Three Essential Tools for Business Success
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Three Essential Tools for Business Success

Three Essential Tools for Business Success

With the tools available to you, small changes can lead to success. It’s not about making drastic overhauls but instead improving on what has been done before by just a little bit each day–changing old habits for better results in all aspects of life!

There are many challenges in the world of business, but there’s one thing that every business owner has in common – they all want to succeed. What did you dream your company would be like when it first started? Think about what could happen if you are able to find better success in your business.

The Power of 1%

I’m sure most of you are absolute experts at the technical aspects of your business. But this article in part is about reflecting on what you are not so good at. Perhaps that is understanding your numbers. Or creating and implementing a simple Business Plan. Perhaps you need to lead the business and team a bit better.

Small changes can have an incredible impact on your business. 

Have you ever had to do something that was against your nature? Something so uncomfortable, it made all of those feelings come back up again. Trust me when I say this: change can be tough and at times even seem impossible! But with a little bit more courage (and maybe some help), change is possible.

If you improve by just 1% each day, after a year, you’ll be a massive 37.8 times better off.

For example, if you increase your sales by 1% each day for a year, you’d be selling 37.8 times more each day by the end of the year. What would your business look like if you increased sales by 37 times?

Of course, we all know you can’t expect to see linear growth. The point here is that even small changes over time will compound and produce big results, as long as you keep at it!

Your competitors are likely to sharpen their game and take advantage of any weaknesses in production or marketing that you left open – which could be a disaster if it continues!

If you don’t keep improving your business, it’s likely that the performance of whatever process or system you’re using for your company will decline over time.

 “Compounding is the greatest mathematical discovery of all time”

– Einstein

Change is inevitable. We all know this right?  But Growth is optional!

But change isn’t easy. Think about other businesses that haven’t adapted to change and what the impact has been on them.

The once proud and innovative company, Kodak quickly became a symbol of what could happen when companies fail to adapt their business model.  In 1976, Kodak claimed 85% of the photography market. They failed to adapt and by 2003 their share had diminished down below 15%.

When Blockbuster was at its height, it had over 9 thousand stores worldwide. This is another story of a business that had the opportunity to change but didn’t see value in doing so until it was too late. In 2000, when Netflix was starting out with a mail DVD rental service, the CEO approached Blockbuster to discuss Netflix handling Blockbuster’s online business.

However, he was, according to Forbes, laughed out of the room.

In 2004, Blockbuster finally set up their own mail DVD rental service. When the CEO of Netflix mentioned that Blockbuster had “thrown everything but the kitchen sink” at Netflix in order to compete with them, Blockbuster sent the CEO a kitchen sink the next day.

Netflix now has over 150 million users. Last time I checked Blockbuster had 1 remaining store.

What those examples of disruption highlight is that change is not easy. When we’re riding the wave of success, it can be hard to see the need to change.

We all have inbuilt habits and behaviours that we repeat.

We also have so much going on in our lives that it’s hard to start doing something different.

The Formula for Change : (DxV) + f > R

Let’s take a closer look at this formula. On the right-hand side, we have R which stands for Resistance.  What is stopping you from changing your behaviour?

This can come in three forms – no time, no money, or you don’t see the benefit of changing behaviour.

To overcome resistance, you need to build up the left side of the equation

The D stands for Dissatisfaction with the status quo. If you don’t change your behaviour, what will happen?  You need to understand the consequences of not changing your behaviour.  What will happen to your business if you don’t learn how grow it or improve profitability? Profit may drop, the opportunity for a family holiday might be taken away from you and some team members could lose their jobs.

Next, V for Vision, you need to have a vision.  Having a clear vision is important for changing our behaviour. If you want more holidays, money or time with family then it will help drive the changes in your life that are needed to achieve this goal!

So what are the first steps you need to take in order for your vision to be realised? Remember, inaction will heighten dissatisfaction and cause business regression. The fact that we’re here reading this today means there’s potential change waiting just around this corner!

In this article, Insight CA will introduce you to three essential tools that can help guide your journey towards a more positive future.

So, what are the three essential tools for business success? In my view, they are:

  1. An annual Business Plan.
  2. An annual forecast.
  3. Ongoing reporting with accountability.

Insight CA refers to this as the “success trifecta”.

Your Business Plan is your guiding document to deliver the business outcomes you dreamed.

Your annual forecast shows you the numbers you need to achieve your desired business outcomes.

Ongoing reporting with accountability means regularly monitoring your results and having someone hold you accountable for completing your actions and achieving your goals.

Let’s take a closer look at each one, starting with…

Annual Business Plan

There are literally thousands of books and articles on the internet about the components of a Business Plan. Here’s what we consider to be best practice.

  1. A clear purpose. This should be a 5-7 word statement that explains why your business exists for your customers.
  2. A clearly articulated vision. What will your business look like in five years’ time?
  3. What you want to achieve. What does your business need to deliver to you? Remember, your business is there to serve you; not the other way around. State the hours you want to work, the holidays you want, and how much money you want to make.
  4. A high-level budget. This helps identify your gross revenue targets for the year and is based on what you’ve recorded in the ‘What we want to achieve section’. The budget also forms the basis for essential tool number two.
  5. Key Performance Indicators. These are the things to measure that will make sure you’re on track to achieve your goals, for example, sales per day, milk production per month, gross profit, or even the number of days team members are achieving their individual targets. Choose a maximum of five and make sure you can measure them.
  6. Opportunities and vulnerabilities. Your Business Plan needs to identify these so your goals can maximise the opportunities and mitigate the vulnerabilities.
  7. Goals for the year. Make sure these goals are measurable and achievable. These should cascade into 90 day goals with clear actions and a person responsible for each action. It’s important to review your Business Plan regularly to ensure the actions are being completed by the due date, and update your 90 day goals each quarter.

Rules we follow when it comes to developing a Business Plan.

  1. Firstly, all key decision-makers should be involved and complete pre-work before the planning session to reflect, prepare, and be heard.
  2. We recommend using an independent facilitator to avoid people dominating the discussion and encourage alignment between stakeholders and key team members.
  3. Your Business Plan should be on one page, double-sided. There’s no point developing a 30-page Business Plan to gather dust in a drawer. It needs to be visible at all times to guide decision-making.
  4. Share your plan with your team, even if you remove some of the sensitive information. This encourages your team to buy into your vision and align their goals with yours.
  5. Report against your plan monthly to monitor progress.
  6. Review and update your goals and actions each quarter to ensure you’re on track to achieve your annual goals.
  7. Do a full review and update of your Business Plan each year. Some things, such as your vision and values, may not need change but take the time to review each section.

And the next tool is…

Annual Forecast

In the past, you might’ve prepared a forecast because the bank asked for one, but it’s something that should happen each year. If you don’t know how much money will be coming in and out of your business, and when, you can’t make informed decisions.

Even if your business has a positive cashflow, you should prepare a forecast. It can help you unlock a lot of cash, just by making a few changes.

Your annual forecast will break your high-level budget from your Business Plan into monthly targets, accounting for seasonality and allowing you to predict and prepare for large cash outflows.

There are three types of forecasts which we can combine into something called a three-way forecast.

Profit and Loss

Shows you whether you’re going to make a profit or loss each month. It gives you the flexibility to allow for seasonal fluctuations instead of lumping all income and expenditure into one annual total. It could show that, while some months you may make a loss, overall you’ll make an annual profit. Or vice versa.

What’s really important to understand is that profit and cashflow are not the same. Some costs don’t appear in the Profit and Loss Forecast, so you need to make sure that you’re going to make sufficient profit to cover these additional cash costs.

Cashflow Forecast

This shows all movements of cash in and out of your business on a month-by-month basis and allows for tax payments, asset purchases and sales, drawings, and loan drawdowns and repayments.

While the Profit and Loss Forecast shows you your business efficiency; the Cashflow Forecast shows you whether you have enough cash to survive and thrive – cash is the oxygen for the business after all.

Balance Sheet Forecast

Shows you whether the overall value of your business (or net worth) is increasing or decreasing. It measures your assets, liabilities, and equity, and shows whether you’re solvent or insolvent.

Highly profitable companies can and do go broke, so the Balance Sheet Forecast gives you an early warning of risk. For example, if you have a huge increase in sales, but you’re slow collecting your debtors, you could be in a position where you can’t pay your bills as they fall due.

As you can see, your forecast tells you a lot about the health of your business. This is why it’s one of the three essential tools, and why you must do it annually rather than only on request by the bank.

Here are our rules for developing your annual forecast.

There’s plenty of software to help create your forecast and you should be able to some of it yourself.

We send our clients pre-work to complete before we prepare their forecast to ensure they’ve identified all expected income and expenses.

Start with your desired profit, then work backwards to calculate the sales you need to achieve to obtain that profit. Compare this to last year’s results. Is your desired profit realistic and achievable? Review your figures and make any required adjustments.

Of course, we can help you develop your forecast and identify areas you can improve your cashflow.

And finally, the last of the three essential tools…

Ongoing Reporting with Accountability

Reporting means regularly monitoring your results to ensure you’re on track to achieve your goals. If you’re not measuring your financial results and the key drivers of your business, you can’t properly manage them.

Technology provides you with real-time data to support informed decision-making. Compare real-time data against your forecast and make adjustments if required to stay on track to achieve your goals.

We recommend preparing Management Reports monthly to measure your Key Performance Indicators.

If you wait until the end of the year to review your Annual Accounts, the data is too old to be of much use. By producing regular reports, you can quickly respond to any unexpected changes in your results.

Of course, without some accountability, you’re less likely to take the actions you need to in response to your reports.

People often start with great intentions, producing reports for the first couple of months, then get busy with their day-to-day tasks. Your accountability coach will ensure you dedicate time to review your numbers and check that you’ve taken the actions you need to.

Accountability helps you to set aside time to work on your business and complete the actions you set in your Business Plan or respond to your regular reports, building better habits for your business.

Your accountability coach must be someone independent, and they must have the backbone to give you consequences for inaction but the heart to care. They can’t be afraid to upset you when you need a dose of accountability and they need to care about you achieving the goals you’ve set.

You must have clearly documented actions with due dates to ensure you have a deadline to work towards.

There must be consequences for inaction; if you keep failing to complete your actions, something is broken and it’s likely you have the wrong person holding you to account. So, who will hold you accountable?

My aim is to help you take today’s message and implement some positive change in your business.

So what are your next steps from here:

  1. Doing nothing is not an option. Doing what you have always done is unlikely to give you the same results as you’ve had in the past.
  2. Make a clear plan that you can articulate to your team.
  3. Develop your forecast for the year and repeat this annually.
  4. Find someone to hold you accountable.
  5. Focus on what you can do as opposed to worrying about what is out of your control.
  6. We are here for you and want to help.

We can help you implement the three essential tools in your business.

Our Business Planning service consists of a four-hour session where we’ll develop a Business Plan like the one I described earlier.

We can prepare a Cashflow Forecast, and for those of you who need accountability to make the changes and achieve your goals, we offer Quarterly Coaching sessions where we update your 90-day goals and actions and hold you accountable to achieve them, or Monthly Coaching if you need more regular accountability.

Changing the way you run your business is all about building better business habits – making small changes that add up over time. We have a Building Better Habits Worksheet you can download for free which will help you identify the one area of your business that you’d like to consciously improve daily.

We also offer a complimentary one-hour meeting to discuss your goals and find out how we can work together to achieve them. If you’re looking for an accountant in Auckland – feel free to reach out!

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