business. It quite clearly involves the process of ownership succession and management succession.

 Inevitably, the small business owner is responsible for all the fundamental aspects of managing the business. This includes: 

• Significant involvement in sales and sales promotion and development
• Innovation and design as well as product and service development
• Pricing, margins, profitability and cash flow
• Customer service standards and relationship development
• Ultimately responsible for administration, accounting and control of finances
• Hiring (and firing) and motivation of employees and dealing with all employee problems and issues

In order to step back from the business, the owner needs to be able to reduce involvement. The tasks associated with each of the abovementioned responsibilities need to be prioritised and a clear decision made as to which can most beneficially be taken over by others and by when.

 A well developed succession strategy allows for the continuity and future success of the business. It enables some specific measures and controls to be taken over the future course and conduct of the business. It should enable the owner to exit the business easily and with an appropriate level of capital such that it will not weaken the capacity of the business to provide for future needs. This is important regardless of whether it is decided to sell the business outright or, or to retain some equity and continue to receive a proportionate share of profits after withdrawing from a position of control and influence.

 A succession process that is simply allowed to grow haphazardly without focus and clear intent is far less likely to succeed than one that is planned well in advance. Planning for life after business or for any major change in lifestyle always involves some risk taking (because it involves uncertainty) but a well thought through succession strategy should identify and mitigate most risks and provide confidence for the future.

 What are some of the benefits of planning for succession? 

• Enable the owner to plan for a build-up of equity interest in the business
• Assist the owner to attract and retain quality staff who are committed to the future success of the business
• Enable authority, decision making and accountability to be clarified
• Underpin the health and viability of the business
• Develop a healthy internal climate that breads goodwill with clients
• Build a structure that can manage effectively without dependence on the owner
• Ensure a smooth transition with a low probability of risk

 What needs to be done to prepare for a good succession plan?

 The reality is that many small businesses will never be sold to another owner. They are just too small and have low revenue and profits. In many cases they are also too dependent on the current owner for their continuation.

 However, with an understanding of what the business is currently worth and with a clear insight into what needs to be done matched with capacity to develop the business in terms of people and profits it can be possible to grow equity and profitability to a level that will ultimately justify a premium.

First and foremost there must be a strong and robust business model underpinned by a clear vision and mission.

 The business plan must be well researched and realistically based. It needs to clearly reflect the viability of the business and demonstrate that it will be sustainable in the face of competition and market volatility.

 The business model should also be capable of being strengthened so as to enable profit and equity to be built-up during the transition phase

 What are some of the basic essentials in planning for succession?

 Determine:

• The owner’s time horizon for exit from the business
• The process that identifies who will own the business
• When and how that process will take place
• Who will manage the business during and after
• What changes need to occur to make it happen
• Who will be accountable for the process
• How will the process and the results be monitored and measured

 What and Who should the Succession Plan focus on? 

• How to gradually make yourself redundant.  Plan for continuity. This will necessitate delegation of adequate authority to allow other to make decisions.
• Identify those with skills and capacity for succession – those with a commitment and who are ready and capable to make the transition.
• Determine who will be involved in the determination of your planning whether it be a short list of one or two or indeed a group of executives.
• If recruitment from outside is deemed appropriate ensure the person is well integrated into the culture of the business and in the process gains the trust and confidence of the team.
• Good internal succession outcomes start with well thought out recruiting strategies. Identify the talent and invest well in those people. Making sure that there is an adequate training period built in to the succession process is vital.
• Don’t focus your efforts on building another you – look closely at the skills, attributes and capacity needed for the future. However, your successor should share a commitment to the values and ideals that clients have come to expect.
• Negotiation of an acceptable package of rewards and incentives – one that gets the balance just right - will be one of the most challenging components of the planning process.
• Ensure that business relationships and alliances are nurtured and strengthened with a gradual introduction and “blooding” of your successor.

 What about a fallback strategy?

 As with any planning, it is essential to have a contingency plan in place in case things don’t work out and your intended successor declines to follow through for whatever reason. Similarly, you also need to be conscious that difficulties and conflict may occur particularly if jealousy raises its ugly head amongst key team members. All such staff issues and any other potential barriers need to be well thought through and planned for.

 What about the bigger financial picture?

 Planning your departure from the business needs to be well constructed financially particularly if you see the sale of the business as a major funding component of your retirement. Careful consideration of personal financial issues including taxation and estate planning will require the early involvement of your accountant and/or licensed financial adviser. You may also benefit from the counsel of a recognised practitioner in succession management. 

Establish a credit policy and stick to it.

Check references on credit applications.

Invoice promptly and clearly.

Go to the top in need.

Follow-up regularly

Escalate your contact methods.

Be prepared to act quickly.

Be willing to discuss repayment arrangements.

Determine what the problem is.

Don't overstep your bounds.

Remember that debtors have rights. Commonwealth Consumer protection laws require a Flexible, Fair and Realistic approach to debt collection.

If you think your customer service standards are so good that you don’t get complaints then you really need to think again!

It’s inevitable that at some stage you will receive customer complaints.

Don’t overlook the fact that such complaints may be passive in nature and result in your customers demonstrating their dissatisfaction by voting with their feet and going elsewhere. Also, think about the impact of how many others they may tell about the problem they have festered over – complaining customers of whatever nature generally spread the word to other existing or potential customers and in a very short space of time. Sadly, you may never hear a whisper about it or at least not until your business starts to become notorious for poor customer service.

Sure, if you have great service standards and follow-up systems the risks of such complaints being major is not high but you still need to recognize they may happen, how they may happen and how to be prepared if they do happen.

Some of the best strategies to avoid the passive complaint involve making it quite open and clear that you welcome feedback and prefer to have your customers tell you about any problems they may be experiencing rather than them spreading them around the marketplace.

Despite the inferred negative connotation of publicizing your approach to problem management, a positive attitude and approach combined with an effective system for handling complaints can become a competitive advantage and help to win you loyal lifetime customers. A major requirement is that regardless of the situation, it’s essential that you do everything possible to resolve complaints as soon as they arise.

There are a number of recorded frameworks for dealing with complaints. The one that I have found most helpful is designed to R E S O L V E problems as follows:

R emain calm and in control. Listen attentively and adopt an amiable approach

E mpathy – put yourself in their shoes and see the situation from their perspective

S  ympathise – let your customer know that they have your full attention.

O vercome the tension and stress by assuring the customer you want to address and improve the situation

L egitimate – prove your honest intentions by fixing the problem quickly

V erify that everything is clearly settled by following-up within an acceptable timeframe

E ensure your systems and procedures and policies are strengthened to ensure against a reoccurrence

Remember, no matter which approach or framework you adopt in your business, the crucial factor is to move quickly to resolve complaints as soon as they arise.             

Knowing what they might dislike about your service can be just as powerful as identifying their real needs and desires. If you can articulate their fears and concerns and develop strong solutions that will address them you will go a long way down the path towards gaining their trust and delivering real value.

So how can you achieve this? Really the answer is so simple! You just ask your target market which part of the service they feel can be improved. Give them the chance to provide feedback and the first thing they will do is tell you not just what they like but equally what they don’t like!

Researching and surveying your target market is therefore fundamentally important for many reasons. Some proprietors tell me that because their service provision is “ordinary” or “common” they can’t differentiate themselves from any number of competitors. In the process they miss the point about identifying just what it is the market really wants. It’s similar to not appreciating that dissatisfied customers vote silently on your service by switching to other providers. There is absolutely nothing to be gained by making assumptions that you know what customers want and then blindly trying to make the business profitable. Until you understand the fears, frustrations and risks that customers perceive about your service and the negative perceptions they might harbour you are unlikely to ever achieve outstanding success.

In case studies about these types of marketing strategies, a plumbing business inevitably comes to the fore! I experienced a real live example just recently. The proprietor had done very little marketing over the past few years as the business had previously possessed a competitive advantage using a hi-tech capacity. However, the competition eventually caught up and sales were falling. In an attempt to generate stronger enquiry the proprietor decided to make a significant outlay on directory advertising. Sadly, the strategy was poorly conceived and there had been no focus on developing a customer needs analysis in devising the advertisement.

During a quick brainstorming session we played devil’s advocate and focused on what customers dislike about plumbers. Here’s what we recorded:

• Don’t always fix the problem
• Other problems develop after the work is completed
• Taps have to be turned off hard to stop leaks
• When the next storm comes the drains are blocked again
• Workmanship quality doesn’t match the blurb
• Don’t arrive on time
• Leave mess in the house and don’t repair lawns and gardens
• Charge too much

Here’s how we redesigned the advertisement focusing on the resolution of the identified frustrations:

The reassuring thing about the analysis we subsequently conducted with over 30 people was that not one selected the original advertisement. However, whilst this gave us confirmation of our strategy of highlighting solutions to identified frustrations we also identified several comments that lead us to further refine the wording. Rather surprisingly, a large majority did not recognise the significance of a sewer camera, didn't  understand what an electric eel was nor what it did and saw no situation in which they would need a pipe locator. On top of this many respondents did not know what “water hammer” was but they did resonate with the problem of “banging pipes”. Consequently we changed the text from “Water hammer eliminated” to read “Banging pipes eliminated”.

Can you apply this type of approach to the identification of your customer’s frustrations when developing  your marketing and advertising copy?

Are YOUR customers “users”, “choosers” or “braggers”? 

There is absolutely no more important customer than the one who willingly talks positively about your business and will refer quality customers to you.

  Do you know how many of your clients came to you as a product of word of mouth marketing?

  When you are looking to build more clients do you turn to the more traditional ways of trying to get new business, such as advertising or direct mail?

At a series of customer service workshops RDA sponsored last November we started out by emphasizing the critical importance of moving customers up in status from purely being “users” of a product/service to becoming “choosers” and thence eventually becoming “braggers”.

Do you have a word of mouth marketing strategy?

Such a strategy can be one of the least costly and most effective ways of marketing your business.

One of the very first things to do is to analyse where your best customers actually came from. Do this by recording the names of your top say, 50 clients and then identify the source of those clients. Were they referred by another client, a friend or family member or another business and if so who? Did they come from yellow pages advertising, via an internet search, a direct mail campaign or from meeting someone at a networking function? To answer these questions you will most likely need to speak directly with your client or gain their input from a survey which might also usefully address other important feedback.

Now that you know how many came to you via word of mouth marketing; via a referral from an existing client or a business alliance or from your informal and formal networks you can start to build a framework for your strategy.

The next step is to contact each of the referral sources to find out specifically why they have “bragged” about your business. It could be that they have experienced 'out-of-the-ordinary' customer service or that they really appreciate your customer loyalty program or when you provide them with that 'something special' when it’s not expected. It could be that they also perceive you to have the best reputation in your field or industry. Or maybe in their view, you have a remarkable and unique product or service offering that no other business can match.

Once you know why people are “bragging” about your business, you can be sure to preserve and build on the things that are important to them to refer you even more business and to duplicate this positive sentiment across your client base.

Another component of the strategy is to compile a list of the people you know who are likely “choosers” that you would like to move up to “bragger” status. Make up a set of action plans to meet with them and explore with them what you need to do to help them to talk positively to others about your business.

An important part of getting the mix right is to look at ways of returning the favour to your referral clients by being an equally positive advocate for them. This might involve speaking highly of them or referring clients to their particular business as part of a networking or alliance arrangement. Another measure can be to reward them appropriately via your customer loyalty program.

If you don’t already have a system of tracking the source of every new client why not start now?  It will give you a valuable insight into where best to spend your marketing dollars and energy in the future.

Planning and creating the format and content of your advertising and marketing material can be a daunting experience. Basically there are two important aspects to consider:

Physical Design - the overall appearance. It needs to be attention grabbing, attractive and appealing to the eye.

Message Structure and Content – the words need to convey a strong SELL to your identified target market.

Effectiveness can be tested by applying the following criteria referred to within the advertising industry as A.I.D.A.  

  Ø                  ATTENTION

Grab the Attention

Flag down the reader and Stop them in their tracks

WIIFM – what’s in it for the customer?

Ø                  INTEREST

Engage the reader – create real interest – make them think hard and use their imagination about the product.

How? DIFFERENTIATION - highlight your USP and outline the benefits and advantages. Convey this in terms such as …Which MEANS and SO THAT.

Ø                  DESIRE

Make the offer irresistible – make it tempting – smell and touch, Build EMOTION. Creating desire is vital.

Ø                  ACTION

How to order – make the deal happen.

In addition to this it can be vitally important to establish:

CREDIBILITY

This can be achieved by including testimonials and endorsements. Where these are inserted can depend on the nature of the target market and in some cases it may be relevant to tell a success story.

  OK, so let’s now look at some practical tips starting with….

  Ø             HEADLINES

The first point I want to make is what is called the 80% rule!

i)                    80% of people only ever read headlines!

ii)                  Once you’ve written the headline you’ve written 80% of the ad.

The second point is headlines should have a “Point-of-YOU” with emphasis on power words such as “you” or “your”. “How to” is also very effective.

Simply changing the slant and/or the context and the power created by one or two words can have dramatic effects.

Front panels on brochures that are covered with logos, business names, addresses OR in many cases heaps of information in small print, all lose significant impact opportunity.

Remember, we are all bombarded with a huge range of marketing images  – some say a minimum of 200 images pass our eyes every day and if you watch the standard average of 4 hours per day free-to-air television it could rise to 2000 per day!

If your medium is the single page flyer or the front of a folded brochure you only have  one limited chance to get your message across.

So, the top third of your flyer is the place for your HEADLINE

Develop headlines that make the reader curious and then demonstrate Benefit

Headlines that make the reader interested and also makes them think can be hugely effective.

It’s no good to just list features  in dot points – that’s pretty boring!

You have to pretend you are the reader seeing the product for the first time – what is it, what does it do, and what can it do for me?

So, it’s critical your copy is always written with WIIFM in mind.

If you have found these tips interesting and potentially worthwhile and you would like to learn more about other practical design and content issues then don’t hesitate to contact me so that we can meet to discuss in more detail.

Despite good intentions and due to preoccupation with time pressures and daily problems many small businesses fail to give adequate attention to their financial future until severe difficulties develop.

However, many common business problems can be overcome or avoided with adoption of basic planning procedures in the areas of pricing, operations and marketing.

Early identification of problem areas is crucial. With well planned appropriate corrective action including financial reorganization and the availability of budgets and management reports from which to monitor and regulate performance, survival can most often be achieved with reasonable prospects of sustained recovery over time.

  In an earlier “Helpful Hint” (April 07) I highlighted how critically important it is not to mistake profit with cash flow. It’s rather unfortunate that many writers of financial articles encourage the view that small businesses should direct most attention to the generation of sales and cash-flow to fund working capital needs. This approach is mostly predicated on the belief that individual products and serviced are priced appropriately. However, in reality this is quite often not the case.

As outlined by Tracey Collins in the “Pricing for Profit” workshop held at Austinmer recently, emphasis on selling those products and services that achieve a profit margin lower than the overall target gross profit margin required for the business as a whole may be counter-productive and lead to reduced profitability. The consequences of this may be that although overheads might still be covered there could be little or no margin available to reward proprietors.

To ensure your business doesn’t fall into the “cash-flow versus profit” trap it is vital to understand the concept of “breakeven” and to know the gross profit margin for each major product or service line, as well as the overall gross profit margin for the business.

With this information it is possible to run “what if” scenarios to assess whether or not individual products/services will help the business achieve its profit targets.

If you weren’t able to attend the workshop presented by Tracey Collins we will be pleased to provide you with a copy of her presentation as well as the spreadsheet templates that will assist you to work out the breakeven for your business and conduct a profitability analysis.

A question I often get asked by small business proprietors is “how do I go about working out my breakeven?”

There are various methods but I like to think the approach using the Contribution Margin  is simple and relatively easy to follow provided you have the financial information on which to base the calculations.

The theory is that a business is said to be at “breakeven” when its sales volume has reached the point where all costs have been absorbed and it is neither making a profit nor a loss.

To try and make it simple and easy to remember I adopt the following formulae for Breakeven:           

To go back a step, I need to explain what Contribution is. It’s quite straightforward really - it’s the surplus after variable costs are deducted from sales. When you look at a profit and loss statement it will often show Revenue (sales) less COGS (Cost of Goods Sold) equals Gross Profit. In that sense, Gross Profit and Contribution are similar. The difference is that in many instances accounting treatments do not include all the variable costs in determining Gross Profit, whereas with Contribution it is important to do so. This approach works on the basis that all business costs can be defined as either variable or fixed. Any expense that varies with the volume of sales is variable. On the other hand, those costs that apply regardless of whether or not the enterprise is “open” for business are clearly fixed costs (or to use another term, “constant costs”).

The Contribution is the amount available after variable costs have been deducted from total sales, and any surplus represents a “contribution” towards covering constant costs.

When the level of surplus represented by Contribution is sufficient to exactly cover the value of constant costs then breakeven has been reached.

So, let’s take a look at an example:

In this example, the breakeven is $ 122,807 based on sales for the year of $300,000 or  $10,234 per month or $ 2,361 per week. The proof of this would be: Annual Constant Costs $ 70,000 divided by 52 = $ 1,346; divided by Contribution Margin of 0.57 = $ 2,361 per week.

Because most business income is cyclical with swings from month to month it is useful to look at the month by month actual performance for the previous financial year and adopt this as a baseline for calculating monthly breakeven. A further refinement can be to adjust the breakeven for the corresponding month last year by an appropriate factor to reflect changes in current year sales performance as well as changes in your expenditure budget. For example, if rent has increased this year then clearly an appropriate adjustment needs to be made. This highlights the real need to formulate forward budgets using past trends as a guide overlaid with projections for sales as well as variable and constant costs.

Is goal setting really worth the effort? Why bother? This is a question often posed by small business operators. My response is generally along the lines of, “Well if big business considers the planning process to be one of its most important activities what is small business likely to be missing out on?”

So yes, goal setting does need to be taken seriously and is fundamentally important to overall success. It's an integral component of the planning process and is about providing your business with a roadmap for the future and in the process helping to make managing the business an easier task.

The great thing about GOALS is that they:

G uide (business direction)

O rganise (focus and priorities)

A ssert (intentions)

L ink (vision and objectives)

S pur (action)

A good business plan will assist in directing “how” and “where” to GO.

  GO as in;

      Goals and Objectives

So, what’s the difference between the two and why do we need both?

Goals

Goals underpin the business vision and make it tangible by addressing variations of the following questions:

1.      what is the basic purpose of the business?

2.      what is unique or distinctive about the business?

3.      Who should be the major customers or key market segments that the business will serve?

Objectives

Objectives focus on the Vision and Goals and transform them into recognisable outcomes.

My approach to the development of well targeted Goals is to consider them in relation to whether they provide the business with FORCE. That is they need to have FORCE and be TIME BOUNDED  – goals need to be linked with strategies for achievement that have specific deadlines.  

FORCE  is represented as follows;

F actual

Goals need to be well defined and capable of measurement. They should be quantitative rather than qualitative and facts need to be referenced and assumptions stated.

O bjective & Challenging

Goals need to be realistic but should include challenge in order to take us out of our comfort zones. It’s often said that the best goals are beyond our grasp but within our reach, so, it’s important that they involve a degree of “stretch”.

R ealistic

Test each goal for importance – if in doubt throw it out. Goals that aim too high with little chance of achievement can lead to frustration. Adequate resources are also essential to support implementation strategies.

C lear & Concise

Clear simple goals work best and assist to focus effort and commitment. Don’t fall into the trap of creating too many goals. They also need to be clear so that all staff can see the goals of the organisation as a whole – put them up on the notice board and review progress regularly.

E mbrace all components of management

Imposing goals on staff and subordinates rarely results in successful outcomes. Clearly, it’s sensible to involve all group members in the process. Accountability needs to be clearly established with acceptance, commitment and determination exhibited from the top down. The goals for the business as a whole should be mutually reinforcing and link with the vision of the proprietor as well as sit comfortably with the culture of the business..

A useful approach to the creation and development of Goals that have FORCE is to undertake a brainstorming session with your team members. But that’s another topic for another day!

Some business proprietors believe that to be fully effective they have to be respected by their staff or that it’s more important to be respected than it is to be liked. In the case of John McFarlane, he has proven that it’s possible to achieve both – he is admired for his pursuit of excellence as well as for his personal high standards of fairness and his caring and ethical approach to the management of customer and staff relationships.

So, in order to be an effective and successful leader, is it necessary to be liked by your staff?

To address this question we probably need to answer by asking another question – “what makes a successful leader?”

A whole range of intellects, scholars, psychologists and theologians have been debating this subject for 100’s of years and many books have been written about it, sometimes with widely differing views and opinions.

However, what seems to be unanimously agreed is that we need more leaders. Some leading proponents of the subject also believe that everyone has the potential to be a leader. At a talk I attended recently a leading international author and business mastermind even suggested that leadership was a “dirty” word because it infers that only a select few are ever truly able to achieve and be recognised as having attained such status. Those who know me would not be surprised to learn that I had to indicate my disagreement with his controversial opinion (perhaps this was what he had planned to achieve) for I hold the more popular view that leadership is an essential component of achieving success in business and is clearly about guiding others towards the achievement of common goals.

What characteristics do you consider important qualities of an effective leader?

In my working life across some quite diverse areas of commerce, some of the most critical ingredients exhibited by those I have respected and liked as leaders have included their ability to grow people through a strong mentoring ability and to make employees feel that they are important. Mostly they have had an ability to easily connect with others, exchanging ideas and values and gaining strong involvement and teamwork. But above all they have combined their enthusiastic and confident approach with a genuine and caring attitude and with lots of compassion and empathy.

In the process of guiding the leader has to draw on an extensive range of knowledge, experience and skills to gain the trust, co-operation and commitment of others. I like to create constructs around topics such as this in order to focus points of relevance and importance. Here is what I adopt for :

L E A D E R S H I P

As alluded to above, one of the ingredients that is not recognised in this format is TRUST (and Truth) but it is my view that if you can consistently implement the core ingredients of LEADERSHIP then trust will certainly result as a natural outcome.

Quite often it can be really difficult for small business to compete on price and consequently there is a need to focus efforts using cost and differentiation strategies.

Because of its flexibility, small business has the opportunity to provide highly personalized customer relations and service and to build business success by being “famous”.

Making your business “famous” for the level and standard of customer service provided is one proven way of setting yourself apart from the competition.

F A M O U S

Focus

• Develop a complete focus throughout the business centred on delivering legendary responses to customer needs
• Businesses that emphasise customer service see 12 times the return on sales as those that put a low priority on service.
• Put your focus on developing LCV – “lifetime customer value”
• Remember that customer satisfaction does not equal loyalty.

Attitude

• Cultivate an obsession of delivering exceptional service.
• Make sure every member of your team is committed (a chain is as strong as its weakest link) – you can’t afford to have staff with the wrong attitude – those that don’t like serving customers
• Be committed and lead from the top down, drawing the bottom up.
• Create a culture which can be seen and almost touched by the customer.
• Do what you say you will do

Meet, Greet, Welcome and say “Thank You”

• No matter how busy you are, customers are why you’re in business
• Adopt a highly personable approach and use names wherever possible
• People rarely go into shops just to look
• More than two-thirds of customers who don’t come back do so because they perceive indifference towards them.

Overcome problems & complaints

• Provide solutions and good feelings by looking at every complaint as an opportunity to overcome them quickly. Don’t haggle over minor points
• A dissatisfied customer is an unhealthy referral agent for your business – if they get good service they tell 3, if the experience is poor, they tell 12.
• Many customers stop doing business because their needs are not attended to promptly and concerns and complaints get swept under the carpet.
• But a very high percentage will return if their problems are resolved quickly and efficiently.
• It costs 5 to 10 times more to get a new customer

USP – gain “Share of Mind”

• Identify what you do differently or better than your competitors and develop a strong image and service focus about these strengths.

Special, extra

• Exceed your customers’ expectations
• Do something unexpected, provide that “little extra”– show that you really care
• Satisfied clients are great ambassadors
• Repeat customers are vital to the growth of your business
• Be conscious that it may be the few little extras that you provide in your level of customer service which sets you apart from your competitors.

OPERATING WARNING SIGNS include:

• Margin erosion
• Over-trading
• High gearing
• Under-capitalization
• And other examples of poor management, such as declining service standards and over investment.

MARGIN EROSION

Continued erosion of margins indicates an inability to maintain market share and consequently remain solvent.

OVERTRADING

The business is expanding too quickly, increasing borrowings to meets its expanding cash needs. The cost of borrowings becomes a drain on cash flow hindering normal operations as well as expansion.

HIGH GEARING

Over reliance on borrowed funds results in a significant proportion of gross profits channeled towards loan capital servicing. Payback periods especially in the acquisition of fixed assets, can be crucial.

UNDER-CAPITALISATION

Many small businesses lack an adequate capital base and subsequently experience problems in financing ongoing operations.

DECLINE IN SERVICE STANDARDS

Under such circumstances sales are lost and further pressure is mounted on achieving new sales.

OVER-INVESTMENT

In some circumstances, proprietors outlay far too much capital in establishing the business with acquisition of elaborate fixed assets and hi-tec equipment far in excess of what the underlying revenue stream of the business is likely to be able to adequately service.

CHANGED BUSINESS CIRCUMSTANCES

Proprietors (especially of established businesses) can often fail to appreciate changed financial and marketing requirements. These can have a significant impact on the appearance of the profit and loss accounts, and on the balance sheet.

FINANCIAL WARNING SIGNS include:

Lack of Cash-flow forecasting

A business that fails to prepare cash-flow forecasts could inevitably be headed for trouble. The lack of a cash budget is a huge red warning light.

Difficulty in paying creditors and meeting obligations for GST and PAYG

All small businesses should closely manage their taxation obligations with regular transfer of obligations to separate bank accounts. It is unwise to rely on these funds as a source of “float” to keep cash-flow positive.

Evidence that the proprietor is continually injecting fresh capital/loans

If this is occurring and the business is not structured for recovery it may sooner or later result in an over-capitalization that will be impossible to service from internal generation of funds.

Lack of financial information

If a business can not produce regular financial information it has limited control and has little idea of how it is performing or where it is headed. Delays in production of reports and taxation based information can be a clear indicator of a business in trouble.

Declining financial ratios

Financial ratios can provide a myriad of information provided the data is reliable and the ratios are calculated and monitored in accord with industry standards. Comparative analysis with similar industry benchmarks can provide useful insights to the health of business. Declining ratios send out warning signs that should not be ignored.

ARE THERE SOLUTIONS?

A business needs to be profitable if it is to survive. It needs to be sufficiently liquid to give it scope for manoeuvre and keep its suppliers and other creditors content as well as produce a reasonable return on investment for the proprietor. Its overall indebtedness must be within the bounds of reasonable risk.

Despite good intentions and due to preoccupation with time pressures and daily problems many small businesses fail to give adequate attention to their financial future until severe difficulties develop. However, many common business problems can be overcome or avoided with adoption of basic planning procedures in the areas of pricing, operations and marketing. Early identification of problem areas is crucial. With well planned appropriate corrective action including financial reorganization and the availability of budgets and management reports from which to monitor and regulate performance, survival can most often be achieved with reasonable prospects of sustained recovery over time.
 

• Will your external signage and window presentation capture attention?
• Will it create interest and will it arouse enough desire for them to want to enter your premises?

Unless it does it will not lead to action on their part and you will most likely miss out on their business!

Windows that are crowded with too many small and irregular sized and shaped messages and too much information can be confusing and ineffective.

Strong, bold descriptive “one liners” that are easily read from a distance and succinctly describe your key products and services are highly desirable.

Colourful, well located and eye-catching pictures and graphics that “sell” the benefits of your products and services are also very important.

You need to ensure the imagery of your business will have a positive impact and create a sense of wanting in the minds of the public – what is commonly referred to as “gaining a share of mind”.

With so many businesses trying to get their marketing messages out to the public it is a real challenge to every proprietor to make their business stand out from the competition and in the process catch the customer’s attention and their desire to buy in such a way that it leads to action on their part and results in valuable sales for your business.

Sometimes your customers can provide valuable feedback about changes they consider may improve their experience at your premises and thereby make it a more memorable one.
 

Contingency Arrangements

It’s vitally important to have some contingency arrangements in place to cover the unexpected. Ideally, this is where retained earnings comes into play or in a fledgling business it might include an overdraft arrangement with your bank or you may need to factor your debtors if the circumstances require it.

Don’t Mistake profit with Cash Flow. What’s the difference?

• Profit is what you make from sales after all expenses have been paid, whereas cash flow is the money that funds the running and growth of the business.
• Don’t get fooled into reducing prices thinking that any sale is a good sale. Unless there are special circumstances you need to price your products or services at levels that will ensure reasonable profits. Pricing slow moving or dead stock is a different matter.

Collect Debtors Faster

Look at ways of improving the terms of account on all but your best customers – reduce from 30 days to 21 days or even 14 days and seek up-front deposits where possible.

Inventory Reduction Methods

• Replace stock that has not sold and replace it with faster moving lines.
• Improve layouts and signage within the store to maximize sales
• Introduce interest only and special lay-buy facilities
• Implement JIT strategies and make appropriate arrangements with suppliers

Increase Prices

• Investigate the floor stock and determine those items which have little or no competition and increase the prices on these.
• Calculate your Stock Turns (Cost of Goods Sold divided by average inventory)
• Stock turnover is an indication of your stock management efficiency, measuring the relationship of stock to sales, with the rationale that the lower the workable stock level to support a set volume of sales then the greater the efficiency of stock management.
• You should strive to minimize the length of time stock is held prior to sale and aim for the highest practicable number of inventory turnovers possible.

Creditors Payment Cycle

Make arrangements with the suppliers that you enjoy strong relationships with to give you some extra leeway with the payment cycle. Make sure your return-to-supplier policy is well documented and favorable and negotiate beneficial product linked advertising and promotion.

Calculate Marketing as a percentage of sales

Set yourself a marketing budget based on a percentage of sales so that you don’t overspend or lose traction. Make sure your marketing outlays are not burning cash but are working efficiently to generate well targeted sales.

Calculate Wages as a percentage of Sales

Wages should include all the add-on costs such as superannuation, training, commissions, payroll tax, and workers compensation

Calculate Rent as a percentage of Total Revenue

It is important to regularly review your location strategy. Although the preferred aim for retailers is to focus on location rather than to pursue lower rents, it can often be strategically wise to seek cheaper rent if it is unlikely to hurt the overall business.

Your business plan provides a unique opportunity for you to think through all aspects of organizing and operating your small business.

It provides the vehicle to determine what and when resources are needed.

It will also help to identify any pitfalls in advance and to provide facts and benchmarks against which you can measure, compare and evaluate performance throughout the year.

Above all else, your business plan will help to give you the confidence you need to put your goals and strategies into effect.

Remember that it is vitally important to involve the input of your staff and key stakeholders when revising your business plan and to develop realistic and transparent action plans that assign responsibility for performance with timelines and measurement methods clearly identified.

Also, don’t forget to arrange staff training and skills upgrade where appropriate in order that staff members will be fully competent and capable of achieving the desired outcomes.

Another important component of the business plan review process is to post the action plans in a prominent place where they can be readily seen and act as a stimulus and discussion point.

If you would benefit from an external review of your planning processes why not call us today and arrange a meeting?