The First Step in Business Planning - Where is the Business Now?

Where is the Business Now?

The starting point for meaningful strategic and business planning begins with an objective assessment of how the business is currently performing. An objective analysis requires you to review your financial statements with a critical eye. You do not need to have an accounting background to perform a reasonable analysis. Instead, you can work with your business advisor to perform a thorough and thoughtful analysis using the profit and loss data from your last three tax returns. The basic goal of this analysis is to highlight the positive or negative trends in your financial results so that you can determine the drivers and drains on your profitability. Once the preliminary analysis is complete, your business advisor should review the findings with you to drill down into the root causes of your successes and areas for improvement. This analysis will require your business advisor to analyze rather than crunch the numbers to achieve the desired effect. Here are some of the typical types of analysis that will need to occur.

1) Did gross sales rise, stay consistent with the prior year, or decline on a year over year basis? Rising sales are typically found in businesses that have the ability to generate new customers, retain current customers, or increase the price of their product due to rising demand for their differentiated goods or services. This is obviously the desired state for most business owners.
Stagnant or declining sales are typically seen in businesses that are not generating new customers, not retaining current customers, or not able to raise their prices due to lack of demand or perceived customer value. The preliminary analysis simply allows you to identify whether sales are rising, consistent, or declining over the term of the analysis. In essence, it helps to identify the symptoms that are showing in the financial statements. However, it does not explain the root cause underlying the applicable trends. This will require further questioning and analysis that is best performed by a competent business advisor with deep experience interpreting the meaning of financial statements.

2) Are the business expenses increasing, remaining consistent, or declining on a year over year basis using a percentage of sales measurement process? Generally, declining expenses on a year over year percentage of sales basis are a good sign that the business is controlling its expenses, operating in a more efficient manner, and becoming more profitable. This is particularly true for general and administrative expenses which should be growing at a slower pace than sales growth in a lean and efficient enterprise. Consistent or increasing expenses on a percentage of sales basis are generally a sign that the business is not operating in a more efficient manner or at optimal capacity. The preliminary analysis allows you to measure the percentage change for each category of expense items in your business. However, the more important analysis lies in why the percentage changes occurred on a year over year basis. For example, if a particular expense category is rising significantly on a year over year basis, you should analyze the particular expense category to determine why it is increasing on a percentage basis during the analytical period. The goal of this in depth analysis is to identity non-revenue driven expenses that can be cut slightly to achieve increased profitability.

I would like to talk briefly about expenses. During many of my conversations with networking partners, the networking partner will express concern that cost cutting alone will eventually lead to negative trends. Though I agree with the sentiment that across the board cuts will imperil a business, I would seldom advocate for such an approach. Expenses come in different shapes and sizes. Sales producing expenses such as commissions for sales people, marketing costs, and business development costs should probably not be cut if the goal is to increase sales. However, I often find that the expense mix in these categories may need to be tweaked to achieve the best possible sales results. For example, it is important to measure the impact of these expenses become some vehicles such as basic advertising are becoming less effective in modern times. General and administrative expenses often represent a potential means of capturing additional profits within a business entity if they are increasing as a percentage of sales. General and administrative costs represent a cost of doing business. However, they should not outpace or evenly track sales growth unless inefficiencies are present. 

I would strongly encourage all business owners to perform this analysis on an annual basis with their business advisors. A financial statement represents the report card for your business. But, it does not have to be a predictor of future results if the trends are identified and plans are put in place to emphasize the positive trends and minimize the negative trends.

Brian Kerrigan, JD

The Networking Process

The Networking Process as a Means of Starting and Maintaining Relationships

I read an interesting article by Ivan Misner. Ivan Misner is the founder of Business Networking International. I am not a member of BNI, but I find many of their networking techniques to be very useful. The article focused on establishing a new definition for networking. The definition that Mr. Misner and his group chose was as follows. The process of developing and activating relationships to increase your business, enhance your knowledge, expand your sphere of influence, or serve the community.

I view networking and the sales process in a similar manner. The goal of my networking is to establish mutually beneficial relationships with other professionals in the community. With this goal in mind, I want to work through my process and how to approach networking with a relationship mindset.

The first step in my networking process typically involves a networking event. The event provides you with a unique opportunity to meet other professionals in the community. The key is to approach the event with a relationship mindset. When you introduce yourself to another professional, you should start with the goal of learning more about them and what they do. If done correctly, you should do more listening than talking during the initial stages of the conversation because the goal is to make an initial determination as to whether you can form a long term mutually beneficial relationship. Through active listening, you can start to determine how they approach relationship building and the networking process. If you leave the event having met one or two people who approach networking in the same manner, you should consider the event a success.

The second step in my networking process is the initial follow up. If you fail to follow up on your initial conversation at the event, you have lost an opportunity to potentially establish a long term mutually beneficial relationship with this unique person. I like to follow up within twenty four hours to show my interest in learning more about them and how I can help them achieve their goals. My initial follow up will involve asking for a one on one meeting over coffee or lunch so that we can explore a potential networking relationship. The key to this initial meeting is thoughtful questions geared towards determining whether you can work together to increase business opportunities, business relationships, enhance each other's knowledge, and expand each other's sphere of influence.

The third step in my networking process involves planning and the establishment of a second meeting. At this point, I should have a good feel for whether we can develop a long term mutually beneficial networking relationship. So, I can now focus on how we can work together to increase our business opportunities and business relationships. The goal with this step is to focus on strategies and tactics that will help us proactively create new business opportunities and relationships. This step is not passive in nature (I will refer you to someone who needs an accountant). Instead, it involves establishing an active relationship and becoming advocates for each other in the business community. When you get two good networkers together, the ways in which they can work together to create new business opportunities and relationships is only limited by the breadth of their collective imaginations. Consequently, the time spent on the planning, the planning meeting, and the execution of the planning will create new business opportunities and relationships for each of you.

The fourth step in my networking process involves executing the agreed upon plan and building the relationship to a new level. The plan typically involves strategies and tactics that will increase the quality of new networking relationships and new business opportunities for each party. To achieve the goals of the plan, the new networking partners will have to achieve results for each other, remain in regular communication, and engage in additional planning sessions to tweak their shared plan. Many networkers initially view this step in the process as too time consuming and limiting because they want to move on to the next "connection". The reality is that if you perform this step correctly, you can place laser focus on the 20% of your networking relationships that will help you realize 80% of your new business opportunities and relationships. If you choose you're networking partners correctly, you will end up with a select number of friends and advocates for your business and you will be a friend and advocate for their businesses.

I would like to close with some final thoughts on networking and friendship. You have developed friendships with people that you know, like, and trust over the course of your lifetime. You did not become friends because you met once at an event. You did not become friends because you followed up and had lunch together once. Instead, you became friends because you built the relationship over shared meals, shared experiences, and shared interests. If you view building networking relationships like building friendships, you will have unlimited success in achieving the shared goals of increasing business opportunities and relationships.

Brian Kerrigan