It almost goes without saying that a “successful business” will mean different things to different people. That said, we think there is some common ground that most of us can agree on, which we’ll explore in this blog post.
Cash In The Bank
As the old saying goes, cash is king. The clients we work with tend to feel successful when they have cash in the bank. It sounds simple, but sometimes this is easier said than done. When a business is short of cash there are often common causes. Customers paying invoices late is a common one, as is too much money tied up in stock. Another is simply spending too much, too soon.
We recommend our clients hold between one to three months worth of costs as cash. This helps to ensure the survival of the business, and is fundamental to success.
In plain English, margin is just profit expressed as a percentage. If a business is consistently making a good margin, then we know it stands a better chance of being able to survive in the longer-term. Most people could probably agree that a business that survives in the long-term is successful.
What are some of the barriers to achieving a good margin? You can look at this from two angles.
Firstly, revenue. If your business isn’t bringing in enough money, then we need to think about topics like winning more business and pricing.
Secondly, cost. If too much money is going out then we need a plan to bring spending under control, and ensure we’re spending an appropriate amount of money relative to the revenue coming in.
Many small business owners are ambitious and want to see their business grow. It’s common to equate growth with success. We define growth as increasing revenue and increasing net profit. So how do we do this?
The simple model we use with our clients is as follows:
- Winning More Work
- Delivering More Work
- Banking More Money
We believe that growing a business is simply about winning more and more work, delivering more and more work, and ensuring that you continue to bank more and more money. This process sounds simple and obvious enough, but as ever, the devil is in the detail.
Winning More Work
If we want to win more work (i.e. increase turnover) we can break the challenge down into some parts – marketing, sales, repeat business and pricing. To us, successfully winning more work means finding and connecting with more people who are interested in our products or services. By measuring the performance of our different marketing challenges, and thinking about what new markets we can explore, we can lay the foundations for winning more work.
We encourage our clients to use Customer Relationship Management (CRM) systems to manage, measure and improve their sales processes. We also encourage our clients to think about how their products or services are delivered with a view to stimulating repeat business.
Finally, pricing can allow us to increase turnover with limited outlay. Although of course, this is a sensitive variable.
By continuously working on all of these points, we help our clients to win more and more work.
Delivering More Work
As more and more products or services are sold to our clients and customers, so it has to be delivered. As businesses grow, one of the key challenges that they face is productivity. We use benchmarking to help our clients understand how productive their organisation is compared to its peers.
By analysing how much time it takes to deliver, tracking the associated costs and measuring quality we can diagnose and improve productivity issues.
Banking More Money
Finally, linking back to cash and margins, as a business grows so its appetite for cash grows. More specifically, when delivering larger pieces of work often more stock needs to be bought, or bigger invoices are being raised. It’s crucial that we have really good control over our numbers so we understand our changing cash needs, and we can ensure our operations are fundamentally profitable.
At We Grow Businesses, we help our clients to understand these key numbers by using a combination of graphs, projections and benchmarks. We aim to make something complex simpler and more manageable.
If you want to make your business more successful and like the ideas discussed here then please explore our website further, or come and visit our Business Growth Centre for a Free Growth Health Check.