The Dangers of Neglecting Strategic Planning

The Dangers of Neglecting Strategic Planning

Without a strategic plan, a company risks:

  • Missed Opportunities: Not having a clear direction can lead to missing out on valuable market trends or growth opportunities.
  • Inefficient Resource Allocation: Without a defined strategy, resources might be wasted on activities that don’t contribute to the company’s overall goals.
  • Reactive Decision Making: Companies without a plan often find themselves reacting to external factors rather than proactively shaping their future.
  • Lack of Alignment: Employees may have different or conflicting goals, leading to inefficiencies and decreased productivity.   
  • Vulnerability to Disruption: A lack of a strategic plan can make a company more susceptible to market changes or unexpected challenges.
  • Loss of Competitive Edge: Without a clear vision and strategy, a company may struggle to differentiate itself from competitors and maintain its market position.

In essence, strategic planning provides a roadmap for a company’s future. Neglecting it can significantly hinder its growth, profitability, and long-term sustainability.   

Here is a good resource on how to create a strategic plan: What Is Strategic Planning? | Strategic Planning Process & Steps (thehartford.com)

Business Valuation – Your Workforce as a Major Source of Intangible Value

Business Valuation – Your Workforce as a Major Source of Intangible Value

Four years after the worst of the COVID shutdowns and COVID benefits, the labor market appears to be calming down. COVID demonstrated the importance and business value of having a skilled, loyal workforce.

“A great system is when average people get outstanding results every time.”
– R.V. Caruso

However, the most important part of any system is skilled people running it. That does not happen overnight.

What is intangible value?

First, let’s start with the basics. Intangible value is all the value of your business that is not identifiable tangible assets. A tangible asset is a chair or a building. It can be touched. Intangible assets are things such as software programs, procedures that are in place, and goodwill because people know and call you—namely, anything we cannot see or touch.

What really creates intangible value?

When we talk about business value or investment value (tangible or intangible), we are talking about the likely future cash flow from an asset. This asset could be rent from office space or profits from a company providing services. For operating service businesses, this future profitability is usually about the people or employees who maintain and grow the company.

Companies need people to keep updating and improving what they offer. Then, they need more people to sell, manage, and lead the product lines or offerings. Otherwise, the overall company and its value would quickly fall as customers move to newer or easier-to-use products and services. (Remember the decline of the Blackberry for the iPhone?)  All companies need “forever and continuous improvement,” or they will get left behind—sometimes very quickly.

Your employee’s improvements to products and systems create your intangible value over time.

How can you increase your intangible business value through your employees?

Good employees are always important to business operations, profits, and value. There are simple (but not easy or fast) ways to increase your business’s intangible value through your employees.

  1. Hire the best. Train people, grow them, and keep them. This is hard work, and if you are successful, you will lose the occasional well-trained person, but really, what is the alternative? Many successful companies have programs to develop growth plans for every employee. These are not just plans but roadmaps for frequent training, reviews, and skill development to carry the employee and company forward.
  2. Compensate them well. I say compensate rather than pay because benefits like flexibility, titles, and non-monetary compensation (e.g., retirement plans or health insurance) are often just as important as salary. Remember, your competitors are lurking for your stars, and they will pay more—at least on the hire date.
  3. Create benefits that lock employees in. For instance, if your company gives large bonuses, pay the bonus over three years in thirds. If an employee chooses to leave, they are also leaving a big bonus behind. However, remember that you must pay them the full bonus if you need to lay them off. Another option is to create a stay agreement, where the employee receives a bonus if they stay for two years under new ownership. After all, ownership can change for voluntary or involuntary reasons.
  4. Remember the huge cost of new hires. Although you are hiring the best, they will still need time to adjust to your company. They are even more valuable when they are found, trained, and up to speed. Don’t be chintzy with your best people.
  5. Hire slow and fire fast. This might be the most important advice for any business owner. Back to point one–hire the best, even if it takes time. Then, don’t be afraid to let people go. How often has a hire who did not feel like a fit at the end of the first week made it on the team? Yet I bet you put tons of time “trying” to get it to work. Let those people go after two weeks, maybe even with two weeks’ pay (it’s still cheaper), not six months later.
  6. Contractually protect yourself. Note that this has become more contentious. Seek legal advice on all legal matters, particularly non-competes. In most jurisdictions, properly prepared non-competes or non-solicits can give some degree of protection to your firm from the loss of clients that might leave with a key employee. We believe these employees should be able to work in the field but not take your clients and software. The specifics of these provisions vary by state, so ask your lawyer.

Creating business value for your company through employees means using the carrot and the stick. Take your time to hire great employees. Then, provide training, compensation, benefits, and contracts that keep them around and grow them and your business. Finally, don’t be afraid of letting employees go if they don’t fit, no matter how hard it is.

Employees are the most important part of a service business’s intangible value. Protect that value.

Contact me to learn more about ESOP, Estate and Gift, SBA, and exit planning business valuations.

 

How To Cut Expenses

How To Cut Expenses

Review processes with your staff.
Often, they know of things that are duplicative or no longer necessary.

Remember that software upgrade that improved efficiency?
Did you really rework your process to take advantage of the efficiency. Perhaps you no longer need that routine sign-off or other changes. Check all of these areas.

Check if you really need all your software subscriptions.
Those things just don’t let go and the costs can add up across staff.

Negotiate anything worth the time.
Obtain three bids. While usually this seems like extra work it often can reduce costs signficinatly. We once reduced insurance costs 50% which was a very material number.

Look at your management structure.
Do you have a layer or layers that really are not necessary? Can these people do some production or sales along with management?

Training.
While training in the short term is an expense in the long term it allows your staff to be more efficent and do higher level things. For many companies well trained staff is the key to efficent growth. Do you have a plan for each person? How are you training and advancing your people?

Capital Costs.
There is a reason CNC machines replaced saws and drills. You do not want to overinvest, but at some point equipment needs to be added or updated to be competative. If you have a lot of equipment, you should have a replacement schedule as a guide that highlights when to review each piece and what is needed in the future for your budgets.

Develop a planning process.
These things should be part of a planning process that includes KPI’s, projections, training and capital investments, and is monitored at least monthly at each level of the company.

 

Rose Colored Glasses and Breaking Through Our Listening Blocks

Rose Colored Glasses and Breaking Through Our Listening Blocks

Have you ever worn rose colored glasses? At first, everything is pink. Weirdly pink. But then you get used to it, and it seems normal. Kind of like, “It’s just the way it is, the way things work.”

Rose colored glasses are a filter for our eyes. We also have filters for our ears. Maybe not as obvious, but filters just the same. Science has proven we all have a way of hearing what we want. Hearing what we already agree with. Hearing what supports our views.

Most of the time this works well. It’s why we do it.

Yet, if we know something is not working, and we want or need change – then our filters can get in the way. Just like seeing pink becomes normal with rose colored glasses, we hear what we want to hear. Rarely is that change. But there are ways, with a little concentration, to take the filters off – just like removing the rose glasses.

Steps to listening (It helps to prepare!)

  1. Remind yourself that things are not what you think
    • Remember, you are trying to hear new ideas. Open your mind to the fact that there are unlimited possibilities (I know some of you are fighting this thought already).
  2. Clear your “view” – rose colored glasses
    • Take thirty seconds and try to quiet your mind (you never will, but the exercise is good for you). Then slowly breath in and out three times.
  3. Quiet the voice in your head
    • Just listen. The little voice is going to speak but relax and minimize it until later. You will have plenty of time to dissect the message later. You only have this present moment to really hear what is being said.
  4. Be aware of your unspoken needs, body language and perception
    • Pay attention. Nod, agree where you might. Ask for clarifications if you really don’t understand (not to prove your point) and at appropriate times repeat what was said in your words to be sure you really heard it the way it was intended.
  5. Search for the meaning and the commitment behind the message.
    • Remember, what is being said is with the intent of helping. It is that person’s experiences and wisdom. Don’t pick at the words but try to understand the meaning.
  6. Speak your concerns.
    • Bring up legitimate concerns to better understand what is being said, not to impede. This is not a debate. It is an opportunity for you to learn something new and see things from a different perspective.
  7. Do not be thinking of your next question or example. 
    • Again, just listen. You have time to work on your next question when they are through speaking. Breaks in complex conversations are normal.

Try this. It can be exasperating and freeing. You also might find solutions to your seemingly intractable problems.

Manage Risks to Increase Business Value

Manage Risks to Increase Business Value

At the highest level, business value is simple. The formula is:

Business value = Forecast Future Cash Flow / Risk

In business valuation risk is the likelihood of achieving the forecasted cash flow in the future.

Risks come from many angles and chip away at profitability and value.

Here are a few risks, but certainly not all risks:

Payment Risk – Many businesses extend large amounts of credit and don’t always monitor changes in client credit risk over time. Manage accounts receivable and be careful with credit.

Interest Rate Risk – Everyone remembers this one now!

Liquidity Risk – Cash is like blood to your body. Even a profitable business can run out of cash. Manage cash daily or weekly depending on your balances.

Market Risk – It has been a good economy, so long leaders are forgetting about what a recession is really like. If you are in a cyclical industry review plans for when the party stops and sales drop by 20%, 40% or whatever happens in your industry.

Regulatory Risk – This can be a wildcard for many businesses and often understated until a problem arises.

Supply Chain Risk and HR Risk – These both were under-appreciated until Covid. Do you have alternatives if your key people leave, or primary supplier has problems?

Emerging Risks – It’s your guess about what is next. Review and do your best to get it right.

Appropriate risks should be reviewed and systems implemented at each level of your organization. For instance, in construction, weekly safety talks are given by many companies. These are most successful when the conversation goes two ways. Often staff will understand their day-to-day problems and risks better than management.

The Hidden Multiplier: How Company Productivity Boosts Everything!

The Hidden Multiplier: How Company Productivity Boosts Everything!

In the fast-paced world of business, productivity is queen and king.  Overall, improving productivity is not just about doing more work; it’s about working smarter, achieving better results, and creating value for all stakeholders involved—employees, customers, shareholders, and society at large.  

Just a few of the many places improved Productivity will show up.

Adaptability and Resilience: In times of economic uncertainty or market volatility, businesses with high productivity are better equipped to weather challenges and adapt to changing conditions. They can pivot quickly, reallocate resources, and seize new opportunities, maintaining stability and resilience in the face of adversity.

Employee Engagement: When employees feel that their work is meaningful and their contributions are valued, they are more engaged and motivated. Improving productivity can create a positive work environment where employees feel empowered, supported, and recognized for their efforts.

Cost Efficiency: (Of course!) Increased productivity allows businesses to achieve more with fewer resources, which can lead to cost savings. By optimizing processes and reducing waste, organizations can improve their bottom line and profitability.

Investing in Productivity: A Smart Move

Boosting company productivity isn’t just about working harder; it’s about working smarter. Here are some ways to achieve this:

  • Proactive Planning to anticipate growth. Analyze your current capacity and identify potential bottlenecks. Invest in additional resources like equipment, personnel, or training programs in advance.
  • Prioritization and Scaling by focusing on core tasks that directly impact sales and customer satisfaction. Consider outsourcing non-critical functions to free up internal resources.
  • Invest in the right tools and technologies to streamline workflows and automate tasks.
  • Prioritize employee well-being through flexible work arrangements and a positive company culture to reduce stress and burnout.
  • Implement clear communication channels to ensure everyone is informed and aligned with goals.
  • Track key performance indicators (KPIs) to identify areas for improvement and measure the impact of productivity initiatives on conversion rates.

A productive company is an efficient company. By focusing on employee well-being, streamlined processes, and clear communication, you can unlock the hidden multiplier of productivity and watch your company results and business value soar.