How to create a business roadmap
Before the global financial crisis, getting a loan was pretty easy. There was some documentation, but really all you had to do was give your accountant-prepared financials to the bank and the loan was approved.
As I said, that was before the GFC.
Sometime in mid-2009, I found myself requiring an overdraft, so off to the bank I went to ask for a loan. And that was when the fun started.
There were all these questions to answer and profitability to prove. I was very unprepared, which is not something I am used to.
I had to create a financial plan that included not only budgets, but also required me to demonstrate how I arrived at these figures.
So my Business Roadmap, as I like to call it, was designed.
I asked myself these six questions to prepare the budgets that accompanied the business plan the bank required. I still use these six questions today with clients who have chosen to improve their business.
1. What turnover can I achieve?
This is an open-ended question. There is no right or wrong answer.
I use past Profit and Loss reports to analyse how many transactions I had in the previous year and the average amount each customer spent. Then it is just a simple mathematical equation to arrive at your new turnover figure.
If you can just increase each transaction by $1 or $2 — or 10 percent, depending on what you are selling — then multiply this new average transaction figure by the number of last year’s transactions, and you will arrive at a new turnover figure.
The new figure should be very achievable because all you have to do is train your staff to upsell each and every time by that $1 or $2 (or 10 percent). Without attracting any new customers at all, you can increase your turnover.
2. How am I going to manage my business?
Remember, turnover is vanity and profit is sanity. There is no point being in business if you are not actually making money. In fact, if you are not making profit with each transaction, then the bigger the turnover, the quicker you are going broke.
Managing your business is partly a matter of identifying all your Key Performance Indicators (KPIs) from your budgets, then sharing them with your staff. Setting targets for your team and introducing a process where you make the team accountable for meeting these goals will go a long way to reaching your budgeted profit figure.
But it doesn’t stop there; the real secret to success is in monitoring these KPIs on a weekly — or even daily or hourly basis. Get a system where you will know in five minutes if your business is on track. That is peace of mind not only for you but for your bank manager as well.
Ask yourself: how do I share and monitor my KPIs?
3. How am I going to improve profitability?
Maintaining and improving your profit margins also requires keeping costs under control.
To do this, we use our previous Profit & Loss reports again. Calculate all expense lines as a percentage figure of turnover. Once you start working with percentages it is easier to track your profitability. That’s because if you have staff aiming for a daily KPI that is a percentage of sales, you always have a set target — it will be the same percentage each day regardless of sales achieved.
Improving your profitability may also require more than monitoring expenses. You need to be sure that what you are selling is actually profitable.
Look over your product listing or menu to see if you need a price increase. Or, you may need to renegotiate with your suppliers to reduce your Cost of Goods Sold (COGS) to increase your profit.
Did you know that if you simply increase your turnover by 1 percent and reduce your labour and COGS by one percent each, your bottom line profit can increase by as much as 25 percent?
4. How do I get customers to return more frequently?
Just to get a customer to walk through your door for the first time takes a lot of marketing. Once you have them at your counter, how do you get them to come back again and again?
This is a tough one, and there are many options.
One is establishing a loyalty program, which is why your wallet so full of those loyalty cards.
Another is by offering a one-time only offer, but only if the customer returns within the week or the month. Discounting your product for return visits can be an effective way to get customers to return, but it does affect your profitability.
Another more desirable way to get the customer to return is to offer good old-fashioned customer service, to surprise and delight the customer. Look at your sales conversation and after-sales service process. Does this encourage the customer to return?
5. What staff will I need, and how will I manage labour costs?
While we are talking about team, how is yours? Are your staff well trained?
Staff represents your business from the moment they don their uniform, so be sure they are a great representation of your business and are working their best.
Also be sure you have the right number of staff. Having too many staff members costs you in labour, while having too few costs you in sales.
Identify KPIs for your business, and monitor them to help you manage your staff.
Use KPIs such as Sales per Labour Hour that you want each staff member to achieve, or look at each employee’s Average Transaction Value to see who is upselling. Also monitor labour cost as a percentage of sales to keep your labour cost in check over time.
6. How do you best communicate with your staff?
Once you have a great team, how do you communicate and reward them on a regular basis to ensure they are meeting their budgets and KPIs?
If you have put time and energy into training your team, hold them accountable for their targets. Have you got a system to ensure they report on their actual results each day or each week?
If they exceed themselves, show thanks for doing a good job. It’s amazing how a simple “thank you” can motivate a person to achieve. Follow it up with a reward system to acknowledge their good work.
Failing to secure a bank loan was a blessing in disguise because it made me ask myself these questions. It made me prepare a business plan and a budget. It made me think about my business, how I was going to stay in business, and how I was going to build it and make it more profitable.
Asking these questions made me a better businessperson, and they will work for you too.