Going along the lines of my last post on Business Planning (How to Dominate your Market in 2017 – Review/Plan Your Solopreneur/Small Business Like a Pro), this audio training goes more into business improvement, by working on the the Vision, Business Plan and Financial aspects of your freelance/small business as you go along the yearly business review process.
Main business improvement review audio training takeaways
To have an effective business improvement review process, make sure you have a clear vision and a roadmap to improve your business and get it where you want it to be. And that these things are aligned with your personal values and financial resources.
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As you might be doing a personal yearly review at this time of the year, this a great time to do a business review as well, if you’re not doing this already. This post is mostly from a freelancer/solopreneur/small business perspective, but firmly rooted in corporate strategy concepts that are still applicable at a smaller scale.
This post will cover several areas a solopreneur/small business owner should keep an eye on during a yearly review, but they are all interrelated and you might have to go back and forth between them in order to make an accurate assessment, and more importantly, to plan ahead for the next year. You don’t have to review all of the different business areas, you can pick and choose the ones that make more sense to you. It’s better to act on something than to get overwhelmed trying to implement everything.
Business Financials – Are you in the green, black or red?
The ultimate goal of a business is to turn a profit (although many businesses have more noble goals, but they still have to turn a profit if they are to survive and achieve those other goals). So, naturally, finances are the first place to look when doing a yearly business review. If you don’t have financial statements or don’t know what those are, ask your accountant. They should be able to provide you with the basics.
For freelancers, solopreneurs & small businesses, the most important financial statement is the “cash flow statement”. This essentially measures how much money comes in and out during a given time period. It’s a quite simple statement, and if your accountant doesn’t have it for some reason (or you don’t have an accountant), you can create it by yourself just by listing down all inflows and outflows. These could come from operations (your business’ core activities), investing (assets purchased or sold) and financing (capital raised or paid). Note these must be cash or cash-equivalent (such as debit card transactions) inflows & outflows, so sales & purchases made with credit or debt should not be considered in the cash flow statement.
Many businesses die from a lack of cash flow. They might make a lot of money “on paper”, but if they have trouble collecting those payments, or they don’t coincide properly with the time the business has to pay it’s own invoices, they can still go bankrupt because they don’t have enough cash at hand to pay their suppliers & taxes on time.
Go through last year’s cash flow statement and see if in general you had a net profit or a net loss from a cash flow perspective (don’t consider future sales or accounts receivable when doing this analysis). Did the business end up with more money at hand than it started with at the beginning of the year, more or the less the same, or less? Also, take a look at the most recent monthly cash flow statements. Is there a trend for growing cash flow or some other situation? Especially if the trend is to the downside, sooner or later you could go into negative months and face a cashflow crisis. You must avoid this at all costs!
Note also that this analysis does not consider the overall business’ financial position. So it doesn’t take into account if the business is going into too much debt or is losing money when taking into account the net change between assets & liabilities. Cash flow analysis only takes account cash coming in an out, which directly determines the business’ short-medium term ability to stay afloat.
It’s crucially important to keep an eye out on the other financial statements (balance sheet and income statement) too. For a yearly review, the income statement should also be examined, as well as the balance sheet. But if you want to do the bare minimum, just go with the cash flow statement to make sure your business at least won’t go under during the next few months.
Also, when going through these statements it’s usually a great time to set financial business goals for the business, i.e. how much income & profit you want to make next year, according to your vision for the business and its current state (see next for details on vision).
Mission, Vision, & Values – Why are you doing this, Where do you want to go and What do you stand for?
Every business should have a mission, a vision and values (I suggest you listen to this audio training for more details). A mission represents what the business aspires to do for its customers, employees, and other stakeholders like investors and society in general, i.e., what value it provides to its community. A vision is a statement that outlines what the company would like to accomplish, usually during the next few years. And values are what the business stand for and how it will conduct itself on a day-to-day basis.
Especially as a solopreneur/small business owner, your vision & mission should align with your personal values and lifestyle goals.
During the last year, have your actions and words been consistent with the vision & mission you initially devised for your business? Have you compromised your values at some point? Is the business providing the lifestyle you desire (both in monetary and non-monetary terms)? If not, what changes do you need to make?
Keep in mind though that the first few years of any new business are the hardest, and it might be unreasonable to expect much work-life balance during this period.
Business Strategy – How to outsmart your competitors so they won’t even know what hit them
Business strategy is a complex topic, but I think it comes down to planning how you will achieve your mission & vision. This will require you to make some tough choices and trade-offs, this is the very essence of strategy.
A properly devised and executed strategy should generate what is called “sustained competitive advantage”. Essentially, this means having an edge over the competition, something you can reliably provide that is unique, valuable to the market you’re serving and that cannot be easily replicated by other competitors (there is a model called the VRIO model for assessing if you have a true sustained competitive advantage).
If you can generate and sustain competitive advantage, your business should thrive. If not, it will probably eventually lose market share and become acquired at a fraction of its current value, be disrupted completely or just quietly go out of business.
Think about your business. Would you say you are just another competitor in the marketplace, or do you have something unique, that your customers value and that nobody else can profitably provide? If the answer is no, or you don’t know, your business is running on borrowed time. And as I mentioned before, over time this can lead to business failure.
Now the $1 billion question is, how do you generate and sustain competitive advantage? There is no universal answer, as each business and industry is different. However, there are generic strategies that you can use. The following is based on Michael Porter’s work, whom is widely regarded as the “Father of Corporate Strategy and Management”:
Differentiation: This strategy entails providing a superior product/service than your competition. This superiority can be real or perceived, and can be achieved in different ways. Think about companies like Apple, BMW and Nike. These companies charge top-dollar for their products because they have superior quality and convey status, and they make sure to communicate that to the Market constantly.
This strategy usually translates into big margins (the difference between price and cost), so even if you don’t sell as much, you can make it up because of the big margin. Even if the cost of production is high, the price is so much higher that the margin is quite big.
Cost leadership: Does your business have a way to produce its products/services at a significantly lesser cost than other competitors? If so, your business can enjoy more profitability because there is a bigger difference between price and cost. This can also enable you to lower prices more than the competition, and achieve higher Market share because customers would buy based on the reduced price. And the business would still be profitable because of the lower costs it has and a great sales volume. A great example of such a business is Wal-Mart.
Note that a cost leadership strategy does not necessarily require you to lower prices. You can just charge market prices, but since your costs are lower, you are able to spend more on Marketing and get more customers than your competitors that way.
Focus: The above strategies are usually applied by big businesses in mass markets, however in the context of small businesses they are still relevant if applied to a smaller geographical or “virtual” region. If there is no Wal-Mart or Apple-like presence in your town or online niche, that could probably outspend and outsmart you, you can eventually still make a Differentiation or Cost Leadership strategy work in your situation.
However, even if you are directly competing with the big guys, you can employ what is called a Focus strategy. This means focusing on smaller market segments and really knowing and serving those customers in a great way that the bigger companies can’t do as well as you can, because of their scale. You can combine this strategy with the other two, so you can either have a Differentiation Focus or Cost Focus strategy. Essentially applying one of the two above strategies at a smaller scale, in narrowly defined market segments.
Whatever you do, avoid mixing strategies and being “Stuck in the middle”. Though this has been debated, the original theory by Michael Porter states that a business should commit to one strategy at a time. Because if it does not, it will spend valuable resources trying to optimize for both differentiation or lowering costs, not being able to achieve a significant result on either one.
Committing to a strategy means saying “yes” to certain things and “no” to others, and if those get mixed up, the whole strategy becomes diluted and therefore rendered ineffective. Also, once you commit to a strategy, it can be hard and expensive (both in time and resources) to switch to a different one. So choose well.
When it comes down to implementing your chosen strategy, there are specific “functional strategies” that can be deployed on each business area/department (such as finance, IT, HR, marketing, research and development), etc. to help achieve the overall business strategy, though those are outside of the scope of this post.
Marketing & Sales – Time to get that cash register singing!
Now having reviewed your financial statements, mission/vision/values alignment & business strategy, it’s time to think about how your business has been doing from a Marketing & Sales perspective. This is where the rubber meets the road, because a business can have an excellent mission/vision & great values, a well thought-out business strategy, a great team and even lots of capital and resources, but could still end up failing because of an inability to make sales on a consistent basis.
I once worked with a start-up backed up by venture capital, and even though we were generating leads with the help of the digital Marketing services I provided to them, the company consistently failed at closing those leads into sales. Eventually, they had to shut down operations. So it can happen to anyone.
Thinking about last year, what do you know about your customers, their needs & wants, what drives them, where to find them and how to sell to them? Are you maximizing opportunities for selling them related products/services? Are you implementing strategies to incentivize them giving you referrals?
Are you prioritizing the best Market segments you can go after? You should know your customers even better than they know themselves, and market accordingly.
Also, think about your sales processes. Do you have a standardized process to generate leads/prospects, turn them into warm prospects, and then turn those into customers? Are you using a CRM approach/software to keep track of your leads & customers (this can be as simple as using an Excel spreadsheet)? How are your post-sales & customer service processes going?
Are you giving all of these things the right attention they deserve? If you don’t do Marketing & sales consistently, your business can run out of customers and that would put you in a tough spot financially (remember what we discussed about cash flow earlier). The idea is to avoid that happening in the first place, by having a constant flow of opportunities and making offers at the right time to your existing customers.
Think about changes you need to make in order to know your customers better and generate and keep more of them more consistently. And remember that Marketing doesn’t end with the sale, it’s a lifetime relationship you have with your customers, that is affected for better or worse every time they “touch” your business somehow (even if they’re no longer a customer).
Everything your business does can be thought of as Marketing, implicitly or explicitly, from the way you greet a customer, the state of the painting in your walls, to the way you handle customer complaints and treat employees, and everything else in between.
Productivity – Master yourself and the Market is yours
As a freelancer/solopreneur/small business owner, your business’ results are intimately tied to your own personal productivity. How are you doing in that regard? Are you prioritizing your tasks/to-do’s daily before you begin work, are you mostly working on your highest value activities, are you minimizing interruptions and multitasking? Are there things you could outsource or automate so you can focus more on your high-value activities?
Do you have a messy schedule or is there structure in your days? Are you taking care of important aspects such as exercise, healthy eating, spirituality, family/friends time, doing things you enjoy and relaxing? All of these things can indirectly affect your productivity if not taken care of properly.
“Knowing others is intelligence;
knowing yourself is true wisdom.
Mastering others is strength;
mastering yourself is true power.”
― Lao Tzu, Tao Te Ching
Time to take action – build effective habits and create a straight-forward Business Plan
As you reflect on these things and think about changes to be made, it might be a good time to put those to paper. For simple changes, you can establish new habits that you would try to do consistently over the next year. And for the big-picture things, I suggest if you haven’t done it already, to create a Business Plan. Yes, the dreaded Business Plan.
There is a lot to cover here (I go over some of the details on this vision & business plan audio training), but essentially I suggest you keep it lightweight (unless you need to show it to a bank or investor in order to raise capital).
Using the Business Model Canvas or one of its variants is a great way to get a simple but effective Business Plan done. This is a simple one-page document that lists the essential pieces of the engine that your business is, and how they relate to each other. And it’s a dynamic document, which you should update regularly as you figure out the right business model for your business. This is especially valuable for new businesses in search of a viable business model or ones in need to adapt because of changing market conditions.
Closing thoughts – Business planning is hard work, but worth it. How to get help with your business for a 2017 breakthrough.
We went through a lot of stuff here, but what I want to leave you with is that there are lots of frameworks & tools you can use to plan your solopreneur/small business venture in a professional & structured way.
Just implementing some of these suggestions should put you miles ahead of any competitors that don’t bother to do this sort of rigorous planning. And just as important as planning is taking consistent action on your insights, and building effective business & personal habits that will lead you towards your desired results.
If you need help with any of these topics, I strongly suggest you educate yourself, maybe taking some formal business & productivity training/courses in the topics that you think would help you the most and/or working with a business/productivity coach. A coach can help you learn more about these admittedly sometimes abstract concepts and how to apply them to your specific business or personal situation in very concrete ways, and hold you accountable to any new habits and business changes you decide to make with their guidance.
This is what I do with my clients. Moreover, I often go with them over deep mindset roadblocks that might be holding them back, as defusing these can have a massive impact on their business. If you’re interested on this approach to business & productivity coaching, please register here to explore how we can work together.
Additionally, you can work with any of the other coaches on the Coach.me platform, which I currently use to run my coaching business. Use promo code JUANPABLOWEEK to get a 1 Week Free Trial with any of these coaches, including yours truly. There is a 2-week money back guarantee if you’re not delighted with your Coach.me coach, so, either way, this is a risk-free proposition for you.