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Clearly Defined Goals Are Critical for Privately Owned Businesses

5 Mins read

For some privately owned companies, the owner’s objectives and priorities are either not clearly defined or so various as to be meaningless. In organizations where owners are expected to simultaneously focus on the long-term goals of the business, put out day-to-day fires and nurture family members to someday take over the company, signs of disfunction arise.

Common symptoms include: suboptimal investments in technology, poor or nonexistent business data, cashflow constraints, a lack of clear KPIs and no succession plan.

If your business exhibits one or more of these symptoms, it’s a sure sign your management team doesn’t know which direction to go in – and your profits are not what they should be.

Best practices for prioritization

Business owners should set aside time each month to review progress against mid- and long-range objectives. Successful organizations understand where they are today and where they want to be, which is often the difference between a company that performs at the same level year after year and one that outperforms, delivering long-term sustainability and stakeholder returns into the future.

Monthly strategic reviews allows the business to track progress, adjust assumptions, reprioritize objectives, reset timelines and update expectations. One option to consider is bringing in a trusted third-party advisor to help facilitate these discussions.

Most privately held businesses are led by family members or very closely knit teams, so an outsider can help mediate debates, pinpoint where gaps exist and provide sector experience.

These conversations should cover the core areas of the business, including finance and risk, management mindset, business operations, market, products/services, customer analysis, technology and organizational capabilities, including strategies to bridge any and all gaps between the current and desired state.

We recommend focusing on no more than three to five breakthrough objectives that are the most important to the business at a time. This enables tasks to be allocated with appropriate resourcing and allows for accountability and supports successful delivery.

Of course, accurate data from your systems (everything from inventory turnover to leads in the pipeline and monthly web traffic) comprises a key part of this process by enabling leadership to develop robust insights. This exercise provides an opportunity to determine which data is outdated or missing – and should be added to the mix for future meetings.

Accurate data is critical for financial forecasting. Forecasts should be reviewed at least monthly and be developed in parallel with strategic plans to measure success, monitor costs against priorities and adjust plans with a full understanding of the financial implications.

Automation and real-time data for a profitability boost

It is crucial to explore automation for key operations (e.g., billing and collections) and to enhance visibility of real-time data to track the KPIs. Many small businesses that do not see investing in technology as a need are missing out on opportunities to drive greater efficiency and profit.

One important way that technology can be used to boost profitability is by closely tracking most businesses’ largest expense: labor. Technology can measure staff utilization and how much time and cost goes into specific operations.

For example, are highly paid managers wasting hours chasing down the status of customer orders? These types of tasks can be shifted to lower-wage workers or even machines that track orders.

Utilization data can also help an owner implement an incentivized pay structure wherein managers work with individual employees every month or quarter to better fulfill specific KPIs – which can be tracked in real-time by software.

This not only helps with labor cost challenges but also motivates staff to put business growth first. A smart, data-driven profit-sharing plan incentivizes employees to earn more money while working toward the company’s long-term goals.

Crushing cashflow constraints

Cashflow is the lifeblood of any privately held business. To overcome cashflow constraints, it can be helpful to engage a trusted third-party advisor to assess your challenges and provide solutions.

There are many steps an owner might be reluctant to take because they value their longstanding business relationships – but a third party can act as a facilitator, finding opportunities to bill customers in advance to accelerate cashflow; addressing vendor management and negotiating payment schedules that favor the business and extend terms, if necessary; and reviewing all processes to identify and rectify inefficiencies.

After these kinds of assessments, we see time and time again that many companies have cashflow constraints. One issue we encounter often, involves businesses that must purchase large quantities of inventory upfront.

When companies have suboptimal processes, it can take three months or more to sell, bill and receive payment for these goods – which can put serious strains on cashflow. Fortunately, there are common inefficiencies that can be addressed to improve the situation, such as billing buyers in a timelier fashion.

Succession planning & personal objectives

Thinking about how, and to whom, to pass the legacy of your organization is an emotional process for many business owners, but it is never too early to start the conversation on succession planning.

Establishing the short- and long-term plans for an organization should be addressed earlier rather than later. It’s important to define the business objectives by asking questions such as: Do we want to grow through an acquisition? Will we sell in the future? Who should we sell to? Considering another privately owned business, a private equity firm, your children or your employees can be a helpful starting point for any business owner.

If the owner is planning for a sale, they need to begin the succession planning process at least three to five years out. This time is needed to prepare the business and groom the new leaders to take over. For instance, a business owner may want to focus on normalizing earnings, investing in technology, improving cashflow and gaining visibility on customer profitability to help make the business more attractive to a buyer and increase its value.

In closely held businesses, confrontations are common during the succession planning process. In most cases, family members/business partners will have different priorities and differing opinions when it comes to the future of the organization. Bringing in a third party who can speak with each partner is important to understand their individual long-term goals. These insights can then be factored into the planning process to better define strategic outcomes for the future.

Final thoughts

Whether your company is a sole proprietorship, partnership or family-owned business, it is important to recognize the benefit of working “on” the business as much as working “in” the business. This requires building and updating a quantifiable, strategic business plan that includes monthly assessments of a company’s current state; identifying gaps to be bridged to reach the desired future state; and bridging those gaps. By defining specific actions, timelines and leaders of tasks, as well as utilizing technology to provide data on KPIs, owners can best position themselves for success over the short- and long-term.

Alisha Jernack is a partner at Mazars and has more than 10 years of experience assisting entrepreneurs and small businesses. She specializes in financial reporting, tax and advisory services to family-owned and owner-operated businesses in trucking, warehousing, logistics, and heavy-haul businesses, as well as various manufacturing and distribution industries, and various service industries. Alisha is involved in the firm’s entrepreneurial service group education and training program, which is responsible for instituting and overseeing continued education training and standardized procedures. She is also part of the NJCPA Mentor Program, mentoring students throughout college.  Alisha received her Bachelor of Science in Accounting from Ramapo College of New Jersey.

Goals stock photo by Trueffelpix/Shutterstock

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