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How do you rate? 

There are really only three components to a business. They are marketing, operations and finance. Marketing and operations must be in harmony while a big part of finance is reporting on marketing and operations. 

In simple terms, marketing is the attraction and retention of customers, operations is delivering your product or service to those customers and finance is collecting money, summarizing and reporting. 

So, how would you rate yourself in these three categories? Try it on a 1-10 scale. Realize very few companies are ever at an eight or above. That’s truly “world class.” Above all, be honest to yourself with these ratings. Here’s a few factors to consider: 

·         How much effort and cost goes into securing new customers (vs. repeat business)?

·         Do your customers recognize your “brand?”

·         Can production to keep up with sales or is there excess capacity?

·         How competent is your staff and do you worry about absenteeism, theft or turnover?

·         If your sales strategies all worked, would it devastate the company (you’d never ship on time)?

·         Is working capital adequate?

·         Have you ever done a breakeven analysis on new products or services (or on existing ones)? 

Marketing is a headache for too many small businesses. While it can be confusing, it really isn’t that hard to improve. Does your company rely on direct sales? That means you have salespeople who call on customers. They educate them, solve problems and ask for the order.

Alternatively, you may put most of your effort into bringing customers to you. That requires more marketing. Remember, advertising is only a small part of marketing. Marketing is everything you do to make the prospective customer aware of what you can do.  

A big part of that is creating a brand. Coke, Pepsi, Kleenex and Xerox are all examples of powerful brands. Even though there are dozens of copier companies and Xerox lost their dominance years ago people still say, “I’ll Xerox these” instead of, “I’ll copy these.” For decades, people have referred to Kleenex and facial tissue as the same things. Does your customer base think of you with the same reverence and respect? 

Operations is fulfilling the customers orders. If you’re a retail location it includes having the proper inventory, knowledgeable employees, an attractive store and fair pricing.  

If you manufacture a product or deliver a service, operations means being keeping up with sales so you deliver orders delivered timely but not having so much capacity the costs of production are prohibitive. A client recently overhauled his production facility. Efficiencies improved by 25%. The downside was that sales didn’t instantly improve and he was looking at laying off people for the first time in over 20 years of being in business. 

Managing people is a large part of operations. Having enough staff to do the job but not too many that it pushes costs out of line. Making sure you train your employees adequately and the work environment is healthy keeps turnover low and that’s important. 

The finance department lets you know how marketing and operations are doing. There is a wealth of information for every industry to compare yourself to. Unfortunately, most people never do this. An owner recently told me how great his margins were. Research and conversations with other owners proved him wrong, very wrong. No wonder he had a marginally profitable business (in a booming industry). 

Know what financial information is important to your industry. Is it inventory turnover or managing cost of sales? A client and I recently did a breakeven analysis to determine the feasibility of hiring a national sales manager and to calculate his compensation and bonus plan. That’s a lot better than pulling numbers out of the air and seeing what happens in six months. 

For a free 30-point rating form on the non-financial factors of a business and/or a detailed rating form on the above subjects along with a complementary analysis please call or e-mail me. My next article will cover ratings business appraisers use for goodwill evaluation. 

© Copyright John Martinka 2001-02. All rights reserved.