A-Head for Success

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A-Z of Business: R – Return on Investment (ROI)

Return on Investment (ROI)

You’re in business to make money, so understanding the return of your investment is critical.  You can do this in advance of your decision to invest and also to see how your investment is performing over time.  A related measure is the timing of your break-even point.  Can your business bear that delay as you wait for the returns to roll in?

A simple ROI calculation is the amount of financial gain divided by the amount invested multiplied by 100.  So, if you invested £10,000 to develop, manufacture and sell a new product, and the sales of that product achieved a revenue of £11,000 in year one, that would give you an ROI of £11,000 ÷ £10,000 = 10%.  That return is quite modest and, with related costs could signify a loss for your business.  What would it take to increase that to, say, 25%?  Or 50%?  And what about the potential sales year-on-year?

Sometimes the returns are less tangible, or less direct.  Instead of focusing on increased revenues, the return may involve a reduction in cost, an improvement in quality, an increase in customer satisfaction levels, enhanced employee morale, etc.  These should all have a consequent effect on your bottom line in time, though it is difficult to determine whether this improvement is as a direct result of the investment, or some other measure such as improved hiring decisions or the introduction of sales incentives.

These days a lot of marketing decisions have a longer term view.  For example, free applications being built as a loss leader to attract users to upgrade to more profitable versions of a product.

When planning the return on your investment, do be aware of the hidden costs which can erode your profits.  Costs such as legal fees, administration costs, equipment, maintenance, staffing, training, office space, design, manufacture, packaging, advertising, warehousing, distribution and also the cost of delays.  When budgeting and contracting services, do think about having project-based quotes with penalties for delays to preserve your investment.

Those of you that know me well will also know that I couldn’t write about ROI without mentioning the importance of thinking about the return of investment of your time and energy into a particular activity.  I wonder how much time and energy you spend on things which have little or no impact on the success of your business?  Just busy-ness getting in the way of business?  This impacts your bottom line too.

© Tricia Woolfrey 2013

About Tricia Woolfrey – click HERE to find out about the author.

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A-Z of Business: K – Knowledge – Your Competitive Edge?

It is estimated that 15% of success is from your technical skills whereas 85% is through gaining trust and respect.  So, what has knowledge to do with this?  Plenty, as it happens.  Knowledge covers the whole spectrum.  Good technical skills are, of course, important.  But not if the knowledge is out of date.  Technology is changing all the time – as are trends – and it is essential to keep abreast of what’s going on in your market place and in your profession.

Solicitors and doctors go through years of training in their profession before they are able to practice.  Yet, how much training have you had to run your own department, or your own business?  How much knowledge have you acquired to help you be successful?  Whether you are running a department or a business of your own, the knowledge you need to be effective is extremely broad and most people simply muddle through.  In the meantime, what happens to the trust and respect essential to 85% of your success?

The following table helps you to understand some of the fundamentals for trust and respect and the kind of knowledge you need for them:

TRUST AND RESPECT KNOW-HOW
Good people and rapport skills Influencing and leadership
Doing what you say you will do Planning and organising
Doing an excellent job Technical and delegation
Managing complaints effectively Problem solving and conflict management
Meeting your obligations Business acumen and resource management
Emotional intelligence Understanding of people and yourself and how to manage yourself and your relationships in times of stress

 

 

 

 

 

 

 

 

Business knowledge – such as sales, marketing, finance, operations –  is important whether you run your own business or manage a department as you need to see how everything fits together.  These will help you to exploit strengths, minimise weaknesses, seize opportunities and handle threats from a point of strength.

So, how can you increase your knowledge?  Through coaching, training, reflective learning and study.  Often, you don’t know what you don’t know (in the case of business, ignorance is not bliss) and it is helpful to have someone there who can help you see your blind-spot. Having your own coach and mentor is an excellent step to take to help you stay on top of your game.  For more information call 0845 130 0854 for a no obligation chat.

© Tricia Woolfrey 2012

About Tricia Woolfrey – click HERE to find out about the author.

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A-Z of Business: J – Judgement: The Key to Effective Decision Making

 

Judgement is your ability to assess a situation and to draw sound conclusions.  This is a key factor in your decision making process.  How do you judge whether something is right for your business or not?  And how do other people judge you and your business?  When you understand this, it can really help you:

a) make decisions which serve your business well
b) help you to help other people make judgements in your favour

There are various ways in which we may be convinced of something-

  • Number of examples – ie the third time you see something, you are sure it’s right
  • Automatically –  you don’t take too much convincing, you just automatically trust that something is right
  • Period of time – you need to think about something for a while before deciding, even if it is an obvious solution
  • A trusted source – if you hear it from someone you trust, or know they are doing the same thing, that’s enough to convince you
  • Logic – you need to evaluate the facts before deciding if something is right for you
  • Emotion – you tend to trust your gut
  • Impact on the bottom line – you will not be convinced of anything unless you see how it will affect the bottom line
  • Tried and tested – you need to see something working somewhere else before you think about it for yourself
  • Cynics – you are never truly convinced of anything

None are right or wrong in themselves.  However, it’s possible to rely too much on a particular method which could leave you vulnerable.  For example, going on gut instinct without checking the effect something has on your bottom line could affect the profitability of your business; relying on a period of time may mean that an opportunity is lost; being automatically convinced can be dangerous as there is no evaluation of the possible impact something may have; cynics can fail to take opportunities because they always find fault; depending on tried and tested methods can mean you are behind the curve in terms of your competition; relying on logic alone can mean that you are ignoring the not inconsiderable power of your intuition; depending on a trusted source requires that the trusted source be right 100% of the time or that their circumstances are the same as yours.

Ask yourself, what other factors do you need to consider when you are formulating your decisions?  Do re-read the decision making part of this series.

Finally, what to do with this information when considering your customers and prospects?  You will be well-advised to consider an example of all the above criteria in relation to your products and factor in where appropriate.  For example, Jack has a strong gut instinct but likes to back it up with number of examples, so you might want to either find three ways of proving your product, or expect to make your case over three appointments, and follow that up with “What does your gut tell you about the suitability of our product for your business?”

Or, Sally may make her decision solely on the bottom line.  So you may want to take the approach of showing the cost savings your product will give her, or the revenue potential, or perhaps some other way of impacting the bottom line.

If you aren’t sure about what someone else’s convincer strategy is, ask them how they decided to buy their latest car, computer system or even holiday.  This should give you a lot of clues.

Even the most successful business people have made bad judgements in their time. However, you can minimise yours by considering all of your options to make a more informed decision.

If you would like to discuss you own business decision making strategy, or change the way others judge your business, please contact us on 0845 130 0854.

© Tricia Woolfrey 2012

About Tricia Woolfrey – click HERE to find out about the author.

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A-Z of Business: I – Influencing Skills

The ability to positively influence others with integrity is a key skill in business.  It affects your ability to have people buy into you, your business, your product and your ideas.  It impacts your leadership style and your ability to build constructive relationships.  It can also be incredibly stressful if you are unable to influence people constructively, impacting your productivity, your sales and even your profitability.

Influence is about your ability to have a positive effect on someone.  It differs from manipulation in that it is undertaken with integrity and regard to the interest of the other party.   It’s about having people buy in to your ideas and perspectives, so that they say ‘yes’ to you more.

 

The talent for influence requires flexibility in style, clarity of outcome, the ability to understand a situation from several perspectives, and creating and maintaining a resourceful state, particularly during times of conflict, or when the stakes are high.

It is not about imposing but inspiring someone to take a particular action, while maintaining strong rapport and building positive relationships.

There are numerous language patterns which enhance your capacity to increase your powers of influence which are too numerous to go into in this short article but which I teach to many of my clients and which I include on my Influencing Skills training course.  The issue, though, is not what the skills are, but the effect that they can have on your success.  They can help you deal with objections and concerns so that you are able to transform potentially negative situations elegantly. It’s the YES factor!

 

Whether your intention is to create change, elicit support or diffuse potentially contentious situations, influencing skills can be a real boon to you in your business.

For further details, please contact Tricia Woolfrey on 0845 130 0854 or see www.pw-consulting.co.uk.

© Tricia Woolfrey 2012

About Tricia Woolfrey – click HERE to find out about the author.

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A-Z of Business: F – Finance – 5 Tips to Help Your Business Succeed

 

1.  Cash is King

Cash flow is the main reason for business succeeding or failing.  An apparently successful business may have a full order book, and even good levels of projected profit, but if funds cannot be collected from customers in a reasonable timescale the business will fail.  You should ensure your customers are aware of your payment terms before carrying out tasks and where possible advanced payments, should be requested.

Tip – Get paid on time by ensuring you have regular communication with your customer and that you have an effective credit control procedure.

 

2.  Overtrading

This is where a business has a full order book but struggles to convert turnover (sales) into profit.  This situation usually develops when tasks are taken on at a cheaper rate when compared to competitors in order to secure orders.  Subsequently, the business becomes very busy but the income generated is not sufficient in order make a profit, and so the business fails.  This strategy can be used carefully in order to try and build a reputation but for small businesses it should not be used in the long-term.  Remember “turnover is vanity, but profit is sanity”.

Tip – You are usually in business to make money so ensure you do not under-sell your products or services unless you have a clearly defined plan.

3.  Control the Controllable

Fixed costs – these costs do not vary regardless of the business activity undertaken, i.e. rent and rates.

Variable costs – these are dependant on the level of activity, i.e. heat and light or staff overtime.

Tight control and effective monitoring of these costs is essential.  Whilst fixed costs by their very nature are easier to control, effective negotiation with suppliers is an important step.  Variable costs can often get out of control if not properly managed, i.e. buying stock recklessly can tie up cash and may lead to unforeseen losses.

Tip – Ensure there is an efficient method of recording  and managing costs.  Monitor them on a regular basis.

4.  Supplier Relationships

Negotiating with your suppliers is important in order to gain value for money but when evaluating a potential supplier do not focus solely on the costs.  You should try and build a close working relationship with your suppliers and also consider the following:

  1. Product efficiency – do they have a good reputation for supplying reliable products?
  2. Delivery – can delivery be made in a timely manner?
  3. Payment Terms – extended terms can often ease your own cash flow concerns.

Tip – Ensure you question potential suppliers to ensure they meet your key criteria.

5.  Initial Funding

Many small businesses often underestimate the amount of necessary funding needed to commence trading or start a new product line or service.  This lack of funding will immediately restrict any business capacity and will greatly threaten the potential growth and stability of your business.  Always identify and try to properly estimate the amount of money needed to launch your business and to cover the costs for at least the first year which should include both running expenses and capital investment.

Tip – Take time to plan the financial implications of your business plans.

With thanks to:

Colin Bentall FCCA
Ford Bentall LLP
www.fordbentall.co.uk

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