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Redefining Success

Redefining Success

With the current business landscape, we’re all experiencing disruption and uncertainty – this is the new norm. As we’ve all had to adapt, no doubt there have been a few ‘flearnings’ for us all along the way.  A ‘flearning’ is a term we use because our biggest learnings come from our failures.

Of course, Covid is not necessarily a failure; the issue is that, what we’ve done in the past may no longer be as successful. So, we need to respond to those flearnings and reconsider what we’re doing.

Before we get stuck in, I just want to throw in our usual disclaimer, that the information in this article is general in nature and no substitute for tailored advice, specific to your particular circumstances.

Today we’re going to look at what success looks like for you, your business and your team and how your planning should reflect this.  We’ll dive into some strategies to grow your profit and cashflow to help you maximise the outcomes for all, to promote sustainable success. Then, we’ll look at how we can help your business with some free tools and additional support options.

Your new definition of success

Pre-Covid, success may have meant something very different to you. You may have had growth plans which have been disrupted. Given the change that covid has brought, some have fallen into the trap of working harder and burning themselves out in this pursuit, when in reality, there are other ways to potentially have you cake and eat it to.

For the purposes of this article, we’re going to refer to an example business – a gym called The Rock, which is owned by a fictitious husband and wife, Dwayne and Jayne. The principles will be equally relevant for your business.

In our example, let’s say Dwayne and Jayne originally wanted to achieve $100k profit but were working long hours to get there. Now they’re thinking that more time with family is more important and are wonder if they can achieve that success with a lower level of profit, say $80k.

Remember that the business is there to serve you; not the other way round. By redefining what success means to you personally, it’s possible to build a plan around how the business delivers that. Defining what success means to you allows you to define what success looks like for your business.

But we mustn’t stop there; we also need to define what success looks like for our team. A happy and engaged team is not only good for them; it’s great for business too.

Throughout this article, we are going to flesh out how to create the new definition of success for you, your business and your team, using Dwayne and Jayne’s gym as the example.

Success for you

So, let’s start with your definition of success. In other words, what you want your business to deliver to you personally.

We refer to your definition of success in a section of your Business Plan called ‘What we want to achieve.’

We refer to four things here:

  1. Your hours of work: do you really need to work such long hours? Can you spend more time with the family and still get by financially? In our example, Jayne would love to have Dwayne at home more to help with the children.
  2. Your role in the business: are there things you do at work that could be done by others to free up your time? In our example, Jayne would love it if someone else could do the GST preparation so she can get her evenings back to watch Netflix.
  3. The cash you take from your business each week or month: if you reduce your cash demands, your business will be able to survive on lower turnover or alternatively you can employ or contract other people to do tasks you’ve done yourself up until now.  Remember, in our example where the cash demands may have been $100k in the past, maybe we can bring that back to $80k for Dwayne and Jayne.
  4. The holidays you want to take: where, when and how long for.

So, just as it is for Dwayne and Jayne, your definition might be quite different to what it was pre-Covid.

What do you need to be happy? Maybe you can get by on less cash from the business, and in so doing, take some work pressure off yourself.

Your personal budget.

A personal budget helps us understand whether or not you can get by on less cash from the business. If you can make personal savings, you’ll reduce the cashflow strain on the business.

No doubt you’ve made savings during the various lockdowns. Or, you’ve changed your spending priorities – can these savings continue? Hopefully you haven’t increased spending online too much, especially if your business is under pressure.

We have a complimentary personal budget template you can use to ensure you don’t miss any expenses. Simply look at your bank statements online to see what you typically spend in a month. Go back 3-4 months to review your expenses and ensure your budget is realistic.

In our example, Dwayne and Jayne have determined that they can make things work on $80k – Dwayne is going to cut down on what he spends on supplements and Jayne is going to go walking with her friends instead of going out for lunch each week. They’re also going to have a camping holiday locally to reduce costs. Personal budgeting is a hugely empowering process.

Success for your business

Once we are clear on what success looks like for us as owners of the business, it’s time to translate that into business success.

If we go back to our example, in the past Dwayne and Jayne wanted the business to deliver $100k to them each year. Having done their personal budget, they’ve identified that they can make things work for their family at $80k. I’ll show you shortly what an impact this can have on your minimum viable sales level. Success for The Rock Gym can then be built around achieving a lower sales level.

Alternatively, they could reinvest those savings into the business on things such as more support in marketing, finance or administration to free up their time to work fewer hours. Let’s look at an example.

Let’s talk about what minimum viable sales actually means. You may have heard people define breakeven sales as the level of sales at which your income equals your costs.

In our definition, breakeven or minimum viable sales, is the level where you get sufficient cash from your business to meet your definition of success. If the costs equal the sales, you’ll have nothing to live off, which is clearly not a smart strategy.

As in our example, previously Dwayne and Jayne’s plan was to achieve a profit of $100k.

They know their overheads are $125,000.

So that means their gross profit needs to be $225,000.

If they have a gross profit percentage of 50% in their gym.

Their annual sales need to be $450,000.

If they’re only open 46 weeks per year, then their ‘breakeven’ or minimum viable weekly sales number is $10,000.

Let’s look at their revised plan with the $80,000 profit figure.

If overheads stay the same at $125,000 then they need a gross profit of $205,000 at a 50% GP percentage.

So their revised annual sales and minimum viable sales figures are $410,000 and $9,000 respectively, which is a 10% reduction in sales.

With a new plan to invest an extra $20k in support with marketing and finance which could result in a lift in gross profit percentage by 2%, Dwayne and Jayne can still get by with that 10% reduction in sales.

That has got to give them a better lifestyle.

And our next topic is…

 

Your SMART Business Plan

Once you’ve worked out your minimum viable sales, it’s time to put some goals together to achieve those new numbers.

Using our example before, Dwayne and Jayne need to set some SMART goals about how to achieve that sales number of $9,000 per week. An example might be to attract 10 new customers per month.

We can then create specific actions to achieve that goal, remembering that each goal and action needs to fit into this SMART format. This forms the basis of your wider plan. Let’s look at how this all flows together.

Building the business plan.

At The Rock Gym, Dwayne and Jayne have defined their core purpose (or why their business exists for their customers) as ‘Helping you become a true badass’ – for those of you who know The Rock Johnson, you’re going to pick up a few of his famous quotes here. They want the gym to be associated with their vision of peak personal health.

Their definition of personal success is defined in the ‘what we want to achieve’ section. $80k profit, Jayne reducing her hours by delegating marketing and finance, Dwayne also reducing his hours, and together having a family holiday.

They’ve done their personal budget and know they can achieve their personal definition of success with $80k profit which translates to annual sales of $433k – we calculated this earlier.

So, the high level budget gives us the Key Performance Indicators, or KPIs, that Dwayne and Jayne need to measure on a daily and weekly basis to make sure they’re on track. You can see this section as their minimum viable sales and gross profit percentage, as well as increasing the number of new enquiries per month and the conversion rate of enquiries to new members. They also need to monitor their member retention rate and the average amount members are spending.

You can see that these KPIs also link to their opportunities, vulnerabilities and most critical challenge. It’s important to have a measurable indicator so you know if you’re on track to achieving your vision of success.

Building the 90 Day Action Plan

A 90 Day Action plan records goals for the year and then breaks them down into 90 day goals and actions.

The minimum viable sales number and the gross profit margin have been converted into a SMART annual goal. The first 90-days is all about the actions Dwayne and Jayne will take to ensure they have a robust system to measure if they are on track to achieving their business definition of success.

It’s super important here that the plan becomes a reality and doesn’t sit in the bottom drawer.

The other one year goals all link back to how the business can deliver on Dwayne and Jayne’s revised definition of success about reduced hours and the level of personal spending.

It’s important to note here that the changes Dwayne and Jayne are making might not have immediate results on cashflow. For example, they’re going to spend the first quarter contracting a marketing person and outsourcing their finance responsibilities.

So you’ll see a 90-day goal here to reduce debtor days from 32 to 22 which will give them a much-needed cash injection within the next 90-days.

And so we move on to our next topic…

redefine success

Strategies to grow your profit

So, we’ve talked about your personal definition of success and how to reflect that in your Business Plan so your business can achieve the level of success you need it to.

At the same time, it’s always important to look at strategies to grow your profit and improve your cashflow.

We often refer to a traffic lights analogy. Often there are just as many things you need to stop doing (the red light) as there are that you should continue doing (the amber light) and start doing (the green light).

For example, a red light activity might be to stop working for customers who don’t pay or don’t respect your Core Values. Or, you might want to stop doing your own GST as it impacts your evenings, just as Jayne has decided to do in our example.

An amber light activity might be to continue revising your prices to reflect any increases in costs you’re experiencing from your suppliers. A green light activity might be to update your personal budget and business plan and start regularly monitoring your results against your plan.

Please write this down – ‘What you can say yes to is defined by what you say no to’. Remember your revised definition of success is about you working smarter, not harder.

Let’s look at the impact a few changes can have on your profit using what we refer to as the growth equation.

Growth equation – example 1

The Growth Equation focusses on profit.  Here’s our example for The Rock Gym. Pre-covid, Dwayne and Jayne had plans to grow their profit from $76k to $100k. Let’s look at how they were planning to get to that profit.

Note: We have simplified this example by calling one annual membership 1 transaction per year. The reality is that each member will have multiple transactions (e.g. buying food and drinks) on each visit – hence how we’ve shown the increase in transaction value.

They were planning to lift client retention by 5%, increase leads to 10 per month, get better at converting those prospective customers, and lift average transaction value by 50 (maybe by encouraging customers to buy a drink after each session). To drive the growth and check they were going to stay to plan, they allowed for additional marketing investment. They also engaged their accountant to help with planning, forecasting and reporting.

Growth equation – example 2: The Smarter Plan

Now, here’s our example for The Rock Gym reflecting plan 2. This was the second, smarter plan of getting to profit of $80,000.

Dwayne and Jane’s new plan is to get by on $80k as opposed to $100k, because in the current climate, customer retention will drop by 5%, therefore striving for a growth in retention to 85% is no longer realistic. Now, they still plan to increase leads to 10 per month, but recognise that it will be harder for them to lift their conversion rate (so have kept that unchanged as opposed to the 5% increase planned before).

They now only need to lift the average transaction value by 40 (as opposed to 50). They’re also going to revise their prices for food and drinks, and review the staffing levels for gym classes to increase margin by 2%.

To make sure they stay to plan, they can still afford to engage their accountant to help with planning, forecasting and reporting. They can also still afford the additional marketing investment.

Strategies to improve cashflow

Let’s look at how some small changes to cashflow can also help at this time.

Ultimately, cash is king, and you want your cash conversion cycle to be as short as possible. The more cash you have in your business, the stronger, more resilient it will be. Technically, if you increase cash by collecting debtors, your net assets don’t improve (as debtors go down and cash goes up). However, the higher your debtors are, the more risk there is of non-payment. The quicker you can convert your debtors and inventory into cash, the better.

If you can negotiate better terms for payment of suppliers, you can preserve your cashflow for longer. Care is needed here though, as in the current economic climate, slow payment of suppliers puts a real drag on the economy. What’s important is to come to an agreement with suppliers. For example, they might agree that you only pay when you’ve sold the item to your customers.

You must also look at how long it takes for your stock or work in progress to be invoiced. Again, the quicker, the better. Consider whether you need to hold so much stock or if you can issue progress invoices or reduce the number of jobs you have on the go at once.

Make sure you’re also keeping a close eye on how long it’s taking for your debtors to pay you. There are so many things you can do to get paid faster, like updating your terms of trade, automated or repeating invoicing, or simply chasing up your slow payers with a systemised process or credit manager.

Let’s look at some examples based on Dwayne and Jayne’s gym.

Shortening your cash conversion cycle

At The Rock Gym, debtors are currently $35k as Dwayne and Jayne have been too busy to chase up the slower payers. Monthly subscription payment reconciliations are not done and some members move on without paying their outstanding balances.

With sales at their current level of $402k, it means it’s taking an average of 32 days for debtors to pay, even though their terms of trade and invoices say 7-day payment terms.

So, immediately a plan is needed to fix this problem and bring some much-needed cash into the business. They’ve met with their accountant for a one-off cash improvement meeting and they’ve identified clear actions to take.

The new plan has a target to bring debtor days down by 10 to 22 days. To do this, in their cash improvement meeting they agreed that they’ll check if each member is up to date when they sign into the gym, and start phoning and emailing debtors as well. They’ll be monitoring the results as part of their monthly management reporting service.

By doing this, debtors are expected to reduce to $24k within 2 months.

This will free up over $10k right when Dwayne and Jane need it most.

Success for your team

Now that we’ve redefined success for Dwayne, Jayne and their business, we need to do the same for their team.

On a basic level, your team’s needs are very similar to your own as business owners. They need security over what their hours are, and some flexibility where possible to have a balance that supports a happy and healthy lifestyle. They also need security over their salary or wages and clarity of when and where they can take holidays, and any other perks you may offer.

Your people are your greatest asset. With the risk of burn out higher than ever, and unique pressures on the job market causing a severe shortage in workers, never has it been more important to support your team to have success in their roles and beyond.

The Four Decisions that Drive Growth

There are four decisions driving growth in every business based on content from Verne Harnesh:

  1. People.
  2. Strategy.
  3. Execution.
  4. Cash.

We’ve looked at how Dwayne and Jayne can execute a better strategy or plan. This is how they’ll set the Vision and focus for their team.

One of the key decisions focuses directly on people, because it’s critical to attract and retain the right people.

However, the team also contributes in the remaining key areas: execution and cash. Your team is critical. Their happiness, including the overall culture of your business, is as important as the strategy itself.

Four disciplines of a healthy business

It starts with developing a cohesive leadership team: for Dwyane, Jayne and all business owners, this equates to a leadership team that has built trust, mastered tactical conflict, achieved commitment, embraced accountability, are focused on results.

Next, you need to create true clarity for your team.

There are six elements of clarity:

  1. Why your business exists – also known as your Core Purpose.
  2. How your business behaves, which can be defined by your Core Values – these are the guiding principles for how we make decisions and how we treat each other and our customers.
  3. What your business does relates to how you deliver on your purpose.
  4. How your business will succeed is what you’ve recorded in your Business Plan.
  5. What’s important right now are the 90 day actions you’ve identified in your plan.
  6. And who must do what is also recorded in your plan, as well as when it must be done.

These elements of clarity not only help your team better understand the game plan, they provide cultural guidelines to uplift workplace culture and ensure every team member is a team player and on board with executing the plan together.

On the flipside of that, every time a team is distracted or disrupted by confusion or internal conflict that is not constructive, we eat into our productivity and bottom line.

Clarity over what success looks like for your business is the first step in creating a great company culture. Your team want to see how their role and responsibilities are connected to your vision for the company – how they’re helping to make an impact. Then, we simply need to overcommunicate the clarity and reinforce it, acting as the Chief Repeating Officers in our business. It’s up to Dwayne and Jayne to constantly reinforce why and how they’re helping their customers become true badasses.

We help our clients define these elements of clarity when creating a Business Plan. We also have a Culture Card template we can provide you, which will give you a starting point for creating some of this clarity, as well as strategies for communicating and reinforcing it.

Being a flexible employer

Now that we’ve addressed the high level things we, as business owners, can do to set our team up for success in their roles, how can we support our people’s individual success?

Individuals thrive individually. While the status quo may work well for many of our team members, we should recognise that everyone has a different ideal working environment.

Where possible, offer different start or end times and remote working arrangements. Some people do their best work early in the day, or in the evenings, so there are benefits to your business of doing this.

Consider offering a shorter working week for the same pay. This is becoming more and more common as the data tells us people who work fewer hours are less burnt out, more productive, and more loyal to their employers.

Or, just throw your team a long weekend on you from time to time. I’m hearing plenty of businesses are doing this currently – be sure to give everyone plenty of notice so they can maximise this time. There’s a massive shortage of workers right now. We need to ensure we are employers of choice, because the cost of recruiting new team members far outweighs the investment in our people – of which there are other clear benefits.

Encouraging study or extended leave options is also a great way of demonstrating your commitment to your people and their passions outside of work (some of which will add value to your business).

We actually want our people to have a life outside of work. This ensures they’re fresh, motivated, productive, and have had blue sky thinking opportunities – which could lead to valuable innovation in your business. So, ask the question of your people to establish what matters to them and how you can help them work around the other things in their life for overall better happiness.

Measuring team member success

The definition of success for our people has shifted. It could be said that younger generations are leading the way in how we value work in the greater scheme of our lives.

Being a flexible employer and helping our team achieve better balance is Win/Win – it’s a win for them and for our business.

Ensuring sustainable success – free resources

So we’ve covered off how to re-define success for you, your business and your team. Now let’s talk about the resources we have available to help you ensure your sustainable success.

Here are some suggestions:

  1. Put the oxygen mask on yourself first and do a personal budget to see how you can make some savings.
  2. Complete our Sustainable Business Success Worksheet.
  3. Send your team our Team Member Reflection Questionnaire to see how they’re doing.

If you’d like us to send you any of these resources, just send us a message!

For those who need more support, our recommended strategy is to work with us to complete an updated Business Plan – we’ve been receiving great feedback about how helpful this process is for nailing your strategy and providing clarity for your team. Claim your free discovery call here.

So, if you haven’t yet done your Business Plan, now’s the time to do this as it will form a great foundation from which to build your cashflow improvement strategy. It will also help with loan applications if finance is needed. A Business Planning session can be done as one 4 hour face to face session or online over two two-hour sessions.

You should also prepare a Cashflow Forecast to reflect the changes your business will be facing – this turns your plan into numbers that you can monitor regularly to check you’re on track for success.

If you need a bit more help to improve your cashflow or profit, we can sit down with you for a meeting to work through the growth equation I shared earlier, as well as identifying strategies to improve your cashflow.

If you’re good at the planning stage, but not so good at following through, I recommend you sign up for Management Reporting. This means you’ll regularly monitor your results and be held accountable to achieving your goals.

If you’re unsure on the best way forward, or you want to talk to us about how we can work together, we recommend a complimentary meeting to discuss your goals, current problems and challenges.  We can then agree the best way we can support you. Claim you free discovery call here.

We know that the benefits you’ll get from these services will be far greater than our fee – most importantly, it’s about helping you as quickly as possible and ensuring we are working with you to achieve success for you, your business and your team.

I’d like to share this quote with you.

Nothing is so contagious as enthusiasm.” – Samuel Taylor Coleridge

Make a simple plan today – commit to at least three actions you will take. Write them down, give each of them an owner and a completion date. This is a worrying time for many businesses, but you don’t need to worry alone. There is a tonne of support out there, and more to come. If you’re looking for an accountant in Auckland – feel free to reach out!

cash flow management

Now that you’ve redefined success for you, your business, and your team, we recommend your read our latest article on the Three Essential Tools for Business Success.

We have been receiving great feedback on our Three Essential Tools (Success Trifecta) – check out this latest client testimonial from Lewis Rudall of Lake Road Electrical Ltd.

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