Oloja.com

Once your business is operational with sales and operations running well, it's easy to settle into this groove. After all, you've probably put an exceptional amount of work and time into it to get to this stage and it seems like a good time to let things run as they are.

But it's actually time to plan again. After the crucial early stages, it's important to review your progress so far, identify how you can make the most of the market position you've established and work out where you can take your business next. And once you've done that, it's a good idea to revisit your business plan with your new strategy in mind and make sure you introduce the developments you've identified.

This guide takes you through the first stage of this essential process, detailing the stages you should go through to recognise how well your business is performing, highlighting your strengths and areas that could be improved.

It's easy to focus only on the day-to-day running of your business, especially in the early stages. But once you're up and running, it can pay dividends to think about longer-term and more strategic planning.

Reviewing your progress will be particularly useful if you feel:

• uncertain how well the business is performing
• unsure if you're getting the most out of the business or making the most of market opportunities
• you haven't updated your business plan since starting to trade
• your business is moving in a direction different to the one you had planned

A clear business strategy will answer any concerns and show practical ways forward.
Questions you might want to ask include:

• What's my direction? To answer this you need to look at where you are now, where you're going over the next three to five years and how you're going to get there.
• What are my markets - now and in the future? Which markets should I compete in and what activities are involved in these areas?
• How do I gain market advantage? How can the business perform better than the competition in my chosen markets?
• What resources do I need to succeed? What skills, assets, finance, relationships, technical competence and facilities do I need to compete? Have these changed since I started?
• What business environment am I competing in? What external factors may affect the business' ability to compete?
• How am I measuring success? Remember, measures of performance may change as your business matures.

You can start your review by evaluating what you actually do - your core activities. These might be the products that you make, or services that you provide. Start by defining what your product or service is and then ask:

• What makes it different?
• What benefits does it offer?
• How might you improve your existing products or services?
• How can you launch new ones?

Key questions about your products or services
It's useful to address these questions:

• How effectively are you matching your goods and services to your customers' needs? If you're not quite sure what those needs are, you could carry out further market or customer analysis. See the page in this guide on how to conduct a customer and market analysis.
• Which of your products and services are succeeding? And which aren't performing according to your plan? Decide which products and services offer you both a high percentage of sales and high profit margins. For more information about the "sales menu" read the guide to increasing profitability on the Institute of Directors' website (PDF). Use this information to drop poorly performing products if you can.
• What's really behind a product or service's problems? Consider areas such as pricing, marketing, sales and after-sales service, design, packaging and systems during your review.
• Are you reviewing costs frequently? Are you keeping a close enough eye on your direct costs, your overheads and your assets? Are there different ways of doing things or new materials you could use that would lower your costs?

Once you have a clear picture of what your products or services set out to achieve, you can start to examine ways to improve your performance - in every area of your business.

Many new businesses use a short-term, reactive way of working in the early stages. This offers flexibility - but can cost time and money as you move from getting the business going towards concentrating on growing and developing it.

The best option is to balance your ability to respond rapidly with a clear overall strategy. In this way you can decide whether the actions you take are appropriate or not.

One question to ask yourself at this stage is - are there any internal factors that are holding my business back? And if so what can I do about them?
Consider the various aspects of your business in turn.

Premises

• What are your long-term commitments to property?
• What are the advantages and disadvantages of your current location?

Production facilities

• How modern is your equipment?
• What is the capacity of your current facility compared to existing and forecast demand?
• How will you fund any improvements?
• How does it compare with the competition?

 

Information technology

• What management information and other IT systems do you have in place?
• Will they cater for any proposed expansion?
• Will they really make a difference to the quality of product or service your business provides? If they don't, can you change them to make sure they do?

People and skills

• Do you have the right people to achieve your objectives?
• Do they know what is expected of them?
• Do you operate a training and development plan?
• Do you pay as well as the competition?
• Do you suffer from high staff turnover? Are staff motivated and satisfied?

Professional skills

• Do you have the right management team in place for growth?
• Do you have the skills on board you need in areas such as HR, sales and IT?
• Do you need re-skilling and re-training in any way?

Many small businesses prepare a business plan to help raise finance and then put it on a shelf to gather dust. And many businesses fail because of poor financial management and a lack of planning.

When it comes to your business' success, therefore, developing and implementing sound financial and management systems (or paying someone to do it for you) is vital. And a regular review of your original business plan is a good place to start.
When reviewing your finances, you might want to consider the following:

• Cashflow - this is the balance of all of the money flowing in and out of your business. Do you have a cashflow forecast and if so, how accurate has it been?
• Working capital - have your requirements changed and explain the reasons for any movement. Compare this to the industry norm.
• Cost base - keep your costs under constant review. They tend to escalate if you don't. Has your cost base changed since you started up? Have costs gone up without sales increasing? Have sales increased but margins reduced?
• Borrowing - what is the position of any overdrafts or loans? Are there more appropriate or cheaper forms of finance you could use?
• Growth - do you have plans in place to adapt your financing to accommodate your business's changing needs and growth?

Now that you have been running your business for a while, you will probably have a clearer idea of your competitors. Gathering more information may seem like further cost - but there are many benefits to knowing more about what your competition is doing.

What you need to know
The type of competitor information that will be really useful to you depends on the type of business you are and the market you're operating in. Questions to ask about your competitors include:

• who they are
• what they offer
• how they price their products
• the profile and number of their customers compared to yours
• their competitive advantages and disadvantages compared to you
• their reaction to your entry into the market or any product or price changes

How to find out more
There are three main ways to find out more about your competitors:

• What they say about themselves - sales literature, advertisements, press releases, shared suppliers, exhibitions, websites, competitor visits, company accounts.
• What other people say about them - your sales people, customers, local directories, the Internet, newspapers, analysts reports and market research companies.

Commissioned market research - if you need more detailed information you might want to commission specific market research via independent research companies/institutes.

When you started your business, you probably devised a marketing plan as part of your overall business plan. This would have defined the market in which you sell and targeted the nature and distribution of your customers.

From that strategy you would have been able to produce a marketing plan to help you meet your objectives. When you're reviewing your business' performance, you'll need to review your customer base and market positioning as a key part of the process.

A business review offers you the opportunity to stand back from the activity involved in your plan and look again at factors such as:

• changes in your market
• new and emerging services
• changes in your customers' needs
• external factors such as the economy, imports and new technology

You may want to consider customer feedback on your performance so far and in the light of new developments hire extra staff, target different customers or markets or launch new products. Alternatively a review could convince you to stay on your present course.

At the same time, it is important to remember that while reviews of this kind can be very effective - they can give your business the flexibility it needs to beat off stiff competition at short notice - it is important to think through the implications of any changes. In the new phase of your business you'll need to plan your finances and resourcing carefully at all times.

To remain successful it's vital you regularly set time aside to ask the following key strategic questions:

• Where is the business now?
• Where is it going?
• How is it going to get there?

Often businesses are able to work out where they want to go but don't draw up a route-map of how to get there. If this happens, a business will lack the direction needed to turn even carefully laid plans into reality.

At the end of any review process, therefore, it's vital that work plans are prepared to put the new ideas into place and that a timetable is set. Regularly reviewing how the new plan is working and allowing for any teething problems or necessary adjustments is important too.

In addition, a simple planning cycle can greatly enhance your ability to make change of this part of your business routine. Good planning helps you anticipate problems and helps you adapt to change more easily.

Expert input
You may find at this stage in your business' development that you need external skills to help you make the changes you need to make. In this case you might consider:

• employing skilled consultants in areas where you cannot afford to develop in-house skills.
• appointing an experienced non-executive director can provide a regular, impartial assessment of what you are doing.
• using a management consultant to help you identify how you can strengthen or change your management structure to grow the business.

There are a number of useful business models that may help you think more strategically about your business.

The SWOT analysis is one of the most popular, where you analyse the strengths, weaknesses, opportunities and threats to your business. Once you've identified all of these, you can assess how to capitalise on your strengths, minimise the effects of your weaknesses, make the most of any opportunities and reduce the impact of any threats.

It's important to remember that opportunities can also be threats - for example, new markets could be dominated by competitors, undermining your position. Equally, threats can also be opportunities - for example, a competitor growing quickly and opening a new market for your product or service could mean that your market expands too.

A SWOT analysis can provide a clear basis for examining your business performance and prospects. It can be used as part of a regular review process or in preparation for raising finance or bringing in consultants for a review.
Other tools include:

• PEST analysis - a technique for understanding the various external influences on a business: Political, Environmental, Social and Technological.
• Scenario planning - a technique that builds various plausible views of possible futures for a business.
• Critical success factor analysis - a technique to identify the areas in which a business must succeed in order to achieve its objectives. For more details see our guide on the key techniques for managers.
• The five forces - the theory that there are five defined factors that influence the development of markets and businesses. Using this model you build a strategy to keep ahead of these influences.

As owner-manager of your business or a member of its management team, you should stand back once in a while and review your performance.

The areas you need to look at are:

• Your market performance and direction - how well you are performing through your sales results, which markets to aim for next and how to improve your performance.
• Your products and services - how long your existing products will meet your customers' needs and any plans for renewal.
• Operational matters - your premises, your methods, technologies used, your processes, IT and quality. Are there any internal issues that are holding your business back?
• Financial matters - how your business is financed, levels of retained profit, the sales income generated and your cashflow.
• Your organisation and your people - your structures, people planning issues, training and development.

Next steps
The five steps above will give you a clear indication of any issues that you need to address quickly in order to maintain your business in its early stages.

If you feel all of the areas above are strong, you can start to plan for the next phase and build a cohesive strategy to develop your business. There are a variety of growth options for every business - it's important that you settle on the right one for you.

And once you've isolated your best route for developing your business, you can boost your chances of success by planning it carefully and monitoring your progress against an updated business plan.

Planning for growth
Chartwell Financial Services, part of the Lindley Group Ltd, is an independent financial services consultancy specialising in corporate pensions and investment. The company was bought by a new management team in 2002 and has since gone from strength to strength. From the start, the team adopted a methodical approach to planning which included a detailed SWOT analysis. Director Richard Clarke explains how the analysis has influenced the on-going growth of the company.

What I did

Analyse everything
We conducted our first SWOT analysis as part of our business plan when we were buying the company. We needed to know exactly what we were taking on and how it could be improved. The SWOT analysis covered every aspect of the business. It included finance, skill levels, client base, service delivery, market conditions, competitor activity and regulatory issues.

Thinking about how we were going to tackle each point raised provided a firm footing on which to build our strategy. In many instances, we found that a threat could also be a strength or an opportunity. For example, the fact that the pensions industry is undergoing a major legislative overhaul is a threat to our business. But it's also an opportunity because our experience and industry knowledge put us in a strong position to help clients negotiate any changes.

Repeat the exercise
SWOT analysis provides a snapshot of the business position at a specific point in time. Strengths, weaknesses, opportunities and threats change with the market and with the growth of the business. We did three sets of analysis in our first year as owners. Each one exposed new issues to think about and helped to modify our business plan.
SWOT analysis has been a useful tool for reviewing our whole operation and improving performance accordingly.

Set a timescale
When we'd completed each SWOT analysis and made a plan, we put dates alongside each action point. This provided a focus and meant we weren't just paying lip service to the analysis.

There was no point having it if it didn't act as a vehicle for change. We didn't always meet the timescale specified, but working to a defined schedule kept things moving in the right direction.

What I'd do differently

Review more often
The SWOT analysis could have been reviewed more often. When we did our second analysis, we'd addressed about 70 per cent of what we'd set out in the first analysis. An on-going review, say once a month, could have helped us get up to speed on the other 30 per cent sooner.

Divide responsibility
We should have split responsibilities more clearly from the outset. In the early days, there were instances where action should have been taken as a result of the SWOT analysis but everyone thought "someone else" was doing it.

Richard Clarke

Chartwell Financial Services

Richard's top tips:

• Use your SWOT analysis to plan ahead
• Put delivery dates against your plan and divide responsibilities
• Recognise threats, but don’t get too hung up on them - they could be strengths or opportunities as well