Last week, we identified the three primary strategic objectives of your business: Cash, Profit and Return on Investment (ROI).

This week we will start looking at developing strategies to achieve these objectives. Let’s start with the profit objective. To achieve a profit objective, we need to start with the top line Sales and Marketing strategy. If sales are not where they need to be, the rest of the strategic financial objectives will more difficult to achieve.

Sales & Marketing Strategy

This is the first of a 2-part focus on your Sales and Marketing Strategy.

Whether you are an existing business or are just starting out, your business and management team should undertake a Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis. What are the Strengths of your business and how can you capitalise on them? Conversely what Weaknesses does your business have that are development opportunities? What Opportunities are there for your business to pursue? Finally what Threats are there out there? Work through each of these and be honest with yourselves so you are clear where you are currently.

Based on your self-assessed SWOT analysis, you then need to develop your “Unique Selling Proposition”, or USP. In other words, what is your unique mix of product/service (or range of products/services), price and customer service that will help customers differentiate you from your competitors in such a way that you help these customers make the correct buying decision. Some examples of well-known differentiation strategies are Apple and Uber (Customer Relationship); Intel (Product Leadership), and McDonalds, Bunnings and Dell (low cost efficient operations).

A sustainable business should generally move away from being a commodity style volume driven model (unless you have scale on your side) where you are a ‘price taker’, to more of a business focussed on profitable growth orientated products and/or services, where you are more a ‘price setter’ in the market.

Differentiation and a clear USP provides you with a competitive advantage over your competitors for which you may be able to charge a price premium to your customers. Your customers will want to deal with you because you provide value to them beyond simply price.

Having a clear USP will also help you in your branding and marketing activities as you focus on the positives created by your differentiation strategy.

So this week, with your team, start brainstorming your SWOT analysis and Unique Selling Proposition. Figure out how you can use your business’ unique attributes to differentiate your business from your competitors and provide a sound foundation for business success.

In the preceding blogs, I have given you the framework for setting your business’ direction over the long term and clearly defining your Mission-Vision-Values. Now we actually move into the strategic planning phase. Numerous books and articles abound on the topic, many of which make it sound a complicated and difficult process. I am a big fan of keeping things simple, practical and easily explainable.

Let’s start with the simple over-riding notion that you are in business to make money, whilst adhering to the values outlined in your Values Statement. Given that, there are three simple primary strategic objectives all businesses will have, whether they are start-up, existing businesses, manufacturers or service businesses.

1. Cash
2. Profit
3. Return on Investment (ROI)

Taking each in turn, let’s start with cash. It is common knowledge that good businesses can go broke because they simply run out of money. They can be profitable but still not have the cash flow to survive. Ensuring you have cash for now and for the future is the lifeblood of your business survival.

Secondly, you need to make profits. A sustainable business needs to generate profits; they are a key indicator as to how your business is performing. Profits generally convert into cash and so is a good lead indicator that you will have the cash to prosper (but not always).

Thirdly, you need to be making a return on your investment (ROI) to reflect the risk you are taking. Larger businesses often use a target of between 10% and 15% ROI as their benchmark. Why is this important? If you can’t make a return on your business investment, you might as well put your money in the bank and earn some stress free bank interest.

If you think of these three things as your primary strategic objectives, everything you do, all the priorities you set and all the plans and decisions you make should be linked to achieving and improving these 3 inter-related strategic objectives.

You might also have some additional key strategic objectives to add that matter to you. These might be noted in your vision statement and may encompass an Environmental objective, a People Development objective or a Succession Planning or business exit objectives? This is where brainstorming with your team is invaluable.

So this week reflect on the three primary financial strategic objectives. Identify where you are currently and quantify these three measures, then decide on some broad targets for each of the three objectives. Consider which other key strategic objectives you also want to focus in on.

Next week we will start looking at devising the strategic plans to work toward these strategic objectives.

The next step to set your business up for success is to get your internal organisational structure set up. Successful enterprises are powered by the right people in the right roles covering all the key disciplines of the business, including the day to day running of the business itself. You might recall that I have mentioned ‘brainstorming’ a number of times in this blog series so far? It is your management team that you should be doing these processes with.

The key four pillars of a senior management team are the CEO, Sales and Marketing Manager, Chief Operations Officer (COO) and the Chief Financial Officer (CFO). Other management team roles can include Quality Manager, IT Manager, Technical Manager and HR Manager and these roles should also be involved in the strategic planning brainstorming process.

The head of the management team is the CEO. The CEO him/herself is expected to have a skill mix covering five key areas:-

1. Strategy
2. Leadership
3. Commercial
4. Operations
5. Finance

In the SME sector, typically a CEO’s strength will be in the operations or commercial areas, particularly if the CEO is the founder or owner of the enterprise. The CEO’s skill set may need specialist support in the finance and strategy area if this is the case. This is where ensuring quality personnel are in the key roles either within your organisation or as part of your external advisory team (such as a Part-Time Virtual CFO).

Choosing an appropriate organisational structure to support the senior management team is essential. The most common organisation structure is the functional structure whereby departments of like functions are grouped in a traditional top-down hierarchical structure. Modern structures to ensure agility and efficient communication have arisen whereby various departments work in tandem to a common aim such as at a divisional level, or a new product/service grouping. The matrix structure is a dual reporting dotted line structure with a blend of traditional functional lines along with product or divisional reporting lines.

Use this week to consider which organisation structure best suits you and your entity to build a sound foundation for business success. Next week it will be time to get into the strategic plan itself.

You have now developed your trio of key foundation statements:  ”Mission Statement”, “Vision Statement” and “Values Statement”.

Next, it is time to look at the structure of your entity to ensure it is meeting your business requirements. The first structure question is the legal structure of your organisation.

If it is just you or you are just starting out, operating as a sole trader is the simplest and cheapest structure. Your income and deductions go through your own personal tax return. You are solely responsible for decisions but have no protection from personal liability if sued.

Partnership is the next option if you are operating with a partner/s with distribution of profits/losses split between partners. Each partnership has its own Australian Business Number (ABN) and Tax File Number (TFN) and Tax Return, but income tax is paid by each individual partner on their share of partnership income. It is best to have a formal signed partnership agreement to ensure the partnership operates as you intend it. It is relatively cheap to create, but each partner is personally liable for partnership liabilities even if caused by another partner.

A Company is a separate distinct legal entity, hence has its own ABN and TFN, lodges its own tax return and pays its own tax. It is owned by shareholders and run by its directors and is relatively expensive to create as well as having ongoing reporting requirements and costs with the regulator ASIC. Being a separate legal entity, the assets and monies earned by the company belong to the company. Shareholders receive income via dividend distributions. The key advantage is that shareholders are protected from being personally liable if the company is sued. Directors can however be held personally liable in some instances for company debts and liabilities.

The forth legal structure option is a Trust. Trusts can be expensive and complicated to create but are attractive in terms of asset protection and can offer tax effective income distribution benefits. The Trust Deed explains clearly how the Trust is to operate. A Trust has its own ABN and TFN and may be liable for tax under certain circumstances.  The Trustee (an individual or company) operates the Trust with the Beneficiaries receiving taxable distributions from the Trust. The trustee is personally liable for all contracts the trust enters into with the Trust

Use this week to consider which business structure best suits you and your entity. Speak to your Accountant or Legal Advisor should you need to seek further advice.

Next week we will look at the internal organisational structure of your entity as you continue building a sound foundation for business success.

So far, you have looked at your business’ Mission Statement and Vision Statement describing “Why your entity exists” and “What your entity will be in the medium to long term”.

Next, it is time to look at the third foundation statement of your business: the “Values Statement”. This statement briefly describes “how your business and employees will conduct themselves”. It houses the core beliefs and values central to the entity. The “Values Statement” generally remains unchanged over time and can be used to build relationships with customers and suppliers, as well as building a positive internal culture.

Developing a “Values Statement” is best undertaken as a brainstorming process. Try beginning with the phrase “We believe in…” It is wise to reflect on your own individual values as your business is a reflection of you and hence the business’ values should enshrine what you stand for. Limit the final version to four or five core values with some simple concise wording around each one.

Examples of some values you can consider  are ‘Respect’, ‘Integrity’, ‘Diversity’, ‘Service’, ‘Inclusion’, ‘Commitment’, ‘Innovative’, ‘Collaborative’ and ‘Candour’.

The core values need to permeate your organisation to ensure they are not just words but rather the foundation for behaviours and ethics of the entity. An effective way to achieve this is to have the “Values Statement” values incorporated into your performance appraisal process.

Creating and communicating a “Values Statement” across your organisation ensures employees are aligned and helps employee engagement. It is a useful tool in the recruitment process to ensure new hires are a good fit not only within the organisation but with colleagues. A good Values Statement will help create a positive inclusive work environment.

Examples of some well-known entities “Values Statement” follows:-

 “Integrity, Commitment to Excellence, Customer Orientation, Shareholder Focus” –Bombardier

“Leadership, Collaboration, Integrity, Accountability, Passion, Diversity & Quality” – Coca-Cola

“Reach, Learn, Di-bear-sity, Colla-bear-ate, Give, Cele-bear-ate” – Build-A-Bear Workshop

Use this week to develop, review or modify your Values Statement to ensure you are creating a winning culture and building a sound foundation for business success.

Ross – Virtual CFO

Last week we created your business’ Mission Statement describing “Why” your entity exists!

This week it is time to take a step forward and imagine the big-picture “Vision” of “What” the entity will be in 3, 5 or 10 years time. The vision needs to be descriptive and provide clarity of focus, setting priorities and the direction of the entity in a compelling statement for all employees.

This is the creative, yet serious piece of the strategic process, and it is usually best undertaken as a brainstorming exercise. Don’t worry about the practicalities of “how” to achieve your vision at this stage. Just let your mind imagine “what” your business can be. The importance of this stage is not only creating the final version Vision Statement itself, but also the process of building the vision with your team.

Try starting the brainstorming process with the phrase “We will…” Consider such things as what do you want to be in terms of the market segments you operate in, your geographic reach, sales projections, headcount size, financial position, what problem you want to solve or what success will look like. Focus on things that really strike a cord with you and put them in a ‘wish list’. It will take many drafts before a final concise version of your Vision Statement is crafted from this wish-list. Keep it simple, and limit the final version to a single sentence or a few concise paragraphs.

A couple of company Vision Statements follow as examples:-

“Our vision is to be earth’s most customer centric company; to build a place where people can come to find and discover anything they might want to buy online.” – Amazon

“Become number one or two in every market we serve and revolutionize this company to have the strengths of a big company combined with the leanness and agility of a small company.” – General Electric GE

Use this week to develop, review or modify your Vision Statement to ensure you are working towards your medium to long term vision and building a sound foundation for business success.

The first step in formulating your business’ Strategic Plan is to develop or review the organisation’s mission statement. A mission statement is a short, simple statement answering the question “why do we exist?” or “what is our reason or core purpose of existing?” It should pass the T-Shirt test, meaning it is short enough to be printed on a T-Shirt, and is generally unchanging over time.

A simple way to think of starting your mission statement is using the opening phrase “To be/provide/help…” Take your time developing your mission statement. Talk about it with your team and ensure that everyone is aligned and has bought into the entity’s mission statement development.

Examples of mission statements for some well-known companies are:-

“To constantly improve what is essential to human progress by mastering science and technology” = Dow Chemicals

“We are a global family with a proud heritage passionately committed to providing personal mobility for people around the world” = Ford Motor Co.

“We fulfil dreams through the experience of motorcycling, by providing to motorcyclists and to the general public an expanding line of motorcycles and branded products and services in selected market segments” = Harley Davidson

“To be the best worldwide provider of higher-value staffing services and the centre for quality employment opportunities” = Manpower

“At Microsoft, we work to help people and businesses throughout the world realize their full potential” = Microsoft

“To Bring Inspiration and innovation to every athlete in the world” = Nike

You can see how these simple but powerful mission statements inspire and frame their business success.

Use this week to develop, review or modify your mission statement and build a sound foundation for business success.

Business Success

This is the first of our weekly blogs focussed on business success.

Whether you have been in business for years or are considering starting a business, going through a strategic planning process is an invaluable exercise on which to build business success.

Over the coming 3months, each week we will step through the process of developing a strategic plan with the objective of having a budget ready for the next financial year at the end.

It is up to you whether you embark on this journey on your own, or with a trusted advisor or business partner, or your significant other, or your management team. Maybe you are just following along out of interest only, that is also fine too.

The key criteria is to get you working on your business, and not just in your business.

Just keep an open mind and I look forward to sharing more with you next week.

Thanks Ross

Your Virtual CFO and Costing specialist