As a business owner, I’m fairly certain you think about how your business compares to others in your industry.
Your business may be doing well, but do you know how do you really compare with others? At any business, there are always areas for improvement. However, it’s also important to identify the areas in which your business excels.
As a privately held or family business owner, the largest component of your net worth is your business. For this reason, it is important to focus on maximizing its value and working on a plan to become best in class to increase that value even further.
How is best in class determined? By comparing your company to industry data. We can use the analogy of when you visit your doctor for a physical exam. Your doctor obtains your baseline information, including your gender and age group, and compares your data to that of a similar population.
Using the comparison data, your doctor will provide you with observations and recommendations that you need to implement to improve your physical health. It is then up to you where you want to fall on the spectrum. Are you satisfied with average health or poor health, or do you want to strive to achieve great health?
The same is true for your business. The only difference here is the goal; rather than improving health, you want to increase value. Striving to be best in class creates a more valuable business, which directly correlates to increasing your net worth.
So where do you begin? With a physical, in this case, a business assessment. The assessment begins with a benchmark diagnostic, assessing the key vital signs of the business and comparing them to your own history, as well as to industry data. This provides an overview of how you compare, your business’s vital signs and objective metrics used to measure performance.
The next step is to conduct an in-depth business assessment to evaluate every aspect of your business, identify areas for improvement and set priorities to achieve best in class.
What are the key elements to achieving best in class?
- Leadership. Tone at the top. Nothing further needs to be said.
- Organizational culture. Culture sets the tone throughout the organization. Having a strong culture encourages creative, thought resulting in continuous improvements.
- Personnel. Strong hiring, continuous feedback and counseling, reinvestment in training and education stimulate thought processes, which translates into better performance.
- Systems and procedures. Documenting systems and procedures reduces training time and allows for consistent performance and predictable outcomes.
- Performance measurement. Leadership and management can only effectively manage what can be measured. Measuring performance in every aspect of the business allows for evaluation and dialogue. Properly evaluating performance measurements allows for the opportunity to study the results and determine how they can be improved. Lay out a plan to improve, implement, execute and then re-evaluate the outcomes.
Achieving best in class status takes time and a management team that is keenly focused on achieving results. It does not happen overnight but is a continuous process of improvement and relentless execution to improve and achieve best-in-class results.
Once achieved, it is very rewarding.
Mike Pappas, CPA, CEPA, is director, Barnes Wendling CPAs. With over 40 years of experience helping privately held business owners build and maintain their net worth,he works closely with clients to create strategic business plans and establish reporting and information systems to effectively measure areas to improve and achieve success. Mike believes is if you can’t measure you can’t improve it.