Posts Tagged business advice

The Impact of Underperforming Employees.

25% of SME owners say they would rather retain average or below average performers than fire them, given the current lack of skilled individuals in the market place.

So, a question posed at the Business Exposure Group meeting asked whether retaining poor staff for the sake of retaining the current makeup of the team was sensible.  Research has shown that one bad apple in a team can bring down productivity by 40%.  In simple terms, if you expect revenue generation of £100K from an individual in a group of four then the £400K revenue at only 60% productivity translates to a loss of revenue of £160K per year.  It’s an expensive way of burying your head in the sand!

The message of retaining an underperformer rings loud to your other employees, as well as your competitors.  ‘These people don’t know how to manage properly’ and ‘They can’t be doing well if you have still got him on-board’ were just two of the comments made at the meeting.  All agreed that firing an underperforming employee saves you money in the long run.  It takes away a strain on the team, removes the need for additional oversight, and in reality many of these workers contribute little.  In fact, one of our members commented that getting rid of an underperformer was like having additional perks for the other staff, who always rallied round and had a new spring in their step for the benefit of the business when the underperformer was removed.

Some other points raised were:-

  1. Dealing with an underperformer is not easy, especially when the employee took a chance on the business.
  2. A business can lose good employees by being slow to deal with the underperformer.
  3. Good workers are discovered, poor workers are found.
  4. A comprehensive job description is essential so that an employee knows exactly what is expected of them.
  5. Have we surrounded ourselves with a few underperformers because during the recession we lowered the recruitment bar, just to fill the vacancy, and now realise that we recruited from the best of a bad bunch.

A business can only show continued success by attracting and retaining top performers who have the competencies that we need now and in the future.  They will be agile and can multi-task.  They will have sound personal goals, low error and absentee rates.  They will provide high customer satisfaction, inspire and train others in your business and generally stay longer and produce a higher rate of return.

The impact of top performing employees is more than 3 times that of an underperformer, yet the difference in pay is often minimal.  Perhaps a look at the make-up of your team and the remuneration package for those in your business would be a timely and useful exercise.

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Should we develop a mind-set to exit?

Business people live for the struggle of launching their business.  But one thing they often forget, is that decisions made one day can have huge implications down the road.  It is not enough to build a business, we have to make sure that we have an exit strategy to get the money back out.

This subject was discussed at the last round of the Business Exposure Group meetings.  Businesses that scale and ultimately maximise their value are the product of an owner’s almost obsessive focus on building value.

Most of the members agreed that whilst a lifestyle business was fit for purpose today, we should always have an eye on the opportunity to develop a mind-set to exit if the correct opportunity presented itself.

Generally it takes at least 18 months to prepare for exit, but by growing the management structure, spreading the customer base, improving the IT, and minuting all meetings the value can significantly increase because this is all evidence of a well-run business.

During the discussions 3 core areas of value were suggested.

  1.  Creating sustained profitability
  2.  Having clear records and processes
  3.  Building a brand

It was even suggested that the economic climate has presented a great opportunity to sell our businesses to bigger players, because over the last 2 years they have made strong profits and are now sitting on cash in the balance sheets, which could easily and should be used to invest in strategic acquisitions.  The market now has more trade buyers than for many years.

It was however surprising how few of the members actually engaged in dialogue with their bigger competitors, eg at trade fairs, in an attempt to make their bigger competitors become aware of the value and strength of our smaller companies. Such, off the record discussions are key, because companies don’t get sold – they get bought, and the need to keep close to the big guys is obvious.

Buyers are not looking for businesses that are chasing revenues, this can blur the proposition.  Buyers do not understand revenue streams derived on the hoof.  Multiple and varied revenue streams introduce unnecessary complications and additional risk.  So the main conclusion from the discussion was to keep the brand simple and focused to attract a strategic fit.

Some of the members had been approached over the years by foreign buyers, willing to pay a premium to secure a new base in the North of England.  Others had found real value in finding an appropriate advisor, who would look at the business from an objective viewpoint rather than the owner’s emotional subjective view.  The advisor would focus on the key areas of the business and suggest the areas to be worked on to achieve maximum value.  Such areas include a business audit on marketing, sales, customers, pricing, operations, management structure and compensation.

It is important that existing owners identity and resolve issues within the business before a potential buyer discovers them. Equally, ensure that the existing management team is sufficiently incentivised to stay, to maximise company value.

All in all it’s about a story and if you are selling the existing management team as the value, then they have to be as strong as possible.

Some of the more pro-active members of the group have their businesses valued by their accountants on an annual basis, so that they can fully understand the areas of weakness and the areas of opportunity in case an attractive offer comes along.

However, don’t get carried away by the one off offer, as 70% of all business sales processes collapse.  Stay focussed on your core business and have an eye for attracting multiple bidders to secure the sale.  On the other hand, put everything into place, and gradually release yourself from the day to day role of running a business and sit back a little and continue to reap the rewards on a monthly basis of your robust lifestyle business.

Either way it’s all positive as long as you have the right mind-set

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Is PR worth the cost?

Is PR really an ego spend rather than a direct revenue generator, was a question asked at the Business Exposure Group meeting.

Research by Proctor and Gamble showed PR as the highest return on investment of any marketing tactic with a 270% ROI.

A well planned PR campaign can increase brand recognition, search engine ranking, targeted traffic and sales ready leads.  But many SME’s put unrealistic objectives forward for their PR campaigns, ones that are not easily measurable, such as

  1. attain awareness of our brand by the end of the year, or
  2.  introduce our new service with a bang

It is far better to have measureable objectives, for instance

  1.  get 3 mentions in the business press, or
  2.  ask all new customers how they heard of us and get 10 of these through published articles

The reality for SME’s is that PR is vital, it gets you there, whereas advertising keeps you there.  For little financial commitment either through traditional PR or Social Media a buzz/noise can be made in the marketplace for your business, and if your plan doesn’t seem to be working do not wait until the end of the next quarter to make adjustments, because with the latest downloadable marketing tools we can make adjustments this week.

Many of the members at the meeting shied away from publicity, acknowledging that this was a mistake, and recognising that PR generates business leads, improves staff morale, assists in recruiting new employees and attracts investors. PR is key to positioning our businesses and we should work towards spending 5% of our turnover on PR and Marketing budgets.

Two further questions were raised at the meeting.  Firstly, is it better to use a specialist firm who know how to target PR and have the necessary contacts, or should we do it in-house and pay wages instead.  Most felt that an outsourced specialist with a clear and tight remit was the best cost-effective approach.

The second question was, is Twitter the most effective form of business PR, as it has a low financial entry level and an unparalleled reach capability.  Not everyone was sold on the Twitter approach, citing that few people take it seriously and the majority of users do not know how to make it work for business.

Whilst the debate could have lasted far longer than scheduled at the meeting, all felt the need but many lacked the certainty, of how to run and implement an effective PR campaign.

If you know the answers then please drop me a line, because it’s all a bit of a black art!

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Due Diligence – Putting your own house in order.

There is plenty of information that you should have to hand to demonstrate that you are running a serious and well managed business.

Not many companies will have all of it, but it’s better to be one step ahead than behind.

So check out this list. Can you get your hands on it quickly?

  • General details about your organisation– Articles, Memorandum of Association, List of Shareholders, Copies of Agreements. Organizational chart. Business and Marketing plans.
  • Financial Details – Accounts for the last 3 years, Company Credit Reports, Budget and Projections, Debtors and Creditors
  • Details of Physical Assets – Equipment / Leased
  • Info about your Properties – Leases and Mortgages
  • Intellectual Property – Patents / Trademarks / Copyrights / Licenses and Continuing Agreements
  • Staff – list with time spent and salary / resume of key employees / personal handbook / any employee problems
  • Licenses and Permits
  • Environmental Issues
  • HMRC paperwork
  • Material Contracts – Joint Ventures/ Bank Arrangements / Distribution Agreements / Letter of Intent / Company Standard Purchase Order and Invoices
  • Products and Services – List and Complaints / Warranty
  • Customer lists – 12 largest customers / Major Customers lost in the last 2 years
  • Competitors
  • Litigation details
  • Insurance- Business / Property / Key Man/ Directors and Officers / Company Claims History
  • Articles and Publicity

Purchasing a Company

When in the position of purchasing a company, ask yourself these questions and go in search of the answers.

  • If you are buying a company how can you be sure you are buying the business you think you are? Find out all the details you want/need to know. Use the list above as a guide.
  • Are you sure it’s as good as the seller says? Sort out the fact from the sales talk.
  • How can you be certain unexpected costs and obligations will not suddenly appear once you are the owner?

Finally, to be absolutely thorough, proper due diligence may have to involve hiring a firm of private investigators, they look for:

  • Checking out key people
  • False accounting
  • Undeclared outgoings and liabilities
  • Computer intelligence
  • Potential internal threats
  • Potential external threats

As with everything there is a trade off  betwean getting all the information and a commercial deal, which allows the seller not to disclose everything in the run up to signing the contract.

This article was taken from a discussion of the Business Exposure Group.

If you are a Director or business owner and would like to attend one of their informative round-table discussions, please contact philipdrazen@bxgroup.co.uk

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Due Diligence – Consider which Customers to do business with.

Modern business is dangerous. It constantly demands us to trust people we have never met before over services, time, and money. A good handshake just isn’t enough to guarantee legal security. People are not rigorous enough, which is why the need is greater than ever for due diligence.

One tool out there that can help is the website www.duedil.com which allows you to follow suppliers, competitors, and clients. The website provides free company information, including director’s backgrounds and allows you to compare business with their rivals. Currently, users from 75 of the FTSE 100 companies are using this service to conduct due diligence on counterparties, daily.

However, when Duedil can’t help there are other ways to satisfy your risk assessment.

All of the considerations involve an investigation of either a business or person prior to signing a contract. But remember, you have to ask yourself how much of this may be overkill. Everyone’s boundaries will be different.

Working with a Customer

These are steps that can be taken in the name of due diligence when working with a customer.

  • Take steps to indentify your customer- checking they are who they say they are, is more than just for banks and solicitors. Make sure your contract is with the correct trading entity.
  • Only offer credit to companies 3 years old with a one-year sound payment history.
  • Trade referees- get individuals from both sides to vouch for each others reliability and worth.
  • Asking for overall sales volume, so that you can see what risk the value of the order represents.
  •  Check their credit score.
  • Use Google to track their story.

This article was taken from a discussion of the Business Exposure Group.

If you are a Director or business owner and would like to attend one of their informative round-table discussions, please contact philipdrazen@bxgroup.co.uk

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SME’s are you adopting essential technologies into your business?

Upgrading computer software often entails considerable costs to small businesses which is why many owners put it off.

Although it can be tempting to kit out an office with the technology available in a large corporate office, business owners should be realistic in their requirements and base their decisions on priorities as well as the size of the business and its technological needs.

Traditionally, SMEs have been slow to adopt new technologies such as tablet and cloud computing because of a lack of funds and human resources. Legacy technologies still play an important role in information technology for SMEs. These are applications and databases that have been inherited from earlier  systems and serve critical business needs. Often the challenge is to keep the legacy system running while converting it to a newer and more efficient system.

Fax machines still perform a valuable function and are used daily in business – more so than smart phones at 38%.

Technological innovation is a key component to developing a successful and competitive business however many SMEs are still reluctant to embrace these changes, even if they help improve efficiency. Business use of the tablet currently stands at 1.4%, while laptop use is at 36% and smart phones at 16%.

Do you lose your competitive advantage with old technology?

Inadequate management of technology reduces business profitability. One in 10 businesses has been a victim of an IT incident in the past 12 months which resulted in business downtime.

Most businesses spend less than 10% of their IT budget on protecting their IT systems. Security should be a priority for all businesses looking to change or update their current IT systems. Software security should be bespoke and reflect your individual data risk.

British SMEs lag behind their European counterparts by showing a much weaker level of commitment to IT innovation.

Research shows 4% of UK businesses are using the cloud but do not understand what it is. SMEs often cannot afford large-scale expenditure on IT hardware which makes hosted solutions much more attractive as these can be paid for on the basis of use, and keep IT costs to a minimum.

Cloud computing – SaaS (software as a service) offers many benefits including:

–       Minimal risk (per month payment)

–       Opportunity to scale

–       Improved mobility

–       Enhance security

–       Constant updating

The average age of technological equipment in British SMEs is 2.2years. Businesses should look to technological partners who can supply them with the latest digital breakthroughs to stay innovative.

Technological innovation can help SMEs simplify key areas of their business – and greatly reduce cost. The advent of video conferencing and Skype has reduced the need to travel to meetings while Key Performance Indicators (KPI) software allows owners to identify and analyse business performance data.

Social media technology should also play a key role in today’s SMEs and be central to growth plans. Although the uptake of social media among SMEs has grown rapidly over the past decade, many businesses are still employing a chaotic and unmanaged approach to this medium.

Businesses need to have a social media strategy in place to utilise the benefits that sites such as Facebook and Twitter provide. This communication medium allows business to feed content free of charge into a highly-visible public arena and encourages readers to share it with their social network. A corporate message spreads from user to user and resonates because it appears to come from a trusted third party.

Technological advances are redefining the way we develop products and services and the way in which we market them and this has a direct impact on how SMEs generate income. Currently 9% of SMEs believe technology is helping them win business which means those who have yet to realise its significance are already losing out.

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Bank funding and banking relationships may soon be put even further at risk…

Bank funding could upset your relationship with your bank

Whether or not as a business you’ve previously enjoyed a rewarding relationship with your bank, things have changed as a result of a set of international banking regulations known as Basel III.

Basel III is a series of reform measures, developed by the Basel Committee on Banking Supervision, which are designed to strengthen the regulation, supervision and risk management of the banking system. They have been devised in response to the financial crisis and aim to strengthen the banks ability to respond to economic stress and regulate their risk management procedures.

What does all this mean for the SME?

One definite consequence is that the days of an endless credit supply are even further away than ever.
Basel III sealed a deal in September 2010 to triple the size of the capital reserves that banks are required to hold against losses. It sets out a new key capital ratio of 4.5% – more than double the 2% level in 2010 – plus a new buffer of a further 2.5%. Banks whose capital fall below the buffer zone will face restrictions on paying dividends and bonuses, so the rule sets an effective floor of 7%.

The new rules will be phased in from January 2013 to January 2019. These tougher capital standards are considered critical for preventing another financial crisis but this has curtailed lending, economic growth and is costing jobs.

For the banks, these rules will mean reshuffling their client bases and change products to reduce the amount of risk they take on. Less risk means fewer loans and higher costs associated with those loans.

For business owners, it will lead to transformed banking relationships and different types of funding.

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