With recovery in sight, what to do next?

These five strategies allowed business leaders to take advantage of the recession and make changes that under “normal” circumstances they do not. Successful leaders utilized key processes that enabled their companies and management teams to implement these strategies. Using the right processes and problem solving tools can help a company increase its value – regardless of economic conditions.

Most businesses took the opportunity to right-size and remove obvious cost, but almost all have failed to leverage the recession to its fullest in terms of waste reduction. Issues such as consequences and leadership remain the sacred cows in many organizations and prevent companies from achieving more.

Failure to implement

What are “consequences?” For most companies, their biggest issue is failure to implement. Companies come up with clever plans but rarely do they implement everything they set out to do. The primary reason for this failure is that there are few, if any, consequences for missing predetermined targets.

It takes courage to set performance targets and follow through on the consequences if targets are not met. If individuals or organizations achieve their goals, positive consequences are needed; if the goals are not achieved, negative consequences need to be applied. This policy needs to start at the top of the company.

What about “leadership” needs to change? Obviously the leader needs to set a good example regarding targets and accepting consequences for not achieving them. The leader also needs to guarantee that the shareholders can get the right return on their investment. This attitude forces the leader to make tough decisions. The leader needs to be seen by all concerned as firm but fair.

A continuing review of overhead, operating costs and processes is essential even as the economy gains ground. Why continue to put more business through an incapable system? Without this review, companies will not meet their profit budgets.

The following list of opportunities can help in this review. Consider each issue in your company and then estimate the annual cost/savings for each if it were appropriately addressed. Those processes with the biggest impact should be given the highest priority, of course. What is your total? Many businesses find savings potential of 10 to 20 percent of annual sales.

1. Remove poor-performing staff.

2. Remove unprofitable customers.

3. Remove waste in the sales process.

4. Remove waste in the production process.

5. Reduce overhead.

6. Achieve or exceed budgets.

7. Remove inefficient suppliers.

8. Increase average sales per customer by 20 percent.

9. Improve cash collection by 20 percent.

10. Improve other processes particular to your company.

Businesses will continue to need to free up cash to fund upcoming growth. Now is the time to take action. Business leaders need to make decisions, establish consequences and deliver on budgets. The savings from doing so will reap rewards year after year. If needed, get some outside, objective help, as most business leaders will not make the time needed for process improvement.

Deal with barriers

The last question to ask yourself is, “What barriers are stopping me from starting a business improvement process?” Keep asking the question until all the barriers are dealt with, and then start fixing whatever issues come out of this process. If you don’t start within the next five days you probably won’t. If you do, increased cash flow, reduced risk and the ability to fund future growth are the rewards to be reaped.

There’s nothing easy about business today. Implementing and maintaining the right strategies and business processes is hard. Why do it? One reason is that not only are businesses competing for the best customers and employees, they are also competing with lots of other business owners when it’s time to sell or otherwise transition the business. A company that has developed solid processes and a culture of continuous improvement has less risk for a buyer or investor, which in turn should increase the value of the company.

Over the last few years, many business owners put transition plans on the shelf.  Some were simply trying to survive. Others had over-inflated expectations as to what their business was worth before the recession and wanted to wait to see if multiples or prices would rebound. There are buyers out there now with cash, but they are looking for good companies at the right price.

Determining the value of a business requires some science and some art. The science is doing the math: financial analysis, forecasts, discount rates, market comparables, multiples, etc. A company with strong business processes should have strong growth and profit, which drive the financial results. The art of business valuation includes understanding the company’s culture, the depth of the management team, leadership’s vision and plans and process for continuous improvement. If employees have been empowered with tools for key processes, the company should be worth more.

Nothing in the new economy has changed the basic formula of “buy low and sell high.” There are investors or buyers that would love the opportunity to acquire an underperforming company, put these or similar strategies and processes in place, grow revenue and profit and sell it as a high-performing company.

Why wouldn’t you do it for yourself and your stakeholders?

Wouldn’t your investors, employees, customers and suppliers all be better off if you were consistently growing revenue and profit and increasing the value of your company?