Helping businesses increase their profits is something that I love to do. I find huge satisfaction in knowing that sharing different techniques and knowledge can be useful to different businesses, especially start-ups.
One thing I have realized, though, is each business is different. How they handle their business is different, their goals, methods, and policies are all different. The one thing that all businesses have in common, however, is the need to make a profit to sustain the business and the livelihood of the owner.
So, how does that happen? What are some things that businesses need to do in order to ensure they make a profit?
There are two specific things that always need to be addressed in a business:
I will preach this until my dying breath. A business cannot run efficiently if productivity and motivation are not part of the plan. I discussed this more in depth in my article “If Your Business is Failing It’s Your Fault”.
The thing about productivity and motivation is that they are an integral part of any business. If you aren’t motivated, you aren’t productive, and if you aren’t productive, you aren’t going to make the profit you want.
Another part of a business that is integral to operations and helps to ensure productivity and motivation are two things that many businesses, especially start-ups do not think about.
- What specific service they are providing
- Exactly how they are going to make money
This may seem pretty basic. I mean, come on, isn’t this in Business 101? The interesting thing is many people who start a business really don’t have anything mapped out. They know basically what service they are providing and have sort of an idea how they are going to make money, but they really aren’t specific in what areas those are.
Business plans, for example, are necessary, especially if the business is attempting to obtain funding, but it seems like once the business plan is completed this is where the planning ends.
I worked for the Small Business Development Center when I was an undergrad. My experience there was basically focusing on business plans rather than anything else, because the goal was to help the fledgling business obtain funding. In the year since, and during my graduate degree, I learned about two other types of plans that are extremely important for businesses.
- Business Model
- Strategic Plan
It is through using these plans that productivity and motivation become an important fixture of the business. In addition, these plans are essential to ensure that the business knows how they are going to make money and what services they will provide.
The biggest mistake any business can make is not using both a business model and a strategic plan.
I know a woman who started her own business without much planning, because she was desperate to work for herself. She had an idea what she wanted to do, but no real plan. She started the business anyway, even without knowing exactly what she was going to do. This was a huge mistake. She started with one idea, then added another, and another. Now, she has a lot of inventory, no clear direction, and is selling hardly anything. She isn’t profitable, is losing money, is losing hope, and the business is at risk of having to close its doors.
It’s pretty obvious that this woman didn’t do things exactly right. What was it that she was missing? Well, she didn’t really have a plan, and she was missing an integral part of the business: a business model.
Startup businesses have to know what type of business model they are using before opening their doors. Why is that?
A business model tells the business:
- How they are going to make money
- How to evaluate profitability
- How to evaluate productivity
The woman I mentioned earlier and her business can be used to illustrate the importance of a business model.
She wanted some type of shop where she could sell things. Initially, she wanted a religious bookstore. That would have been a great idea, as long as it was something she stuck to. She didn’t. Instead, she had a few books, then added some knickknacks, some clothes, some jewelry, crafts done by her children, and pet supplies.
Just writing that made my head spin!
The problem with her set-up is really that no one knows what she is selling. She also doesn’t really know how to market anything. Her store is so diverse that if she does market many different products and potential consumers are left out.
She is losing hope because her business isn’t making any money. She is going around in circles, unsure what to do, has lost all motivation, and the productivity for her business has tanked. In fact, she often doesn’t open up the shop. I mean, why would she? She’s lost hope and doesn’t know what to do.
A business model could really help her out, as it could help out any business that is floundering under the weight of so many ideas. Another thing that would be really important for her, and any business, is the use of a strategic plan.
It amazes me how many businesses do not use a strategic plan. It doesn’t matter if the business is for-profit, non-profit, or governmental. All businesses should have a strategic plan.
Strategic plans are step-by-step guides that help a business ensure that they maintain their business model and their business plan.
Strategic plans contain the goals that the business is working towards over a specific length of time. Businesses can always refer to the strategic plan to help them make specific decisions, especially concerning budgeting, profit, making improvements, and marketing.
It baffles me why any business, regardless of size, would not have a strategic plan; however, many don’t. In fact, none of the organizations I worked for had strategic plans initially. They did not see their value. This is a huge mistake.
- Strategic plans help business owners make hard decisions
If the business owner isn’t sure how money should be spent, how to make improvement, or how to market, they can look to the strategic plan for insight. If they realize they need to make cutbacks, the strategic plan will also help them do that.
Strategic plans also
- Help business owners gauge business and employee productivity
- Help determine goal progress and accomplishment
- Help with business owner and employee motivation
The strategic plan outlines the milestones and goals that should be made within a specific timeframe. Because of this, business owners can determine how well their business is doing by how well employees are meeting goals.
A strategic plan would be very beneficial for the woman I mentioned earlier. She could list in the strategic plan how much profit she wants to make over a specific period of time, how many items she wants to sell, and how much inventory she wants to bring on board. This, however, has to match the business model.
If she used a strategic plan in this way, she could see how productive the business was, as well as celebrate any goal accomplishments or milestones. In turn this would help with her motivation and productivity. It would actually help her want to go to the store, rather than leaving the doors closed because she has lost hope.
What is the takeaway?
Every business has its ups and downs. Sometimes the downs can be prevented by extensive planning to ensure that the business knows exactly what they are doing, how they are doing it, as well as how employee productivity is helping or harming the business.
Ultimately, the business owner has to decide how to run their business, but in my experience, failing to use a business model and a strategic plan spells doom for a business.
Why would anyone want that?