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How to Plan for a Management Buyout: Tips for Successful Business Owners

Many entrepreneurs dream of growing their business and taking it to the next level. After all, that’s what motivates people to start businesses in the first place. However, transitioning from owner-operator to business owner or managing director can be a scary and challenging process. Luckily, there are several things you can do in advance to help ease some of the stress and anxiety so you’re more prepared when the time comes. A management buyout (MBO) is a strategic financial transaction that aims to acquire control of your business from you as a sole and current owner through a financing agreement with your board of directors. If you’re ready to step away from running the day-to-day operations of your company, and instead focus on growing your capital into something bigger and better, then read on! You may even be surprised to learn just how much MBOs can help you grow your business or consolidate operations into one organization.

What is a Management Buyout?

A management buyout (MBO) is a financial transaction that aims to acquire control of your business from you as a sole owner through an agreement with your board of directors. It’s a strategic financial transaction that can serve many purposes, including:

● Providing a cash infusion to accelerate growth and bring about a new era of success for your company.

● Experimenting with new leadership models that can help you identify and cultivate future leaders of the management team.

● Alleviating debt or financial pressure on your company by distributing ownership of the business among existing shareholders.

● Extend your time in the business world by acquiring control of your company for a limited time before passing the reins over to someone else as manager.

● Acquiring control of your business without taking on all the financial risks of debt and responsibilities of owning a business.

Why Conduct an Management Buyout?

There are many reasons you might want to consider conducting an MBO. The most common reasons include the following:

● Exiting your company by selling it to another company or individual. An MBO can provide you with the cash flow you need to conduct due diligence on potential buyers. It can also provide you with immediate liquidity to sell your company if you discover another buyer or opportunity.

● Increasing the value of your company. You might conduct an MBO to raise additional financing, to acquire another company, or to pursue an acquisition strategy.

● Demonstrating strategic clarity and vision. Conducting an MBO might be the best course of action to show your investors, lenders, and the financing community that you have a clear vision for your business and are willing to take bold steps toward making it a success.

● Reducing your ownership stake in the company. If your company is valued too high relative to your ownership stake, you might want to consider selling it to someone else through an MBO.

● Maximizing tax benefits. A management buyout may be the best way to maximize tax benefits such as the Section 77 deduction, which allows businesses to expense the cost of certain assets over the course of the year.

● Conducting an MBO transaction to bring new management team members or an outside owner into the fold.

● Conducting a management buyout to find a financial partner to help you grow or acquire your company.

Key Terms You’ll Need to Know

● Board of directors – The group of people appointed to serve as the fiduciary agents of the company, with authority for asset management, financing, and conducting business operations on behalf of the company.

● Buy-sell – The sale of stock by an existing owner to purchase public or private equity in another company.

● Buy-sell agreement – The formal arrangement between the owner and the management team that sets forth the terms by which the management team will be compensated if the owner chooses to sell the company.

● Buy-sell back(1) – The agreement between two companies that allows one company to buy back shares from the other company at a price determined by the management team.

● Buy-sell back(2) – A variation of a buy-sell back in which another company acquires the first company.

● Company – The legal entity that owns the assets of the business.

● Equity – Money previously invested in a business, usually as stocks or shares of ownership. Public equity is a share in a publicly traded company. Private equity is a share in a company that is not publicly traded.

● Leveraged Buyout – A leveraged buyout (or leveraged management buyout) occurs when one company negotiates the process of acquiring another using mostly borrowed funds. The purpose may be to take the company private or to spin off part of the business.

● Management team – The management team is the current group of people who are responsible for running the company.

● Proxy – A proxy is a written authorization that a shareholder can use to cast a vote for a particular choice in a company’s existing management.

● Section 77 – A deduction allowing for the expensing or financing of certain assets bought for business use over a certain period.

● Stock – Ownership interests in a company that give investors the right to receive dividends, share votes, and participate in company decisions.

● Voting rights – The ability of a shareholder to cast a vote for the company’s existing management team.

Benefits of a Management Buyout for the Company and the Owner

1. One of the main benefits of an MBO is that it preserves value for current shareholders by affording them immediate liquidity and providing them with a share of the upside if the business succeeds.

2. Many owners sell their company to bring stakes of the ownership to management teams.

3. A key benefit of an MBO transaction is that, if the business succeeds, it provides the existing shareholders with access to funding.

4. Finally, an MBO lets the current management team acquire ownership in the business, subject to certain exceptions.

Securing Financial Advice and Professional Help with a Management Buyout

Having a sound and comprehensive financial plan can help you make informed decisions, but it’s important to remember that you can’t make solid business decisions without good business sense. This means you’ll need to get some financial planning advice to help you make the best choices for your company. You’ll also want to ensure you have the right professional assistance on your side. You’ll want to work with professional advisors who are experienced with managing MBOs, and experienced with helping businesses transition to a new ownership structure and management team. The appropriate professional advice and support will prevent you from becoming overwhelmed or discouraged.

How to Conduct an MBO

There are many things to consider before initiating an MBO. First and foremost, you should decide if you truly want to take this route. There are a lot of risks and challenges to conducting an MBO. The better prepared you are for this process, the more likely you are to find success. It’s important to get professional financial and legal advice to make certain that the process goes as smoothly as possible. Next, determine how much cash flow you’d like to raise, and have a plan to acquire that money. Consider conducting an MBO as part of a financial restructuring or as a sale of your company. The choice will likely be determined by the amount of money you’d like to raise.

Things to Consider When Executing Management Buyouts

As with any major business decision, you’ll want to approach a buyout in your company with extreme care and thoughtfulness. First, you’ll want to assess the deal’s financial modeling and feasibility based on the value of your company and the value of the prospective buyer. That will determine the price you’re

willing to accept for your company. Next, you’ll want to evaluate the terms of the deal based on your personal preferences, your company’s needs, and the buyer’s needs. For example, you may want a majority of the board of directors or the existing management teams to stay in place, while the buyer may prefer to have all hands on deck. Once you’ve gathered all this information, you can begin reaching out to potential buyers and negotiating the terms of the deal.

The Negotiations Before the Closing

Most MBOs involve extensive negotiations before the closing. There are a few reasons for this, and it’s important to understand them before you make any decisions about how to approach negotiations. First, the buyer may want to negotiate the price of the acquisition down from the original asking price. Second, the seller may want to negotiate the price up from the price already negotiated. Third, both sides may want to renegotiate various terms, such as the amount of equity each side is getting, the method of acquiring public or private equity, the length of the acquisition, and even the terms of the transaction itself.

Final Words: Is a Management Buyout Right for You?

The best way to see if an MBO is right for your company is to try it out. That means approaching management buyouts as a test case, not a permanent change to your business model. That means you’ll want to do everything you’d do under normal circumstances, but you’ll also want to evaluate the experience as a trial run. For example, you may want to keep a running scorecard of how things are going and ask your advisors and accountant for feedback on the process. Remember, however, that an MBO is not a permanent change. It’s simply an approach to seeing whether management buyouts are desirable for your company. Once you’ve gathered all this information, you can decide whether an MBO is appropriate for your company and you.

What is KPI? Let’s begin by defining KPIs as quantifiable performance that measures a business objective over time. The goals are tied to milestones and gauge progress against an organization’s strategic goals. The KPIs intend to align people across the organization to measure employee performance, making them accountable for their roles and responsibilities (RP). In theory, the performance KPIs allow management to introduce adjustments aligning for a balanced scorecard. Administration adapts performance using leading indicators and objectives for the right KPI results. 

Choosing your leading indicators. 

As soon as Cogent Analytics arrives onsite at a new client, our mandate is to provide our clients with a front view of their company by introducing the cash management system (CMS) and the sales trend analysis (STA). I also focus on performing the stockholders’ interview and defining the organization’s roles, responsibilities (RPs), accountabilities, and key performance indicators. During this exercise, I identify opportunities to capture all quick wins1. Upon completing this exercise, we seek organizational consensus. I will work with the RPs to implement strategic KPIs. We use multiple tools and must choose a fit-for-purpose tool. Success shows the best results by working on the behaviors and modifying leading indicators. For employee satisfaction, align best practices with performance and compensation. 

Identifying process indicators in financial KPI. 

The typical application of financial KPIs is monitoring the budget and profit plan, actual versus forecasted, and introducing actions to the process indicators to correct deviations. Key performance indicators are the perfect management tool applied widely throughout the organization’s processes. The alignment of profit sharing with KPIs is one of the pitfalls of the system. 

KPI examples. 

There are many examples of financial KPIs manipulations that backfire. The most recent prominent KPI example failure is West Fargo Bank2 (WFB) and the loss of clients and public credibility. WFB business goals #2 KPI: Generate new qualified leads and acquire new customers. Bank officers were remunerated, among others, as a function of this KPI metric. Inflating and falsifying new customer numbers lead to misleading metrics and incorrect customer KPIs. As a result, the bank lost credibility, which caused, among others, the CEO3 to resign, and affected the overall net profit.  

On a more personal note, a positive example I had a hand in. For ten years, I was responsible for the audit comity of a financial institution. Management recommended and implemented a profit plan with the leading indicator tied to individual performance KPIs. After experiencing multiple deviations from norms and established procedures, I concluded that the only truly effective KPI that worked in this situation was the one associated with the distributions to owners. Therefore, our specific goal became directing all efforts toward quantitative indicators making a profit, and providing an adequate return to the owners. 

Important KPI indicators. 

Selecting the right KPI indicators is critical to achieving successful implementation. Keep it simple at a high level. Refrain from overthinking or over-complicating the sales KPIs. For key results, ask the RP how his work directly affects profit. Cogent Analytics validates our clients and dedicates time to implementing strategic KPIs. We work on your behavior and closely monitor the metric and performance indicators during implementation. When working with different KPIs, we consult with the owners, make them aware of the pitfalls, and adjust accordingly. Use leading KPIs that are factual and make the RP accountable. 

Testing your key performance indicators.  

Further, test and audit your chosen performance indicator to meet the desired objective. Always test against your strategic objectives and business goals and adjust where needed. Executing the correct key performance indicators shows in your gross profit margin results. 

Construction management is one of the most time-consuming operations. A construction project requires a lot of focus and attention to detail to evaluate its productivity. Spending excessive time per project is why you must find ways to make construction processes more efficient and cost-effective. Furthermore, with the increased demand for new housing, commercial properties, industrial space, and other similar facilities, there has been an exponential increase in construction projects in recent years. These growth patterns make it even more imperative that you improve your construction planning process in order to remain competitive against your competitors.

Monitoring the construction project’s productivity levels.

Construction managers need to know exactly what their team is doing in terms of productivity. This knowledge will help them to assess the actual efficiency of their process and get valuable insights on where they can improve. A project manager will first want to start tracking productivity metrics using construction project management software. The metrics you can track include revenue per employee, cost per job, revenue per hour, and others. The metrics that you track must be real measures of productivity. This data will help managers to understand how you are currently performing and where you can improve construction planning and skills. It will also help you better understand what your competitors are doing and what areas you can improve to gain an advantage.

Varying metrics in the construction industry.

Many companies use different forms of analysis to measure productivity within the construction industry. Some of these include revenue per employee, revenue per job, cost per job, revenue per hour, and many more. The way you manage the process of productivity and increase revenue varies depending on the kind of construction company you are in. Most construction companies use some form of a revenue tracking system. These systems provide real-time information about their revenue and expenses on a per-job or per-division basis. The revenue tracking software should track all your revenue streams and provide relevant information about the growing trends in your business. This information will help you to understand how you are currently performing and where you can improve.

A good construction process measures the basic principles of productivity by the revenue you make per employee and hour. These stats will help you to choose the right partners for your construction project. Good construction productivity can be improved by following certain guidelines. To increase your revenue, one of the first things you will want to do is increase your potential revenue by scheduling quotes. You can increase revenue by diversifying your revenue streams and increasing the number of customers. 

Implementing project management software.

Investing in information technology systems or project management software that will help track your work is a great way to improve your construction productivity. These systems should track your employees’ work and provide you with relevant insights on how you can improve your construction process. Invest in products that will make the process less labor-intensive. These products can include automated construction systems that help make the construction process more efficient.

However, large capital requirements are needed in order to introduce automated construction systems. The company should build this investment into the future goals of the business. It could be too expensive of a venture at this time. Further focusing on productivity and cost controls can generate revenues for capital expenditures in the future.

Automating your construction planning and cost controls.

The construction industry largely focuses on the manual method of work. This emphasis is because of the nature of the work and the expertise required to perform the job. However, the automation of construction planning has become one of the most important trends in recent times. This new trend is because of the rising demand for quality products at a lower cost. Automating construction project planning has been a great way to increase construction productivity while monitoring the cost of construction materials. Reduction in labor costs is a direct result of automating operations.

Construction management technology and project management systems have been a great way to improve construction productivity. The reason is that they help you track the various timelines of work being done in individual projects and the business as a whole. An automated construction management program is a great way to make the construction process more efficient and cost-effective. This concept goes for almost every industry. Invest in metrics that will help you to track your progress. Project tracking allows you to identify the areas where you need to improve and make changes.

Tracking mistakes can improve your construction process.

One of the best ways to improve your construction productivity is to make sure that you do not make any mistakes while performing any work. Tracking mistakes will help you identify the areas where you need to make changes to improve your construction process. At the same time, rework is an eventuality of any job. However, tracking the costs related to rework situations will allow you to improve processes to limit and control.

Attracting new customers to the construction industry.

Many construction companies are trying to attract new customers and build good relationships. They invest a lot of time and money in managing their current and future relationships. To ensure your place in the list of top construction companies, you need to track your performance regularly. You should also report the results of your undertaking to your clients. Reporting any issues will help you to become a transparent partner with your customers and increase your reputation within the construction industry in your area. This approach will help you understand where to make changes to improve your construction process. Also, industry portals can be a great way to get listed among top construction companies. This recognition will help you to expand into different construction trades within the construction industry.

The costs of using information technology.

Construction management software is by far the easiest way to track productivity metrics. They allow for inputting data from the field and tracking hours related to various aspects of productivity. However, due to the nature of software systems, they can have a steep learning curve. Not only for the owner or managers but all the way down to the frontline employee. Along with the addition of project software to assist with productivity, your company might also require additional costs for laptops, tablets, smartphones, etc. These can be cost-prohibitive.

Review your labor statistics.

One of the easiest ways to start tracking productivity is to look at labor statistics. Divide the total number of labor hours used on a project by the total revenue generated by the construction project. This formula will provide you with revenue per labor hour. By tracking the revenue per hour per project, the project manager can see if you are generating enough productivity based on project types. Profitability is not only revenue but is that revenue cost-effective. Furthermore, this might show that certain types of projects are less profitable than previously expected.

Construction management and measuring project metrics.

In conclusion, a construction project is one of the most time-consuming operations, which is why you need construction management. The construction manager finds ways to make the construction processes more efficient and cost-effective. The first thing you will want to do is start tracking the productivity metrics using construction management software. The metrics you can track include revenue per employee, cost per job, revenue per hour, and other labor statistics. It is very important that the metrics that the project manager tracks are real measures of productivity. These measurements help you to understand how you are currently performing and where you can improve costs. This information will also help you to get a better idea about what your competitors are doing and what areas you can improve to gain an advantage in the marketplace.

The Supply Chain Management. 

Supply chain visibility is essential to running efficient and effective supply chain management. A lack of visibility can lead to inefficiencies, reduced productivity, and penalties for non-compliance. To improve business administration of supply and demand, you must clearly understand where products are and what’s going on with them at any given time. As the name suggests, a supply chain is the network of suppliers, distributors, resellers, manufacturers, and other businesses involved in delivering goods from the point of origin to the final customer. It includes everything from procurement activities to distribution and retail sales. 

Looking at Supply Chain Visibility. 

This article is for you if you want to strengthen your supply chain management or add another company to your existing network. We will explain what supply chain visibility is, how it affects your business and how you can achieve it. Let’s first look at what supply chain visibility is and what it’s not. Supply chain visibility is the ability to see all of the activities that occur in supply chain operations at any given time. We can track all of the information regarding the products as they move through the supply chain down to the last consumer.

Understanding the Supply Chain.

Before you can understand your supply chain, you need to know the current state and track the movement of items within it. This knowledge gives you vital information to do two things: understand your current position and identify potential problems before they become real issues. You can then work to correct the issue before it becomes larger. Without supply chain operation visibility, you might be working under the assumption that your supply chain is running effectively. Once you understand where you are now and what you should be doing, you can make corrections for greater efficiency. By proper supply chain planning, you can track if any materials are late or products are stretching beyond their expected lifespan. If you see that a product is expected to last 60 days and is going on Day 60, you can take corrective action before it becomes a more significant issue and causes you to miss a deadline or lose revenue.

Business Analytics, Identify Your Supply Chain Process. 

Below are different types of supply chain logistics that you can identify your business with: Right-sizing – You can work with suppliers and manufacturers to reduce the time it takes to complete the supply chain with the materials you have in stock and the facilities you have available. With visibility, you can see if any parts are late and determine whether you have a problem so you can take corrective action. Visibility allows inventory management of the current supply chain and viewing the expected supply chain activities by the end of the term. Full-flow – This type of visibility tracks the entire flow of goods from start to finish. It lets you see the whole route the goods take, the condition of those goods, and whether they’ve been tampered with along the way. With full-flow visibility, you can see delayed products, if damages occur, and if other parties are trying to interfere with the supply chain process. You can work with your supplier or manufacturer to remove any interference. 

Supply Chain Management, Closing Down Supply Chain Risk. 

Good supply chain visibility lets you see what’s happening within your supply chain activities and the expected end state. It allows you to track the movement of goods, the condition of goods, and what is currently occurring along the way. Good supply chain visibility helps with risk management. On the other hand, bad supply chain visibility might not track your goods as they move through the supply chain. It might not track the expected movement of goods or not show the condition of those goods. Poor supply chain management leaves you open to supply chain risk.

Benefits of Supply Chain Visibility. 

Supply chain visibility improves the supply chain manager’s ability to manage your resources effectively. It helps find ways to reduce costs, optimize your inventory and ensure that you’re using the right resources. It also allows you to work with your supplier to remove any interference. Supply chain visibility leads to predictable costs, better financial planning, and better project management. Supply chain resilience helps you identify new opportunities and expand your business. It also allows you to identify new markets and new products to sell within those markets. Strong supply chain management helps you achieve your business goals and reach your vision for the future. Visibility allows you to see the big picture and identify key opportunities for growth in a global supply chain demand. It lets you know what your competitors are doing and what you need to do to gain a competitive advantage in the market.

Supply Chain Information Systems.

Supply chain management sees all activities occurring in a supply chain at any point. It includes the movement of goods, their condition, and any interference with those goods along the way. We can break down supply chain visibility into three information systems:

• The supply chain itself
• The information within the supply chain
• The people using the information within the supply chain

Business Decisions Based On Supply Chain Visibility.

Supply chain visibility is more than just a nice to have. It’s essential to the logistics of effective supply chain management. Supply chain visibility lets you see the current state of your supply chain and the expected end state and allows you to remove any interference. Supply chain management helps you keep track of every part of the process, from raw materials to finished products. Detailed tracking helps in operations management and ensures that products get to their customers promptly, so there are no delays or shortages. Supply management makes decisions about your supply chain demand and the supply chain process based on the available information. 

Managing your time is relevant to everyone, from kids in school to people at home or work. The issue of time management becomes even more paramount to owners of small businesses. We have all either experienced or witnessed people who struggle with time management in small business. The tell-tale signs are individuals who seem to be constantly fighting fires, who when they get to the end of the day do not feel they accomplished anything, and who cannot seem to get to their desired personal or business goals.

Time management in small business certainly brings a degree of frustration to many business owners, but on the positive side, when time management improves and becomes a productive habit or normal working state of anyone, real goal realization is possible. It is all about learning and implementing those time management tools rigorously. Many business owners become comfortable with poor time management aspects. A day full of unanticipated events can easily attract people; that is where there is never a dull moment and putting out fires is the norm rather than the exception. Yet when business owners analyze their business, the inability of the business’s realization of future goals typically comes back to their lack of effective time management.

Now that we know why time management is so relevant in today’s small businesses, let us explain what and how to improve time management for business owners and the key players within this workplace. First, it is essential to know what to label the various business owners’ activities, either planned or unplanned, that happen each day. Specifically, the activity fits into the matrix below (Figure 1). Analyzing an individual’s daily activities or tasks as it corresponds to urgent/important matrix provides the transparency needed to understand how many activities, and the time associated with these activities, are happening in a typical day. With this time management awareness discovered, a clear picture of needed changes is revealed. It is worth noting that this matrix’s goal is to move away from unimportant activities and move toward less urgent activities (as best as possible given the business) in the long term.

Shown below in Figure 2 is a good example of typical activities or tasks that would fall into the various quadrants. 

Once there is a fundamental understanding of where your activities fall into the matrix, the next step is to begin the change process of time management through the four D’s. The four D’s corresponds with the four action areas to make efforts to move and purposefully fill the quadrants in a controlled manner over time.  The business owner’s four choices or action areas are either DO, DEFER (Plan from Figure 1), DELEGATE, or DROP (Eliminate from Figure 1). The best method to move forward with applying the four D’s is to have clear and articulated business/personal goals.  These goals will be the litmus test for determining which D to choose for any given activity, either planned or unplanned.  For example, as an owner, if managing accounts payables takes a day out of your week when sales follow-ups would be a better use of time to move the business closer to the goals developed, then this task needs to be delegated. 

What prevails from this introspection on daily activities is choices that move the business closer to the desired goals, not further away from said goals, as is when letting activities choose you. Creating a sustained habit with these time management techniques enables business owners to take control and realize their business’s goals immediately.

Very often, we hear clients, and peers, say “There isn’t enough time in the day to get everything done.” Yup! You are right; often, there is more to do in a day than there is time in a day. However, it all comes down to your daily approach to addressing the proper activities and actions to have the most productive day while positively impacting your business. Unfortunately, many individuals do not take the time to plan out their day or time carefully. After reading this, you will have additional soft skills to properly equip yourself with the proper tools and techniques to manage your time better instead of letting time manage you. So, let us look at what time management is, why it is essential to manage time, and specific techniques in helping with your day-to-day planning. 

What is Time Management, and Why is it Important?

Oxford dictionary defines Time Management as “the ability to use one’s time effectively, especially at work.” Nevertheless, we can take a deeper dive into what time management means for you and its impact on oneself. The benefits of managing your time correctly are gaining productivity, improve your reputation, increase opportunities for personal and organizational improvements, and most importantly, less stress in your life and the ones around you.

Not effectively managing your time has the opposite effect. A high likelihood that one that does not effectively manage their time fails to meet deadlines, low quality of work, stalled company productivity or profitability, and a higher stress level than desired. So, what can be done about it? 

Techniques in Helping Your Daily Activities and Actions

Let us discuss a few simple techniques; however, before we get into two simple methods, let’s review how to prioritize those tasks effectively.

Managing one’s time helps set priorities based on urgency and importance. 

The difference between urgency and importance is critical to understand and know. Urgent tasks are highly time sensitives tasks that demand immediate attention. Important tasks are not time-sensitive but provide long-term value; however, important tasks may become urgent if not addressed. When looking at daily activities, or tasks, one should have the ability to determine what needs to get done today and what can be postponed for a later date based on urgency and importance. Then, rank those activities based on importance and impact on the business, or based on a pareto or barrier identified impacting the business or operation in a negative way.

Let look at the first method of prioritizing your tasks and activities.  

• Write out all of your daily activities and tasks, such as a “to-do” list. 
• Then, using the chart below, place those tasks in the appropriate quartile. 
• Address the top left quartile first because they are activities that are highly urgent and important.
• Next, work on the highly urgent and low important tasks
• Lastly, if time allows, work on the low urgent and high important tasks. 
• The remaining tasks DO NOT DO because they are of low importance and can be planned for on another day.

This is one of the simplest methods in time management practices, which will allow you to remain focused on the critical tasks and activities for the day, or week; however, you decide to plan out your work out. 

Another method of managing your time is as follows:

• Write out all of your daily activities and tasks, such as a “to-do” list. 
• Reviewing the list, determine its impact and difficulty in addressing your activities. 
• Each task should have a number or letter associated with it. 
• Place the letter associated with each activity and start addressing the high impact but easy to complete activities and so on. 
• Then start working on the activities based on the example listed below:

• Activities C & E should be completed first. Then activity D, then F, then A, and lastly, if no other activities arise, B. 
• However, recognize that activity B, or activities within the Low Impact and Hard Difficulty to address, may not be worth the $ spend addressing the issue.

As C. Ray Johnson stated, “Prioritizing is the answer to time management problems…You do not need to do work faster or to eliminate gaps in productivity to make better use of your time. You need to spend more time on the right things…”

Doing the right thing at the right time with the right resources, remember that as you plan out your day and the way you prioritize your time. Always have a plan. Understand what you need and want to get done. Make sure that your plan aligns with your organizational goals and have the ability to say you had a good or bad day/week based on what was planned out and accomplished. Remember that you must allow time for the unexpected because unscheduled “emergencies” do arise.

When focusing on your daily activities and tasks, do not allow yourself to over-commit and find ways to tactfully say no to a request. Do not assume that every request is an emergency; therefore, understand the task’s timeline and importance.

In closing, always create a daily plan and use your outlook/email calendar to stay organized. Limit interruptions and time wasters. Target due dates to be early to minimize activities becoming urgent within your business. By limiting interruptions, you are allowing yourself to stay focused on the important tasks at hand. When creating your plan, also try to batch similar tasks and leave appropriate time buffers between tasks.

Many businesses manage inventory well. Firms that recognize the importance and benefits of excellent inventory management, typically have better customer service, higher margins, and more robust cash flow. Follow the below three steps to improve your product management.

First, you need to have the products organized and a system to track inventory. While this sounds simple, many smaller businesses without an ERP system overlook the importance of even a simple spreadsheet that can record and track stock on hand. Stock is an asset, and it should be treated as such. When supply is untracked and unorganized, the result is more time spent troubleshooting, which can lead to unnecessary purchases. Keep track of what you have on hand and what is on order and ensure the inventory records are accurate. Proper management will save time and money and will increase efficiency and productivity.

Second, forecast your demand. In addition to being organized and tracking on-hand inventory, it is also essential to have a system or process to predict the market to determine needs before they are needed. Identify which items are high moving and stock those, if you can delay purchases do so. Cash is always something to manage and optimize, and proper stock management will maximize the money tied up in inventory. Don’t waste precious capital on slow-moving products. Proper demand management helps you figure out exactly how much inventory you need to have on-hand so that you to stock just enough inventory and minimize what is required in the warehouse.

The third is having a specific area for receiving and stocking products or materials, which should include a designated area for returns. While this is technically keeping organized (step one above), a good inventory management process requires extra discipline concerning returns. Returns need to be processed quickly, and often a proper return authorization (RGA) is required. Ideally, there should be a visual cue to identify what returned inventory needs an RGA, what has a pending RGA, and what stock has an RGA and is waiting to be returned. Once you get authorization to return, do it quickly. You have already paid for the inventory, and it will take time for your vendor to process the return and give you credit.

Proper stock management both requires and promotes an organized warehouse. If your warehouse is not held, you will have a challenging time managing your inventory. Better inventory planning (forecasting) will help identity which products are needed. If your product list is organized correctly, there will be a clear way to tell what products are stocked. Be space-efficient and cost-effective; proper inventory management is a sound business strategy.

Businesses can control inventory to increase profitability in their business. When a company manages inventory well, it will reduce the cost of goods sold. They will also be able to order more of the materials or products that sell well rather than ordering the things that do not sell as well and take up a useful resource, space. When businesses can keep a better supply of in-demand products, they are more likely to sell that product to a customer, rather than losing the customer to a competitor when they are sold out. This will increase revenue and the customer experience leading to the retention of customers for the future.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

There is not much in business that is as unexciting or demotivating as figuring out, writing and enforcing a standard operating procedure (SOP).   But, standard operating procedures lead directly to business success, and they need to be done.

What is exciting and motivating is better quality, the creation of a skilled workforce, decreased warranty costs, higher profits, a reduction in turnover/sick time, fewer accidents, healthier margins, lower waste, less rework, more sales, reduced legal/financial risk, increased employee productivity/efficiency and improved customer satisfaction.

What is a standard operating procedure?

A SOP is a written, detailed “how to” document – a road map to business success.  It describes the step-by-step actions required to complete a routine business task.  The goal is to get consistent employee performance; each task ought to be performed correctly every time.  It is supposed to be in compliance with laws, regulations and the company’s policies.

It should also be:

• Available at the place where the work is done, as well as in operational manuals.
• A simple, clear, easy to read outline.
• Brief with only necessary actions included.
• Used for employee’s training.
• Focused on safety and efficiency.
• Updated every year, or every other year, depending on the business’s changing needs.

Where do you need standard operating procedures?

SOPs are management tools designed to achieve business success. They should be used everywhere.

• Production/operations
• Sales and customer service
• Human Resources
• Employee training
• Legal
• Financial

Why do you need standard operating procedures?

Whether it is a document, or a workflow app, creating SOPs is time-consuming.  But, if you want sustainable growth and stability, they are vital.  In the long term, it is well worth the initial effort and will save you time, trouble and frustration in the future.  Here are a few of the reasons why your business’s success is more likely if you have them.

Springboard for strategic planning – You cannot get to where you want to go until you know where you currently are.  Going through the process of creating SOPs gives you the chance to see the real – concrete information, not guesses – state of your organization.  The clearer the understanding you have of its processes and employees the better your ideas will be for future plans and strategies.

Saves time and money – When the same job, process or task is done in different ways by different people, the time and money used to complete it can wildly vary.  It is just good sense to put a system in place that trains employees to accomplish more in less time and money.

Provides consistency – Quality, quality, quality.  Productivity, productivity, productivity.  One of the biggest benefits of enforced SOPs is that they make sure all employees are performing a job or task in the same correct way, no matter who is doing it.  They make it easier to replicate good behavior throughout the company.  This allows you to grow quickly, profitably and efficiently.

Improved communication – A written procedure makes everyone’s job easier.  When used properly it eliminates guesswork and misunderstandings for owners, managers and employees.  How a job should be performed is right there for all to see, refer to and follow.  In addition to the “how,” a SOP lets the employee know “why” they are doing something a certain way.

When a person understands and agrees with the “why” then they are more likely to do it right.  If they do not understand or agree with it, then managers have a chance to provide additional training and education.  There is also an opportunity for the employee to give valuable suggestions on how to improve the job and the SOPs.

Creates a safer work environment – Effective risk management requires employees to perform in a safe, consistent way.  When employees perform in different ways there can be a legal or regulation liability.

It happens every day – good, well-intentioned owners are beaten by a poorly run, unregulated workplace.  Their companies fail because they do not know that, when properly used, a standard operating procedure is essential for business success.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information: