Optimizing an existing business is the fastest way to improve profitability and reduce workload and stress.
We have catalogued our relevant resources here to introduce you to our Business Optimization Methodology.
There are probably as many ways of optimizing your business as there are businesses! We suggest one approach here but you can, and should, adapt it for your particular circumstances.
Note that our advice is general in nature because we don’t know your particular business in any detail. Always seek specialist advice where necessary rather than relying on our resources.
For us, an optimized and sustainable business has acceptable:
- Rewards for the leader (salary, benefits and profit)
- Stress levels (cash flow and risk) and
- Workloads
These are what is acceptable in the mind of the business leader and will differ between individual leaders.
There are three parts to building sustainability:
- Configure for sustainable operation.
- Remove waste and other profit impairing inefficiencies.
- Monitor the business to ensure it stays sustainable.
Table of Contents
Getting Started
Prioritising Your Efforts
In any business there is always lots of things you can do and that can be overwhelming.
12Faces puts a lot of emphasis on prioritising the candidate tasks then doing them in priority order.
To learn more about our approach, read:
- Work Smarter, Not Harder which introduces our Success Ratchet System
- How to Prioritise Work
- How to get work done effectively with Sprints
These two articles introduce you to new work habits that immediately start to reduce your workload and stress; part of the sustainable journey.
Sustainable Business Methodology: Deciding Your Goal
At 12Faces we strongly believe in always having a destination in mind. Without one, you are engaged in unmeasurable and probably meaningless activity; and so are your staff.
Ideally you set a goal for each of the following:
- Rewards for the leader (salary, benefits and profit)
- Stress levels (cash flow and risk) and
- Workloads (hours per week or similar)
Think about these and, importantly, write them down somewhere you can refer to them regularly. Be sure you are progressing towards them.
Set the figures at what would be ideal right now, if you had already reached sustainability. Right now because you can image what that is. It’s very tangible.
You can revisit this in later years and modify the goals.
Rewards
This might be a new concept to you. If you own the business, you can take money out of it as some combination of:
- Salary
- Retirement benefits
- “Toys” like travel, cars, gym memberships
- What is left over you can take as Profit
There are two things to consider:
- What is the total amount that you want to take out.
- What is the distribution over these choices.
The distribution question probably comes down to minimising taxation. That is a conversation best had with your tax accountant. Basically, you are looking for the minimum taxation on your aggregate Reward; rather than just on your Profit or your Salary independently.
This ability to allocate your Income from the business over several streams is why we refer to Rewards rather than Profits.
Stress
Stress comes about from uncertainty, primarily. In turn, this can arise from “risk” in the business (e.g. staff injuries) and/or Cash Flow. Uncertainty about whether you can pay your bills as they fall due.
With Risk, the rule of thumb is to:
- Identify and measure risks.
- Reduce them as much as possible.
- Try to take out insurance against what risk is left.
There are resources to help with this. Search for ‘Risk’ on the website or drill down through the Diagnostic System, if you have subscribed to it (under My Subs).
In your Goals document, comment on your attitude to risk and its importance to you.
With Cash Flow induced Stress, there are several resources and a course. The Course, Profit Autopilot, reduces this pressure.
In your Goals document, comment on your attitude to risk and its importance to you.
Workload
The last in our list (though you might have others as well) is the Work Hours you have to put in. You have choices here. You can work smarter rather than harder and we show you options for this in the resources. And/ or you can outsource some of your work to other staff or outside the business.
The key is to set your target workload (e.g. maybe the acceptable hours per week, no work on weekends) in your written Goals so you have a destination to aim for.
Wrap-up
Do this Goals task before you get too far into your sustainability journey. If you don’t know where you are going when you set out on a journey, you only get there by accident; and may not know you have arrived.
Install a Monitoring System
You already have one monitoring system installed; your accounting system.
If it is used primarily for tax purposes, you are not getting nearly as much value from it that you could – and should.
Part of the sustainable business methodology journey is knowing how you are traveling over time. This includes getting an early warning if your business is starting to fall out of sustainability.
The risks to stability are always there. One of the most common is the slow increase of your expenses. An example is from increased wages and input costs that you don’t monitor closely. These eat directly into your Profit.
So, minimally, you need a spreadsheet recording your monthly key statistics and where you can look at trends over time. When you start it, go back over several past periods and enter that data as a baseline. We encourage you to enter monthly, quarterly and annual data. This is because each gives you different perspectives due to the different timeframes. Monthly results fluctuate a lot more than quarterly and annually.
We put such importance on this that we have created the TrendBoard System. It is cloud based, you can log into it from any device to do the recording and reporting. Read more about TrendBoard here.
If your existing accounting system is designed mainly for tax, it might not be recording your accounting information in a manner most useful for management purposes. Learn more about tuning your accounting system here.
Configure for Sustainable Operation
A business can never be sustainable if the various “levers” in the accounting system are not in harmony. Most businesses work on the equation:
Revenue – Expenses = Profit
Consequently, they only find out what their Profit is sometime after the accounting period has closed; and they have to take what they get.
If you want a sustainable system, it makes sense to set your target Profit first and then manage Revenue and/or Costs to get the required Profit. Initially, this gives an alternative equation of:
Current Revenue – Desired Profit = Acceptable Expenses
Your goal is a particular level of Expenses that will give you the desired Profit; or at least get you started down that road.
Once your Expenses are optimised – as you will learn in our sustainable business journey – you can use the formula:
Desired Profit + Necessary Expenses = Desired Revenue
This will show the target Revenue for the desired Profit.
Rapid Optimisation
If you have not been intentionally optimising your business, there will be some “low hanging fruit”. You can rapidly optimise these for a quick boost to your Rewards.
Most of the ones, you will look at in our training materials, have the advantage of going directly to your Profit bottom line so you get a quick boost. Read more in the introduction to the Optimise100 (O100) course.
Harvest these quick gains in 100 days. Here are suggestions you can review for rapid optimisation.
To learn more on each, see our Sustainable Resources Catalogue;
- Revenue boosters
- Increase Prices: research showed an average 11% increase in Profit for every 1% increase in Price.
- Review your product mix: grow the best sellers / best Profit margin products and reduce poor seller / poor Profit margin products.
- Cost reductions
- Is all your Labour needed and productive?
- Do you need all of the space you have?
- Is there surplus capacity you could use or rent out?
- Go though your Costs in your accounting system, line by line, and ask yourself if there are savings to be made quickly.
The goal here is not to grow or to make strategic changes. It is mainly to do whatever can be done quickly to strip of the accumulated barnacles that are chewing up your Profit. A benefit is the savings will often be immediate and can be used to fund your next, longer term, sustainability strategies.
Ongoing Improvement
Sustainability should be goal for any business leader that wants a quiet and pleasant working life.
A good way to achieve this is to:
- Learn work reducing new habits then
- Roll these out to your staff so that everyone is optimising; all the time.
Some useful habits are expanded below.
Reduce Waste
Waste reduction was one of the biggest reasons why Toyota out performed other auto makers and why they then scrambled to capture the same benefits.
Experts on reducing wasted effort and materials say there are 8 different types of waste that you can remove. You might be surprised to learn that among the worst offenders is waste in office routines. So even professional service firms have something to benefit from!
There is no rule of thumb about how much can be saved from reducing waste.
It is a skill, or sensitivity, that all staff should be trained in. This is so that they do it automatically, as part of their work routines.
You can learn more from the links in our Resource Catalogue. Also, we offer the training course Business Efficiency: Waste Reduction Introduction.
Reduce Stress
The personal stress you feel, as a business leader, can come from many directions.
Four that are common are:
- Risk: worrying about risk from e.g. natural disaster, economic downturn, theft, injury etc.
- Cash Flow: being able to pay bills as and when they fall due.
- Staff: motivation, remuneration and management.
- Planning: worrying over what to do next in the business.
Fortunately, there are ways to reduce the impact of each of these, and therefore, your stress levels.
You can read more on potential solutions in our Sustainable Resources Catalogue
Reduce Workload
The sheer volume of work that a leader has to do can be very overwhelming.
The good news is that there is an argument that up to 80% of your work can be reduced leaving only the 20% that is mission-critical. Properly managed, this is also the work that you like doing so, not only less work but more interesting work as well!
Our resources on this topic are referenced in the Sustainable Resource Catalogue. Also, you can use the search function on every website page.
Kaizen & Workflow
Over a longer time frame, there are at least two other habits you will want for yourself and your staff.
Kaizen is a Japanese word meaning “continuous improvement“. It is a philosophy of continuously improving all your systems to be more efficient. It does not need to be onerous and can often have quite startling results.
Workflow is a term used to describe the flow of activities through your business. Raw materials or customer requests come in at the start of the flow and finished products come out at the end. Along the way, there are many opportunities to streamline activities and build in buffers. This is so that you never run out of resources. For example, Takt Time sets the target for every work station in a manufacturing system. The Theory of Constraints tells us there is usually just one place in a workflow to focus your effort. Working anywhere else is a waste of time if you want to increase production.
Find our resources on these, and similar, topics in the Sustainable Resource Catalogue.
Wrap-up
This article is a high-level outline of the theory on what business sustainability is and to introduce resources on how it can be achieved.
Our own experience is that having a sustainable business means having sufficient and assured Income and acceptable workload and stress.