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Tips, advice, and information for South African business owners

19 Nov

Why You Need To Fix Your Business Systems

When I ask new clients what they want from our mentoring, “Grow my business” is a popular reply. It’s a good start – there are many other reasons for hiring a professional mentor – but to set a specific goal, we need to define it more precisely. For example, we could increase revenue or net profit. We could get more customers or increase production capacity.

Any of these could tick the “grow my business” box, but there’s one more growth area that’s often overlooked: growing business value. This is a core part of our mission to help entrepreneurs like you make more money, create more wealth, and enjoy more freedom.

A decent accountant will tell you to focus on both your sales as well as your costs. This is good advice, but sometimes this is the only advice. As a result, most entrepreneurs obsess over growing sales and cutting costs. Growing net profit could increase your business value, but not necessarily.

When calculating business value, a vital but less visible factor is risk. In this context, “low risk” means you can count on earning stable profits month on month, year on year. The lower the risk, the more your business will be worth to a prospective buyer.

So how do we achieve low risk?

As you might guess from the title, systems reduce risk. You can systemise any process, like making coffee, preparing a sales quotation, or serving a customer. The goal is that every time a process is completed, its output achieves a predictable quality.

I’ll be happy to help you get started on your key business processes, but if you want to try a little DIY, here are three principles to get you going:

  • The start of systemising any process, whether it’s computerised or manual, is to define it. Writing it down with pen and paper is a good enough start.Start with either a list of numbered steps or a box-and-arrow flowchart.
  • When I introduce clients to process modelling, the first response is often a fear of complicated diagrams. I totally get that – I’m also allergic to busy, detailed drawings, so keep it simple. The easier it is to read a process model, the more likely people will follow the steps.
  • I’ve noticed that most business processes produce quite simple things. You might disagree: “That’s not true in my business! I’m an engineer and we make very complex things.” You might well be right, but can you break down your complex things into simple components? Can you string together simple processes to produce a complex thing? In most cases, the answers are “Yes” and “Yes”.

Whatever you make, the point is to start somewhere and steadily improve it. McDonald’s is a classic example: even for simple products, it’s easy for small process variations to produce a different output each time. But thanks to well-defined processes, a cheese burger in South Africa is pretty much the same cheese burger you’ll get in Hong Kong. I know – I checked it myself!

Closer to home, I’ve helped clients systemise their key processes so that they can sell their business for a lot more than their brokers originally estimated. Other clients have been able to stabilise their business, delegate with more confidence, and enjoy a lot less stress at work.

Ultimately, the reliability of your processes shows up in your financials. Reliable systems assure a reliable net profit year on year. In other words, fixing your business systems can increase business value, even if your turnover and profits hold steady.

Don’t you think it’s wonderful being a business owner when there are so many ways to generate wealth from your business?

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