Change Management For Small Business – Turnaround Isn’t Rocket Science
Performance improvement is the same in principal for all business – it’s just less complicated for SMEs.
Selling a loss-making business to a competitor, changing the channel to market, acquiring a competitor or moving into a foreign market are all types of strategic decisions that large business has to make.
Performance improvement in the SME sector usually involves decisions of much less difficulty and risk.
When small business struggles or underperforms expectations, it’s a good idea to go back and remind yourself what it was that made the business successful in the first place. The issue with small business is that, in the beginning the owner has to be flexible – they have to be led by the market or customer and they have to be responsive. Over time, the business becomes practically unrecognisable from that proposed in the original business plan.
Change and responsiveness isn’t a bad thing (indeed it’s a good thing). It’s just that as a business owner, you must step back at regular intervals and ensure you are achieving what you set out to – creating value and making an acceptable profit.
A clear-headed review might make you squeamish! You might find loss-making products, unnecessary overheads and unproductive business or administrative practices that have given rise to an unwieldy, less profitable enterprise.
Performance improvement is about being able to see the business for how it is, making the obvious (almost common sense) commercial decisions consistently and constantly looking for marginal profit improvement.
First steps in SME performance improvement
“If you can’t measure it, you can’t manage it” – so take time to play around in the accounting system. MYOB, Quick Books and the range of small business software packages are easy to use. Look firstly at the last six months’ profit and loss account and look for the gross margin by month (if you can download this to a spreadsheet, great).
Divide the gross margin by the sales and look at the GM% for each month. Does the GM % trend up or down? As a business manager, you may have an idea why but you might not appreciate the financial impact.
Then look at the overheads. Finally, consider this information against what you instinctively know and have seen over time; does it make sense? If it does, then act.
So performance improvement isn’t rocket science; it’s about regularly making simple decisions based on all the information available.
- Cold-heartedly review your product or service: what’s unique? Then work backwards and forwards from that point and look at the surrounding input costs. Aim to lower them 10%. (Just don’t change what’s unique, only polish it, very carefully!)
- Look at your overheads – costs for insurance, external accountants and lawyers, rent, outgoings and other miscellaneous costs –aim to lower them 15%.
- Consider dropping that customer whose margin is too narrow or raise your selling price (you have little downside by letting an unprofitable customer go if you can replace them with an even a marginally profitable one).
- Raise prices for additional services or minor products (those that are almost unnoticeable to the majority of customers).
- Revisit where your sales come from (assess your “channel to market”) and ask how much it costs to “capture” your customer.
- Look at the business clearly and assess if the way you are doing business is optimal – are you or your employees just over-complicating the process?
- Are your staff engaged or just showing up for the pay cheque? Don’t underestimate the financial value of a happy workforce.
It’s not that difficult; make the easy decisions first. Review financial reports, use your intuition and observational intelligence, then have the courage to drop that customer, change that supplier, make that role part time and reap the rewards.
And I nearly forgot – sometimes the most obvious decisions are the least easy to see, so don’t be afraid to ask new employees what they think. Happy trading!
Steve Hogan was a former Client Director at Vantage Performance, a profit improvement and turnaround specialist. Vantage Performance is a member of the Turnaround Management Association Australia and winner of the 2008 and 2009 “Turnaround of the Year” awards.