Too many businesses are vulnerable and yours could be one. Future proofing your business sounds like a great concept, but what does it really mean? At its basics it is about identifying the key risks faced by the business and then mitigating those risks. The risks faced by your business may not be identical to another business however there are three key risks that present themselves time and time again.
Get on top of these and you are well on your way to building a fit and healthy business:
- Feed your business enough to keep it growing: the majority of businesses, large or small, fail because they run out of cash. For some this is because they do not have enough capital to start with and are at risk from the start. For others though it is because the owners take too much money out of the business too quickly. You need to know your profit position, your cash position and the future requirements of the business. Then you need to build reserves in your business to protect against the unexpected. As a guide most small businesses need to retain 10-20 per cent of their profits within the business to allow it to grow. If you don’t feed it, it will die.
- Don’t be key person dependent: if your business is key person dependent then you are in a high risk proposition. Often this key person is the business owner. To test whether you are at risk here ask yourself what would happen if the most important person in the business was away for the next two months. If the business would suffer then you are at risk. Your business needs to be dependent on no-one. This means having multiple people responsible for generating business revenues and ensuring that the owners delegate responsibility and build a management team. Have a people plan in place.
- Be at the front end of your industry curve: every industry has a life cycle. Some of those cycles come to end, others regenerate and evolve. Irrespective of the industry you are in, you want to be at the front end of your industry curve. To achieve this you need to understand your sector, know what is happening in it, where it is up to and develop foresight for the future trends. Within every industry sector there are leaders and followers. This isn’t a factor of size; it’s about how you position your business and how you create your differentiation and competitive advantage. If the best you can say about your business is that you do what everyone else is doing then the likelihood is that you are a follower. Position your business at the front end of the curve and you will be ahead of the pack. This requires you to work on your business strategically not just operationally. The key is to identify your point of differentiation. What is it?
Run a quick scorecard on your business. If you can check off on these three points you are looking good.
Greg Hayes is the national chairman of accounting group Hayes Knight. Greg is also a judge in the No More Practice Transformation Series and features in the No More Practice 30 Day Business Challenge.
