are you financially well organised? Business Plan organistional responsibility

Transcription

1 are you financially well organised? Business Plan organistional responsibility

2 Organisational Responsibility Marketing? Operations? Administration? Which hats do you wear in your business? You may wear these hats and many others as you move from responsibility to responsibility within your business. What you may not realise, though, is the more reliant your business is on you (the owner) making all the business decisions, you are increasing the risk to a potential purchaser that the profits aren t sustainable if you re not in the picture. This will potentially lower the value of your business. To address this you need to look at what s stopping you from delegating responsibilities. Is it a fear of not having someone you can delegate to? Or are you worried that the wrong decisions will be made? The three step approach you should take in overcoming any fears about delegating day-to-day decision making, which will ensure: 1 Responsibility and accountability 2 Consistency in decision making 3 Management of behaviour which aligns with your business core values You should also ask yourself which of the 5 Drivers of Revenue below you are passionate about, play to your strengths and build a team around you that supports the responsibilities you would like, and the areas you can delegate to others: 1. Product: what you sell. Do you enjoy creating the product or service? 2. Marketing: lead generation. Do you thrive off generating the sales lead? 3. Sales: converting the lead into revenue. Do you enjoy the sales side of things? 4. Operations & Delivery: Would you like to make the products and deliver them to your client? 5. Client Relationship Management: Would you like to manage the client experience so they buy again? To work out what aspects of your business you are passionate about and your strengths, consider what you love doing? What is your ideal to do list? What is your ideal day/week at work? First and foremost, you need to understand that your decision making structure should align with how you make your profits. profit = revenue - expenses revenue will drive cash inflow expenses will manage cash outflow

3 Managing expenses & day-to-day decisions Most small and medium sized business owners spend too much time managing their expenses and making day-to-day decisions about the following systems : HR legal IT premises Accounting & Finance administration These system areas are essential components required for your business to open its doors every day and operate effectively so it can deliver its products and services. These areas are often despised by business owners. If you don t like doing something, you will be frustrated managing it and not give it the attention it deserves. Most business owners prefer to be generating revenue and developing business strategies, not approving an order to replace printer cartridges or calculating weekly wages. You should start by removing the systems area of your business from your day. Develop a strategy so the activities and decisions around the systems area of your business are looked after by someone else who is passionate about those things. You still need to set guidelines, manage the people you put in charge of these areas, set budgets and approve action plans. And most importantly, you need to make sure you hold these key people accountable for the decisions they make.

4 5 Divers of Revenue The revenue of any business is made up of the 5 Drivers of Revenue: business context organisational responsibility leadership financial management systems revenue strategy Most business owners are passionate about one or more of the 5 Drivers of Revenue. Ask yourself what you prefer? Creating the product or service, generating the lead, converting the sale, or managing the relationship with the client? It s then about making sure the key people in the areas you don t manage on a day-to-day basis are given the responsibility and authority to make decisions in their area. But remember, as the owner of the business it s your job to provide them with the clear guidelines and strategies for them to implement and manage. Horses for courses - systems and revenue areas You should never have the same people responsible for day-to-day decision making in both the systems and revenue areas. It takes a different kind of person to manage costs and cost-related processes, than it does to produce increasing amounts of revenue. If you have the same person doing both, they will predominantly revert to the preconditioned operating style, either systems or revenue. Take for an example; when times are a tough, the systems style decision maker will look to limit activities so cash flow is conserved, when the right strategy at that time might be to grow revenue. When times are good, the revenue style decision maker will tend to just focus on more revenue, without focussing on costs, which can be the undoing of the business when the cycle turns.

5 The key is to make sure that the business owner provides them both with clear outcomes, required from their roles, and has an effective communication system between them so they can complement and support each other. By delegating day-to-day decision making in your business to others in the areas of Systems and Revenue, you free yourself from the business so that you can spend your time doing those things that you want to in your ideal day or week at work. By removing yourself from the day-to-day decision making in your business, and ensuring that you have the right people taking responsibility for managing the key strategies in the key systems and revenue areas of your business, you can effectively: drive your profits higher x reduce the business risk = higher business value It is important to remember that a potential buyer of your business should feel that the business would operate profitably when you are no longer the owner. Successful delegation and decision making of duties will ensure this. Decision making - what is stopping you? As the owner and CEO of your business, you must be clear on your role in decision making. It s about strategy, only managing the revenue areas that you are passionate about and delegating the rest. Vision/Business Context Owners / Board Strategy CEO Activity (day-to-day) systems revenue

6 You may have some fears in relation to delegating decision making it s common for business owners to worry they don t have anyone to delegate to, or they are worried the wrong decisions will be made. 1 There are 3 steps to help you overcome these fears: Responsibility and accountability If you want to maximise the chances of someone making the right decisions, you must delegate the responsibility of these decisions to them. Stephen Covey, author of 7 Habits of Highly Effective People, refers to being responsible as response-able. As a business owner, if you delegate responsibility you are then responsible for holding your decision makers accountable. If you delegate responsibility but continue to make the decisions, your behaviour undermines the delegation which will result in a lack of responsibility. Remember, structure determines behaviour. Think about signs at the zoo, Don t Feed the Animals. It allows the zookeepers to manage the animals behaviour so they can to keep it as closely aligned to their natural environment as possible. Feeding the animals will cause a different behaviour. If you build a structure where you delegate responsibility, but don t hold your team accountable for their decisions, the organisational responsible structure will produce poor decisions. This means that you will continue to be involved in the areas of decision making you shouldn t. The more involved you are in these areas, the less likely you are able to spend your day doing the things you are passionate about. Responsibility and accountability is all about building a structure that determines the decision making behaviour in the business. To maximise the possibility of consistent decision making, you must take responsibility for building a framework for your decision makers to work within. Your framework must comprise of the two core components: Decision making context Business core values 2 Decision-making context Context gives meaning to content. It makes sense that if you are delegating the decision making responsibility, and you want to maximise the chance of correct decisions being made, your decision makers are clear on the context of how you want them to make decisions. Refer to the section on Driver 1: Business Context, which discusses the importance of being clear and precise about your business context. A decision making context of your business must align to how you want everyone who connects with the business to feel when they think about your business. To ensure your team are making decisions that align to your decision making context, you must define what it is. Once you are clear on what you want everyone who connects with the business to feel when they think about your business, you must be able to describe it in a word or phrase. It must be concise and articulate. Your team can then understand how they need to make decisions, based on your context.

7 This approach will provide consistency in your business decision making. 3 Business core values Any business is a series of relationships: owners to team, to clients, to suppliers. They all interact with each other. So what makes one relationship more successful than another? What makes one relationship last a lifetime and another only for a minute? The answer is alignment of core values. Think about your personal relationships. In most families, the individuals are very different. They look different, have different temperaments, different interests, different personalities. Some are loud, some are quiet, some are funny, some are serious. Some are good at keeping in touch, other you don t hear from for ages. But when you boil it down, most families share the same core values. Business is the same. A business is a series of relationships people have with each other as owners, team members, clients and suppliers. When the values of the business are aligned to the values of those who connect with it, there is a greater chance for success. Successful companies have a limited number of core values that are clearly defined. For examples of core values, you only need to search the web for business core values to obtain information on companies and the theory of the role core values play in business. Business core values provide the business with a common behavioural framework. To reduce business risk and increase profits a business must maintain an organisational responsibility structure which enables the owners of the business to delegate the decision making, but at the same time develop a framework that ensures: 1 Responsibility and accountability; 2 Consistency in decision making; and 3 Management of behaviour aligned to the same core values become financially well organised. Call FWO Chartered Accountants today on Or info@fwo.net.au

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