Ready for Growth?
A Self-Appraisal
by Myrna Rodriguez-Co
So you’ve been in business two, three or more years. You must be thinking it is high time you took a step or two forward into something bigger. “Bigger” to your mind may be in terms of increased volume, upgraded capacity, diversified product lines, additional workers and managers, new technology, bigger premises, or expanded markets -- including possibly going into export
Before you take that crucial step, you must be sure your business as it currently stands is sound and healthy and can stand the rigors of growth.
So, how is your business doing?
Faced with a question like that, your impulse may be to take a quick look at your financial records. Finding a tidy amount of net profit at the bottom line of your Income Statement may have given you the confidence to answer: “I am doing fine.” But does a good profit margin necessarily mean you are ready for export, for diversification or for that otherwise bigger future?
No doubt, financial statements are valid indicators of a company’s performance. However, such records do not always present the whole picture, in all its details.
There is more to good business management than sound financials. There are broad, non-monetary principles that bear on the viability of your business. These impact on the ability of your business to meet its future financial obligations and growth targets. When these principles are breached, the whole business will likely suffer.
There are small business consultants whom you may engage to study your business to determine its state of well-being and readiness for growth. On the other hand, do you know that you can be your own business analyst? It doesn’t take too much technical acumen to be able to probe into the strengths and weaknesses of your business and from there take the steps needed to improve it.
The questionnaire below will be useful in beginning to appraise your own business with an eye to growth.
Marketing aspects
- Do you set marketing objectives, targets and quotas before starting a new year? And at the end of the year, do you compare your actual perfomance with the targets you set?
- Do you anticipate the needs of your market or do you merely react?
- How do you know if you should add, expand, improve or phase out products and services? Is this based on what:
- Your sales and frontline people are telling you?
- Your customers tell you?
- Your friends tell you.
- Your competition is doing.
- Media is reporting.
- Do you study your costs and revenues periodically to find our which products or services give you the highest profit margins or the highest volumes?
- Do your customers see your products as giving value for their money? Are your abreast of your competitor’s pricing policies?
- Are your products found in stores and other outlets where buyers expect to find them?
- Do you take measures to find out how customer think of your product. In terms of price? Quality? Of giving value for money?
- Have you ever received customer complaints? What have you done about these?
- Do you use appropriate advertising and promo tools such as samples, displays, sales contests?
Self-appraisal guidelines: (a) Dynamic and well-managed companies regularly review their marketing activities in terms of the 4Ps: product, pricing, place (distribution) and promotion; (b) Marketing planning is the cornerstone of management planning and the basis for production planning and control; (c) Product mix planning is of strategic importance – a good manager must be able to assess which product lines to grow, maintain, or divest. (d) Competition keeps a company on its toes and always thinking how to be a step ahead; forward looking companies know what its competition is doing. (e) Knowing the profitability of products, markets and distribution channels enable managers to make critical decisions on which business segment to enter, expand, contract or withdraw from.
Production aspects
- Is the company always on the lookout for:
- New ways/technologies to do things better, faster, cheaper?
- Better technical expertise?
- Better, cheaper, or more reliable sources of raw materials and supply?
- New ways to reduce waste?
- Do you study your costs? Can you improve your costs further? How?
- Do you set clear-cut output targets and production schedules?
- Are regular and complete production reports made?
- Are specifications for your products worked out and agreed upon
before production begins?
- Has final responsibility for quality control been assigned?
- Are delivery dates usually met? If not, why not? What have you done about it?
- Are production records regularly analyzed in order to obtain information
which will help simplify production controls?
Self-appraisal guidelines: (a) Being always vigilant on how to do thngs better,cheaper, faster and how to reduce waste implies an continuing-improvement mindset, a hallmark of a successful business manager. (b) Clear production targets are imperative to cost control. (b) Clear specs imply an effort to know what customers want before production begins as well as useful for avoiding delays and product rejects. (c) Fixing responsibility for quality prevents “buck passing.” Not doing this is a sure sign of weak management. (d) Meeting delivery timetables is a sign of a production planning and control system that is working; it also reveals management’s customer orientation.
Organizational aspects
- Does your company have a written organization chart?
- Are all important activities adequately supervised?
- Do you encounter any of the following problems?
- High turnover rate of personnel?
- Absenteeism?
- Conflicts between workers and managers?
- Have you delegated as much authority as possible to key members
of your staff?
- Does each employee clearly understand his job and the job of others in relation to his?
- Are rewards and punishments in place? Does everybody know the bases for such?
- Does everybody know the bases for promotion and termination?
- Are performance evaluation criteria fair? Does everybody understand these?
- Do you have a vision of what your organization will be five years
from now?
Self appraisal guidelines: (a) Growth-oriented firms usually have some form of organization chart, where lines of authority and responsibility are clearly defined. (b) Imperative to good employee relations are a clear policy on absences, a good compensation scheme, and open communication channels. (c) When you delegate authority you free yourself for other important tasks like business planning and appraisal. (d) When workers know precisely what they are supposed to do, duplication is avoided, commitment to work is fostered; workers can then focus on their own growth and advancement.
Financial aspects
- Do you experience declining profit margins?
- Is the return on your investment satisfactory?
- Do you find it hard to raise long-term capital?
- Do you experience any of the following:
- Growing accounts payable
- Inability to get suppliers credit
- Delayed payroll
- Growing accounts receivable
- Do you have to wait three months or more to get accounting reports? If so, why?
- Do you hire an external auditor to make sure that accounting systems are functioning and accounting records are up-to-date and accurate?
Guidelines: (a) Declining gross profit margins may be blamed on high prices of inputs, poor productivity/inefficient operations, high pilferage, high labor cost due to poor design and low prices due to competition. (b) Low return on investment may be traced to high cost of borrowed funds, among others. (c) “Yes” answers to items in No. 4 above show poor liquidity which may in turn be caused by poor profitability, overstocking of inventory, undercapitalized operations or undue withdrawals by owner, overspending on fixed assets or poor credit and collection policy. (d) Timely and accurate financial reports alert managers on what is wrong with the business and allow them to take corrective action before it’s too late.)
This questionnaire is only a guide and by no means a complete management audit. The “guidelines to self-appraisal” are only comments, at best superficial, and do not provide definitive interpretation of the questions or answers to the question. More often than not, a full explanation may require textbook treatment.
(For inquiries, please e-mail info.issi@up.edu.ph.)
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