How Healthy is Your Business?
Paul Eitmant
Sometimes we need to go back to basics. After 40 plus years in the electrical industry I find it interesting that even the biggest and best companies seem to drift away from the basic concept.
When someone asks: How’s business? Do you really know what to say?
If you’re like many business owners, you may roll along with the dim feeling that your business is holding its own. But in the back of your mind is the nagging feeling that honestly, you don’t know for sure if you’re falling behind the competition or pulling ahead.
Know how you can tell if your business is really thriving? Benchmark.
Compare your business to other businesses in your industry. You can get a better assessment of your company’s health by comparing key metrics, including gross revenue, net profits, profit margins, revenue growth, liquidity and turnover ratios.*
For instance, if your profit margins are 5% but the industry norm is 8%, that’s a big red flag. Profits will be lower — slowly starving your business of cash while competitors will be growing and outshining you. On the other hand, if you collect accounts receivable faster than the norm, you’ll have better cash flow than similar businesses.
Many business owners don’t benchmark because they think they can’t get their hands on the data they’d need to compare business metrics. But there are quite a few ways to get some intelligence on your industry, and some of them don’t even cost much. Any benchmarking data you can scare up are better than none, as they at least give you a starting point to compare your performance.
Buy or find market research. If you’re willing to spend a little, there is market research available on every industry segment imaginable. Sometimes the information can be gotten fairly affordably. A few key statistics may be in a press release about a study, giving you a few benchmark figures to start. Or you can go all out and hire a firm to do custom research.
Take a few minutes and take this questionnaire and get your business diagnosed.
Questionnaire
Score your answers as follows: Yes = 1; No = 0.
1. Can you clearly identify what distinguishes your business from its main competitor?
2. Have you surveyed team members and associates to help identify possible weaknesses in your business, service or products?
3. Do you know why customers choose a competitor’s business over yours?
4. Do you speak directly to clients about ways to customize and improve the products or services you offer?
5. Have you evaluated your team for any underlying morale issues?
6. Have you commended and rewarded innovations pioneered by your team?
7. Is your business focused on several specialties, which can detract from your core identity, rather than just one?
8. Have you explored green energy alternatives that reduce operating cost?
9. Have you updated your Web presence to stay competitive online?
Results
8-9: healthy as a race horse. Well done, you clearly know how to keep up with your competitors, and you have the ability to maintain a clear channel of communication with your clients. Stay focused, keep true to your vision, and you’ll continue to reap the rewards.
4-7: not Bad. You’re getting there. Not too shabby, but in today’s market that means you could be out of business tomorrow. It’s time to strengthen your approach to make sure your business not only stays afloat, but also continues to prosper. Tune in to what your competitors are doing, and explore ways to cut operating costs without sacrificing quality.
If you haven’t yet, it’s time to delve into what your business stands for and how it will stand among the competition. Explore online options, and speak with an e-commerce expert about capitalizing on your Web presence.
1-3: D.O.A. We’re impressed you didn’t lie to yourself just to bump up your score. Your honesty is commendable, but now it’s time for real solutions. It’s imperative you find out what your competition is up to, why they’re successful, and how their strategies could boost your bottom line.
Start communicating with your customers, especially those you haven’t heard from in awhile, to find out what you could be doing better.
Rev up your efforts and take a close look at how your business plan contrasts with your actual business practices. Do it now, or your competitors will leave you in their wake. The good news: You have nowhere to go but up.
Paul Eitmant is President and CEO of IP Group International, which serves the needs of business-to-business enterprises in over 30 countries worldwide by adding specialized expertise to the business planning and implementation process; Tel: 480.488.5646; paulipgroup@cox.net.
This article has been adapted from a number of sources, including How to Figure Ratios from Your Balance Sheet, Is Your Business is Healthy or Floundering, and Pop Quiz: How Healthy is Your Business?
