Recession – a Great Time to Consolidate Your Position

These are challenging times for many businesses, large and small. Because of that well thought through business strategies and effective implementation of them are important if not vital. The business should want to survive the recession as a starting point and to secondly consolidate its position in the market and grow if it can. In a smaller business how well these goals are achieved can depend on how well the owner wears his different hats.

One of the owner’s roles is to be the manager. This is an operational or management hat. Another hat is to be a Director. This is a Board or governance role. Governance and management are two different and separate focuses.

Governance is about determining the vision for the organisation, defining where the organisation is to go. It is about developing strategy and then monitoring performance and progress. It is about delivering value for shareholders. As part of their role a Board may well develop an annual plan including financial and human resources, operational strategies and performance objectives as well as the longer term goals.

If the owner, having completed that task, possibly with the help of independent directors or facilitators, puts his management hat back on his role changes. Having been made aware of the board’s requirements he must now harness the financial and people resources of the organisation. This includes financial planning, accounting, cash flow management, solvency, investment, financial reporting and communication with financing organisations, team building, public relations, marketing, technology and so on.

In allocating and managing resources the owner is guided by the strategic goals delivered to him by the board. Because specific goals are known resource allocation should be more focused and effective. The requirement to report back progress to the Board maintains a focus on the plan and allows the strategy to be monitored and tweaked if necessary.

In a small business the governance and management functions generally meld together. Often the owner is too busy doing the day to day work to think about the longer term in a structured way or to measure progress. By not allocating separate time to each role, the owner risks not completing the governance role effectively. The focus of the business may therefore not be as sharp as it could be at an operational level.

An organisation that has taken the time to plan where it wants to go and to measure progress against that plan is more likely to be successful. The odds are certainly improved. The challenge for the owner of a small business is to recognise the variety of roles that need to be filled and to allocate sufficient time to each to ensure that the business reaches its potential. To wear all the necessary hats, but not at the same time.

By Stephen McFarlane

How does your business measure up with the characteristics of a well run business?

Recessions have historically been regarded as a normal part of the business cycle. They were seen as a fact of life but also as having a positive aspect in that tougher times refocus businesses back onto the basics; eliminating some of the excesses and bad habits that may have crept in during the good times. These leaner, meaner, refocused businesses then lead us into a new period of prosperity.

As a region we seem to be holding up well in the midst of what is a significant global financial event. And, in the New Zealand context, we are doing considerably better than Aucklanders, who have been struggling for some time. In fact there may be an opportunity to attract some of them to South Canterbury to assist with our skill shortages and to position ourselves for further growth.

Some local businesses will have noticed a downturn in business opportunities. Others will see the world as unchanged. But either way it is an appropriate time for each to be considering what the characteristics of a well run business are and how they are measuring up against them. Being proactive now, even if the warnings turn out to be for nought, is hardly a bad thing.

The list in front of me runs to 20 characteristics – which aren’t going to fit into a 500 word article, certainly not with any explanation attached. Nevertheless the section headings themselves are a good self check list. I have summarised some into groups.

Personal capacity and development (leadership)

  • Excellent customer knowledge and service

Excellent product/industry knowledge

  • Excellent systems and analysis of results
  • Excellent cash control, stock management, work In progress control, debtor control and cost control

Excellent staff management, motivation and communication

  • Excellent marketing expertise/the ability to assess market place opportunities
  • Ability to change with market conditions/prices review

Excellent assessment of competitors
Adequate capital base
Use of professional advisors: accountant, banker, solicitor

  • Networking
  • Excellent planning

Excellent quality control
Excellent management/administration

These are the nuts and bolts of a well run business. They may seem obvious. But being obvious and being completed at a high level across the board can be two different things. I asked a local business man last week why a particular strategy, which had been successful for him, was no longer being pursued. His answer was that the good times had moved their focus away from the basics. They are now revisiting them.

Marking your business out of 10 for each of the characteristics listed above might be a good start to identifying weaknesses and then beginning to address them. Some thought as to the ingredients that made your business successful in the first place and whether they are still in place, albeit in a modified or improved form, would also be time well spent.

By Stephen McFarlane

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