RACHEL BASHNICK Associate partner Business advisory Findex
One thing Covid-19 has brought us is time. So the question is what activities can we undertake during the lockdown to better equip our businesses going forward?
In simplistic terms business value is determined by how much money the business makes multiplied by how risky the business is. So what strategies can we put in place to improve profitability and decrease risk post Covid-19?
1. Systems and processes
Potential buyers see value in comprehensive policies and standard operating procedures.
Where these are implemented well a new owner will be able to take the helm and conduct business as usual. This is often referred to as the 'turn key' concept — you could leave your business tomorrow and someone else could step in and run the business just as effectively.
As part of this exercise it is worth considering if any operational improvements can be made. A good place to start is to answer the following questions:
■Are there any inefficiencies in the way tasks are completed?
■Is there duplication of work?
■What activities drive costs?
■ Is technology being fully used?
■Do you have the right people doing the right tasks?
2. Customer analysis
Studies have shown that businesses earn 80 per cent of their revenue from 20 per cent of their clients. Do you know your top 20 per cent? As part of a review of your client database you should ask yourself the following questions:
■Do you have a system in place to keep regular contact?
■Do you truly understand what your clients' needs are and where they are heading?
■Are there products or services you provide that your clients currently don't buy?
■How do your clients prefer to work with you?
■What clients use resources but generate very little income?
3. Review of product mix
Now is the time to take stock of how your products and/or services are truly performing.
The Boston Consulting Group's (BCG) product portfolio matrix is a useful tool to help decide what products to invest in and those that may need to be discontinued. The BCG Matrix considers market growth rate and relative market share.
Although designed for larger organisations, it is still a useful tool for small to medium enterprises to determine what products and services are 'Stars' and 'Cash Cows', what are 'Question Marks' and finally the 'Dogs' that need to be exited.
4. Supplier relationships
Strong supplier relationships can improve your performance with regard to inventory management, adoption of just in time philosophies and pricing strategies. A review of your supplier arrangements will involve considering the following:
■How many suppliers do you have? Is this efficient and should these be consolidated?
■What are the terms and conditions? Is there opportunity to negotiate better contracts?
■How easy is it for you to switch suppliers?
■What is the financial strength and long term sustainabiliy of your suppliers?
■Is there a reliance on a key supplier? What is the associated risk?
■How do your suppliers support your business with marketing and collateral?
5. Competitor analysis
It pays to be aware of how your particular sector or industry is evolving. The ability to act quickly and respond to market changes will hold your business in good stead. What better place to start than a review of your key competitors? The main questions to focus on include:
■Who are your competitors? What is their strategy and how do they market themselves?
■What are competitors doing well? For example, innovative products, wide distribution, superior after sales service.
■What are their weaknesses? For example, poor brand awareness, bad customer service.
■How do you stack up? Ask your team and valued clients how well the business delivers and what could be improved.
■What barriers to entry are there? Can new players enter the market relatively easily?
■What do you see as the opportunities or threats to your sector in the future?
Fair to say there is a bit to tackle. My advice is to start on the area that will provide you with the most return on the investment once life returns to normal.
If you require any assistance getting your business into better shape, contact the Business Advisory team at findex.co.nz.
■The views and opinions expressed in this article are those of the author/s and do not necessarily reflect the thought or position of Findex NZ Limited.