The turnover of a business is the amount of revenue it has earned in a particular accounting period.

The profit of a business is the amount remaining after deducting from the turnover the expenses incurred in earning it.

A difference between turnover and profit is that a rising turnover may be a sign that the business is growing but profit is the indicator of the “health” of the business. You are in business to make a profit, otherwise the business will eventually fail. Increased turnover does not guarantee rising profits, particularly if the business is unable to control costs.

Where do the business real profits come from?

The relationship between turnover and profit depends on the industry in which the business is operating

It is not always obvious where the business real profits come from. For example Petrol stations and supermarkets must maintain a high annual turnover to ensure they make adequate profits. Other types of business, such as clothes retailers or furniture stores are making a high margin on sales and may earn a satisfactory profit on a lower turnover. Restaurants make their highest margins on drinks, whereas pubs make their money on food.

It is important that businesses can tell the difference between revenues and profits, and understand the role and contribution of each product and service line from both these perspectives. Note, for many companies, while their core business puts them on the map and brings in the customers, it’s their more peripheral, value –added activities that generate the profits.

It is vital that Management must take into account the effect these decisions will have on both turnover and profit. To grow a business, management must not focus only on increasing turnover, it also must look at controlling costs and thereby, increasing profits.

Continuation of a loss making product line will increase turnover but it will increase costs even more and therefore reduce profits.

Which would you prefer – a company with a 5m turnover making $100,000 profit a year or a business with a turnover of $500,000 making $200,000 a year?

So how does a business owner know the difference between a blip and a downward trend?

Well, most business owners are technical experts in their field but generally would not be expected to recognise early warning signs of financial failure.

In so many cases we have seen business owners leave it too late – they have been through tough times before – and it may seem quite natural to back yourself. Problem is that in uncertain times it may be difficult to recognise how far along the path to insolvency you really are and it can be challenging to admit you need independent help.

Here are some common underlying reasons why a business may encounter difficulties: 

1. Management issues  

• Poor accounting records
• Unskilled staff processing financial information
• Accounting records not up-to-date 
• Poor costing systems
• No management support for business owner
• Business owner a technician not a manager
• Not understanding basic business principles
• Lack of Management experience

 2. Failure to respond to change

• Political change
• Economic change
• Changes in society (i.e. consumer attitudes)
•  Changes in technology

3. External constraints to growth

• Government restrictions and regulations
• Union restrictions
• Natural disasters
• International terrorism

4. Overtrading

• Increasing trading at the expense of profit margins
• Rapid expansion such that financial and managerial resources cannot keep up with the demands placed upon them.

5. The Big Project

• A major project very large in relation to the company’s size
• Minor miscalculations in revenues and costs can be fatal 
• Or a project which is significant but outside the core competency of business

6. High Gearing

• Too much debt

7. Undercapitalisation  

• Not enough financial or non-financial resources. Borrowing against your mortgage is debt, not equity.

With so many elements to juggle, often a business can be heading in a downward direction long before it becomes obvious to owners or management. If you find that business is indeed heading the wrong way, here are some tips to help manage and survive the downturn while turning business around.

Survival Tips

1. Accept the reality of the situation.

It is not always easy to admit that as an owner or manager that the business is indeed not performing to expectations. By being realistic and accepting the reality of what is going on, it will be much easier to begin the turnaround process.

2. Seek help from those with more experience.

This is not a time to try and solve problems all alone. Talk with other owners or managers that may have been through a similar situation – what did they do and why? What worked and what didn’t? What area of the business should the focus be on? Another option is to consider engaging experts in turnaround management. There are firms (like Kestrel Solutions) that are experienced experts in the business turnaround process and in stressful times, this experience (and objectivity) can be invaluable.

3. Take immediate action steps to stop the downward momentum.

Speed of action is something that can be critical – don’t wait for the wolves to appear at the door. After accepting the situation and seeking expert help, make a real effort to stop any further decline as soon as possible. Start to take proactive and positive steps immediately.

4. Decide what needs to be done first, second, third.

Part of the proactive process of taking action is planning out what needs to be done and getting on with it. Decide the first area to be dealt with, deal with it and move onto the next. Be systematic in dealing with the issues and it is amazing how quickly momentum will build and things will start to improve.

5. Keep your mind and attitude strong.

Dealing with a business downturn is never easy and there are bound to be some casualties along the way – employees, suppliers etc. It is important to keep a strong mind and not allow emotions to become overwhelming. Empathy can still be demonstrated at all times, but keep strong.

6. Create systems to ensure this doesn’t happen again.

Revisit business plans and setup the necessary systems, checks and measures to ensure that the business is not put in this position again. After going through the turnaround process it will become apparent what areas of the business were really weak and what needs to be improved. Work diligently to fill all the gaps and implement the necessary systems.

7. Be prepared for surprises along the way.

Some of the surprises may be pleasant, others may not. Whenever you are dealing with a difficult situation, it is amazing how it can bring out the good and the bad in others. This will undoubtedly happen, so be prepared and don’t let the surprises interfere with the turnaround process. Hopefully there will be more good than bad like creditors that extend credit or employees willing to forgo overtime.  Be prepared also for some surprises within the business operations itself.  These may be extremely important in helping to identify underlying problems and issues contributing to the downturn.

In all, surviving a business downturn will be a difficult, challenging and no doubt exhausting time. The good news is that if turnaround management is done the right way, the business will come out the other side well equipped to deal with the future. It will also be in a much better position to prosper and thrive for a long time to come.

There are some common mistakes that business owners and managers make when hiring a coach that can significantly reduce the benefits of coaching.  Specifically, these are:

1.  Lack of clearly defined business outcomes
2. No selection criteria (or criteria that are poorly defined)
3. Rushing the hiring process.

An outline of each of these mistakes along with how to avoid them is outlined below.

Mistake #1 –  Lack of Clearly Defined Business Outcomes

It may sound obvious but often when the decision is made to get some business coaching, there is little consideration given to the specifics of what the coaching will achieve.  This is a sure recipe for disaster and usually results in poor results at a significant cost.

Solution:  Before hiring someone to help with the business, it is important to be very clear on what it is that the business is looking to accomplish.  Is it help with planning, managing employees, strategic development, mentoring, financial management, operations, marketing, sales or a combination of these that is required?

Take the time to formulate what the outcomes and expectations for business coaching will be, along with the business goals and objectives.  It is often best to do this in consultation with any relevant managers or staff to ensure maximum benefit to the business.

Mistake #2 – No Selection Critieria

Not only is it important to know what your business outcomes are, but it is just as vital to define what you are looking for in hiring a business coach.  Employees must always fit a certain set of criteria to be considered, and so should a business coach.

Solution:  Specify what the criteria will be when selecting a coach and write them out as a checklist for use during the interview process.  Considerations here may include availability, flexibility, areas of expertise, experience, staff/resources and price.  Each of these can also be given a weighting based on their importance.

Having an idea of what criteria are important when hiring a coach will make the process a lot easier and faster by helping to eliminate unsuitable candidates quickly.

Mistake #3 – Rushing The Hiring Process

It is tempting once the decision has been made to hire a coach to get it done quickly so that the business can start to benefit.  But again, this can be a costly mistake in both time and money.

Solution:  Approach this as a project that will take place over a few weeks.  Here’s a simple breakdown of what is involved.

1.  Research period.  During this stage compile a list of names for possible candidates.  This can be done through talking to other businesses, internet research, contacting relevant organisations or associations etc.
2. Interview process.  Make contact with possible candidates and start talking to those of interest using the selection criteria outlined.
3. Due diligence period.  During this time it is pertinent to check references, ask for any further information to help with the decision and also discuss the cost of the coaching.
4. Selection.  Now it is time to pick the right coach and get to work on the business.

While these are common mistakes often made in hiring a business coach, using the solutions and process outlined above will ensure that the right coach is selected for the business.  Taking the time to do this is smart business and will bring benefits for a long time.

To help understand how turnaround management works, below is an outline of the 5 step process involved.  Having a good understanding of this process will make it easier to identify if and when, it should be applied.

Step 1 – Define & Analyse

During this stage the definition of performance problems within the business are clearly outlined.  It is particularly important during this step that any areas of financial stress within the business are identified and a thorough analysis undertaken.

The objective of this is to arrest any further decline in the business while continuing to trade and avoid insolvency.

Step 2 – Scope & Strategy

Once the business has been stabilised, it is now time to commence a strategic planning process.  The first part of this is to scope the strengths, weaknesses, opportunities and threats (SWOT analysis) of the business.

It is important during this stage to not only look internally (strengths and weaknesses) but to strategically analyse the external environment (opportunities and threats) as well.

From the SWOT analysis, the long term vision, mission and objectives for the business can be defined.  Knowing where the business is heading then allows the development of a strategic plan.

Step 3 – Link & Action

Now it is time to take the strategic plan and develop an action plan.  This is a list of actions and tasks complete with time frames that must be undertaken to ultimately achieve the business objectives.

The tasks are the daily, weekly and monthly activities to be done and with this strategic planning process, each one will be contributing to the overall mission.

Step 4 – Implement

This step is not just about implementing the action plan, but also ensuring coaching and support of all staff.  Without this critical step, all the planning can go to waste.

It is important that employees are aligned with the overall vision for the business.  This is achieved through communication, consultation and coaching on a regular basis.

Step 5 – Review

With all the planning and implementation in place, it is now time to conduct regular reviews.  This ensures not only that continual improvement is achieved but also helps to identify any corrective actions that may be needed.

In effect, turnaround management is very similar to the strategic planning process; however the first step of identifying areas of stress in the business is critical.  For any business where this stress is already occurring, applying the above process, in consultation with a turnaround management expert, will not only ensure the business turnaround but also the opportunity to improve and develop well into the future.

Kestrel Solutions are specialists in applying this process – contact us here for more information.

While this is understandable, regardless of your level of business experience, the benefits of hiring the right business coach will definitely outweigh the downsides.  In particular if the business is struggling to grow and develop or is even going backwards, the investment in a business coach could be exactly what is need to turn the business around.

Hiring a business coach has many benefits and the 5 most significant are summarised below.

1.  Objectivity

When working day in, day out within a business an intimate knowledge of the business is inevitable, making it very difficult to maintain a degree of objectivity.   Every little aspect of the business becomes important and often there are many things that become far more important than they should.

At the end of the day being in business is all about the bottom line and only those aspects of the business that contribute to this in a positive way should be focused on.  A business coach will bring a level of objectivity that can be difficult for entrenched business owners and managers to facilitate and help bring the focus back to what is important.

2.  Structure and System Development

Another aspect of business that can suffer is the proper setup of structure and systems that help it to run smoothly.  It takes time to set these in place and see them become a routine part of the business.  Because of this, many businesses don’t take the time to set them up properly.  A business coach can help with the development and implementation of such structures.

3.  Strategic Planning and Implementation

All businesses must have a plan to be successful.  It is simply not possible in today’s world to succeed without a plan outlining goals, objectives and action steps.  This doesn’t need to be complicated or a massive document.  In fact, many successful businesses restrict their plan to one page.  But, it does need to be done.  There is no way of achieving anything if you don’t know what it is you actually want to achieve.  For an understanding of how strategic planning works click here.

A business coach can help strip the business back and clearly define the overall goals and objectives.  Working at a strategic level allows the business to look both externally and internally to help shape the goals and take into consideration all environmental aspects that may affect its plans.  These can be on a short (monthly) and medium (yearly) term basis and provide a guiding light the business is working towards.

4.  Mentoring

Business coaches can work with individuals or groups to help them develop their skills.  This mentoring can assist with both personal and business development.  It can also be undertaken in specialist areas if required such as marketing, financial management, human resources or operations.

The benefit to business from this type of mentoring can be significant.  As employees develop their skills, results will improve through better performance.

5.  Accountability

Once the business has been analysed, systems set in place, planning implemented and mentoring established, the time for review and improvement is important.  It is essential that changes are made as required to ensure the business continues towards its goals.  Alterations to staff, equipment and other resources may be necessary.

Again, it is during this period that the business coach offers a degree of objectivity and provides a level of accountability to keep the business on track.

Hiring a business coach is often the best step a business can take, particularly if it is struggling to reach its targets or make progress.  The benefits a coach can bring as outlined above will help it to improve both performance and profitability, which is a great outcome for any business.

Kestrel Solutions offers business coaching to all types of businesses.  Contact us here for more information.

What Does S.W.O.T. Stand For?

 Strengths  –  Weakness  –  Opportunities  –  Threats

Image by Dave Hallmon

Strengths and weaknesses are factors internal to the business.  That is, every business will typically display strengths in certain areas, while it will also have definite weaknesses that are impacting its performance internally.

Opportunities and threats are external to the business and are a collection of elements from the environment in which the business is operating that could affect its performance both in the short and long term.

Strengths and opportunities are seen as favourable to the business.  Alternatively, weaknesses and threats are unfavourable factors.

Internal Factors

The first step in the SWOT analysis is to analyse the business with an ‘internal’ focus.  It is necessary here to consider the business objectively and assess its strengths and weaknesses.  It is also important that all areas of the business are considered e.g. sales, marketing, manufacturing, warehouse management, financial management etc.  All these areas of the business are interrelated and often a strength or weaknesses in one area can impact one or more other areas.

Strengths are those areas of the business that give it an advantage in the marketplace.  Often these strengths are what will positively differentiate the business from its competition and can be leveraged to gain a distinct market advantage.

Conversely, weaknesses are areas where the business is underperforming and could be impacting its position relative to the competition.

By identifying strengths and weaknesses throughout the business it becomes easy to identify areas that can be improved.  Obviously any area of weakness can always be improved but often strengths can also be developed further to provide an even greater competitive advantage.

External Factors

After closely examining the business from an internal perspective, it is now time to look at the outside environment to identify any opportunities or threats that will affect the business.  Examples of externalenvironmental factors include technology, government, demographics and many more.  Essentially these are things over which the business has little control but they could have an impact on the business and/or the marketplace in which it operates.

For example, advances in technology are always occurring.  If a business is reliant on technology in any way, these changes must be considered and factored into the planning for the business.

Mapping The SWOT

Once all the factors have been analysed, it is then useful to ‘map’ the strengths and weaknesses to the opportunities and threats.  That is, if the business has strengths that can be ‘mapped’ to identified opportunities, then it is possible to plan how the strengths can be utilised to maximise the opportunity.

Similarly, if there is an area of weakness that will become more vulnerable because of an identified threat, action can be taken to minimise any impact on the business.

Planning at this level provides a great overview for any business and forces it to truly identify its position relative to its competitors and marketplace.  Once completed, the SWOT analysis will provide a solid platform to begin the planning and business development process.  As with any planning process, it is important that the SWOT analysis is regularly revisited and integrated into the business plan.

Kestrel Solutions integrates the SWOT analysis into the planning process it offers clients.  To see how it is works click here.

While it is best to move quickly and prevent any further downturn in the business, it is also important to identify the best consultant for the task.  There are a few key factors to consider when choosing a turnaround consultant which are outlined below.

Experience

Turnaround management experience is the most important factor when selecting a consultant – it is not the time to gamble with an inexperienced operator who is ‘cutting their teeth’.  It is important that the consultant has a portfolio of past clients and success stories demonstrating their turnaround management experience.

Keep in mind that business degrees and CPA qualifications don’t count as turnaround management expertise.  It is a specific area of business that requires a unique combination of skills and experience is vital.

Professional Membership

Most respected turnaround management consultants are members of the Turnaround Management Association or TMA.  Their membership in this organisation means they are required to adhere to a strict code of ethics and professional standards.

Australian businesses can check TMA membership by visiting their website here and searching by company or person.

Reputation

A turnaround manager is expected to work quickly and confidently with a range of parties including banks, creditors, accountants, lawyers and more.  It is important that they can build rapport with these parties and any experienced turnaround consultant will already have an established reputation.  It is important to check this reputation and ensure they have a good standing in these critical areas.

Leadership & Management Skills

As the key player in executing the business turnaround the consultant must show excellent negotiating and interviewing skills at all levels of business.  They are also coming into a business that is new to them, so their entrepreneurial ability to quickly grasp key concepts within the business and take action are vital.

During the turnaround process, it is essential that the consultant has the ability to step up as the leader and take control of the process.

Structure of Fees

There is no point in hiring someone whose costs may put further stress on the business and simply introduce more problems.  The fee structure of the turnaround consultant should be clearly established at the outset and any performance incentives outlined.

While hiring a business turnaround consultant is usually occurring during a difficult time, following the key points above will help ensure that the most suitable one is chosen for the business.

Kestrel Solutions are experienced business turnaround consultants and members of the TMA.  To view their TMA profile click here.

There are a variety of skills that are at the core of any business or entrepreneurial endeavour.  These can be product sourcing, inventory management, marketing, managing employees, and strategic planning.  While each industry is different, these core processes remain the same.  A business coach can help you improve these processes using not only the business experience they have gained but by utilising their network of specialist advisers and colleagues.

A business coach can also start the process of taking you from being an employee in your own business to being a strategic planner in your business.  This is an important distinction, since most people start their own business with the goal of having more freedom and free time.  Unfortunately however, when the business goes wrong they often find themselves doing day to day operations with the business becoming more and more dependent upon them.  Not only does this create an unhealthy dependency, it can also be a financially dangerous situation.  If the business owner ever becomes seriously ill for a period of time, it becomes more difficult for the business to be able to compensate for the owners absence.

A business coach can help a business owner achieve independence from the business by setting up the processes in an organization to streamline operations and ensure it is not dependent on any one person.  Some activities such as marketing where the business owner might have no core competencies can even be outsourced to strategic consultants.  If the business owner does not have resources to take themselves out of the business, the coach can help them a design a process and timeline to get to that point as quickly as possible.

In this process, the business owner’s primary responsibility is to be the strategic planner for the organization.  A coach will help the business owner determine where they want to be in one, three, and five years, and develop the plan for getting there.  The plan has to be challenging, yet achievable.  Milestones can then be developed that help measure progress along the way, and if the business owner gets stuck, they can turn to the business coach for guidance.

Business coaching can also help develop outside-the-box ideas for achieving these milestones.  Each person has their own unique perspective, and if a business owner does not interface with other entrepreneurs, they could be missing out on some unique solutions, particularly those that have been effective in other industries.  One profitable new idea could pay for an entire decade of coaching fees.

Most importantly, a business coach will hold a business owner accountable for following through on their marketing plan.  Without coaching, the average entrepreneur might be able to slack off for an entire month without worrying, because they are not going to fire themselves.  However, if they fail to get something done, a business coach will require an explanation.  This alone could be the motivation most business owners need to kick their enterprises into high gear.

A business owner that is not engaging the services of a business coaching mentor could severely be limiting their profit potential.  Many of the world’s most successful business leaders still have business coaches.  Imitating the habits of those who have made it, and seeking out strategic advice, particularly if business is struggling, makes a lot of business sense.

Kestrel Solutions offers business coaching to all types of businesses.  Contact us here for more information.

The problem of accountability is not usually isolated to management but occurs right through the company.  A lack of systems and structure to the business means that no-one really knows what they are accountable for, let alone being actually held responsible for any outcomes.

Why Is Accountability Lacking?

There are many reasons for lack of accountability.  Managers aren’t held accountable for poor results in case they might leave.  Employees aren’t held accountable for fear of harming the relationship.  Customers aren’t asked for timely payment in case they don’t come back.  And so on.  However, this lack of accountability can be crippling, if not fatal if it is not addressed.

Improving accountability is not always an easy thing to do as it can be confrontational for many people.  Nobody likes to be told they are doing a bad job or they are under performing, but if the guidelines and objectives for their performance are clearly outlined and agreed to, this situation is much easier to handle for everyone.

As a result, the key to accountability within a business is to identify what needs to be measured, how often it should be measured and the formality of the reporting structure.   Making these outcomes clear and agreed to by all relevant parties is critical.  This means that accountability becomes a lot more straight forward – a result or target must be achieved or a process of review is required to ensure the result is achieved going forward.  Ultimately, if the target isn’t reached, there is somebody that must be held accountable.

Although this sounds harsh, it is a fact of life and business.  The buck has to stop with someone if there are problems within the business and if it is clear who that ‘someone’ is, then they must be held responsible.  Experience shows that when people do know exactly what they are accountable for, their endeavours to achieve the desired result will significantly increase.  If this is multiplied and replicated across the board, then a business turnaround is inevitable.

Types of Accountability

There are different levels of accountability and these will also depend on the size of the business, number of customers, number of products and the structure of the business.  Typically however, most businesses will at least need to be accountable to owners/shareholders, customers, employees and suppliers.

For example, owners of a business will be interested in such parameters as profit levels, business growth, customer acquisition etc.  It is therefore important to clearly outline what measures will be used by the owners to strategically manage the business along with the frequency of the reporting.  For a small business with an owner who works in the business, the process will be a lot less formal than for a stock-listed company with hundreds of stakeholders.

How A Business Coach Can Help Accountability

Often, it is not so easy for business owners to set up the necessary systems and structures for accountability.  This is where a business coach can help!  They can approach the situation objectively and work with all parties to get these things in place.  Once the systems are setup, they can provide a platform for review and adaptation as required.

The biggest benefit the business coach offers in this situation (apart from the fact that accountability will actually be in place!) is objectivity.  It can be difficult for people working day-to-day in a business to see it from a perspective other than their own with real consideration for all stakeholders in the business.  A coach helps by taking all these stakeholders into account and ensuring the solutions will benefit the business as a whole

A business coach can work with all parties to not only help set up the structure and systems for accountability, but also help to facilitate their implementation.  Lastly, as required they can work with the business to modify and develop the process for continual improvement.

If you would like to improve accountability within your business, Kestrel Solutions can help with services forbusiness coaching in Brisbane and across Queensland.