How Do You Want To Operate Your Business?
Originally published: 12.01.07 by Ruth King
You can choose to put out fires or devise a plan, implement it and watch the profits grow.
There are three ways to operate your business. The first way is to do no planning. You just react to whatever happens. You don’t pay attention to your financial statements. Or you just look at the bottom line on your P&L and are happy when it shows a positive number and shrug your shoulders when it shows a negative number. You don’t spend the time to know whether the financials are accurate or whether you are pricing your products and services high enough to earn a profit. After all, if your competition can sell it for a certain price, then so can you.
The second way to operate your business is when you are forced to write a business plan. This takes time. You have to stop putting out fires, take a breath, and determine where you want the business to go. If you do it right, you’ll get your employees involved in setting goals, budgeting, and providing input as to where they see the company going. Indeed, they are the ones who are responsible for carrying out the day-to-day operations. They are
If you don’t need funding, you can use my three-page business plan (see Business Planning Made Easy). The three-page business plan consists of goals, marketing/advertising, and a financial budget. Of course, it takes time to do the research necessary to get to those three pages. You also can use the business planning tool from PaloAlto Software Inc. (www.paloalto.com). Tim Berry, founder and serial entrepreneur, began writing business planning software in 1984. He and his team have made the planning process fairly easy. You can download your financials right into the software.
In this second way to operate your business, you spend the time to write the plan because a banker or someone else forced you to write one. Once it’s done, it goes in the drawer never to see the light of day.
The third way to operate your business is to operate your business by plan. You implement the plan that you’ve developed in option two. However, instead of sticking it in a drawer, you’re taking the time to actually implement it and gather results from your efforts. Everyone in the company knows what the goals are, their role in the accomplishment of those goals, and what the actual results are on a month-to-month basis.
You communicate results. These communications keep everyone motivated to stay on track and help you when an unavoidable threat occurs to your business. You have charts on the wall, regular monthly meetings with your employees to cover where the company stands, and solicit ideas for the good and bad times. Your employees have a stake in the results. If the company is not meeting its goals, they often have the answers on what to do to get back on track. You, as the owner, are not operating in a vacuum.
The choice is yours. You can operate your business by the seat of your pants or you can take planning and implementation seriously. The third option requires you to work on your business — not only in your business.
The funny thing about option two is that just by writing down goals you set a course for your business.
Indeed, I had a contractor tell me that he was cleaning out his desk and found a list of goals he had written many years ago. He was shocked that several of them had been accomplished. He then got “religion” and started planning and he accomplished much more than he did in the past.
Obviously the best way to operate your business is the third option. Start the planning process about 60 days before your fiscal year end. For those contractors whose fiscal year ends in December, the best time to start planning is in November. Then you can take some time in December to get the plan on paper, get the spreadsheets ready with budget vs. actual and really steer your business in the direction you want it to go in 2008.
Ruth King has over 25 years of experience in the hvacr industry and has worked with contractors, distributors, and manufacturers to help grow their companies and become more profitable. She is president of HVAC Channel TV and holds a Class II (unrestricted) contractors license in Georgia. Ruth has written two books: The Ugly Truth About Small Business and The Ugly Truth About Managing People. Contact Ruth at firstname.lastname@example.org or 770.729.0258.
Articles by Ruth King
Profitable Sales Turned into Positive Cash Flow is Critical
Although cash is king and is used to pay all of your bills, cash flow is important, but profitable sales turned into positive cash flow is critical.
Know When You’re Growing Too Fast or Too Slow
Business profitability doesn’t mean business survival. By running out of cash and not having the ability to borrow or get it in an equity investment, you can be profitable and go out of business by growing too fast.
Understand Your P&L: Overhead
Understand Your P&L Statement: Gross Margin, pt. 2
Gross margin should not vary more than a few points each month. If it does, then you must find out why the margin is varying.
Understand Your P&L Statement: Gross Margin