This family owned business had grown from 1 to 3 sites over a six year period and had a number of family members working in the business. Whilst sales had grown substantially during the period of growth, net profits were low and the business was looking for external advice to improve the situation.
Using industry benchmark data and computer modeling techniques, it was possible to demonstrate how a focus on gross profits, customer acquisition and retention strategies and customer spending patterns could lead to achievement of industry norms as a first step in an improvement program.
The challenge laid down was to:
• increase gross profits by 10% over current levels
• increase net profit to industry norms
• develop an organisational structure and operational methods that support a more customer focussed organisation
• provide a systematised approach to doing business that everyone could understand and follow
• free up the owners so they could spend more time working ON the business rather than IN it.
How GNS GROUP Helped
Having a clear vision of what the business would look like in the future was an important starting point for the project. GNS facilitated the development of clear Vision and Mission statements for the business that would guide on going strategy and activities.
In formulating these statements, we undertook a series of client and team advisory boards. This was an important step in understanding client and team member perceptions of the current business, and where it should be heading into the future. It allowed us to pin point strengths and weaknesses of the business and identify new opportunities. The information gleaned from these sessions went into developing strategies to make the business more responsive to all stake holders.
Being a family business, family members took an active interest in all parts of the business but this regularly led to team member confusion and frustration. It was not uncommon for more than one of the family to instruct the team to do the same thing many different ways, or to override instructions given by another family member. There were no clear lines of management responsibility throughout the business. To overcome these issues, the organisation was restructured along functional rather than family lines. Clear areas of responsibility were assigned to each Manager (& family member). Whilst the family participated in directing the business at Board level, interference on a daily basis was significantly reduced.
The next step in the process was to benchmark the current performance of the business. Benchmarks were established for operational and financial performance and customer satisfaction levels. This data was used to measure key results areas for the business and set realistic budgets that management and team members could influence and act upon.
Strategies were put in place to increase the average sale, gross profit and customer base of the business. Team members were trained in key improvement concepts and the how to’s of putting strategies into practice.
The business had a very heavy focus on sales but not profits. With sales being the over riding factor for staff, sales were often made at the expense of profits. Profitability decreased as a result. It was important that management have a strong understanding of the financial principles of business, and to assist in this a 3 day Financial Management program was run.
By day 2, management were talking profits not sales. By the end of the 3 days, management understood the issues of margins and discounts, the cash flow cycle, debtors, inventory management, return on investment, product and customer profitability analysis, cost-volume-profit analysis, critical success factors and key performance indicators and issues such as financing the business for growth.
Budgets and monthly reporting systems were implemented to reinforce the training. And strategies were implemented to focus on areas for financial improvement. The issues of discount policies, capital expenditure, expenditure authority limits and general expense policies were formalised and systematised.
Monthly report templates were prepared for all key areas of the business including Operations, Marketing, Human Resources, Administration and IT. Managers were trained to understand and complete reporting requirements. These are presented for the monthly Board meeting instituted as a part of the development project.
A focus on improving operational performance led to the implementation of clear performance standards for team members and management alike.
To reward good performance, the bonus system was restructured to encourage the desired behaviour of managers. Key elements included reward for increased profitability (in place of sales), average transaction value and achievement of agreed personal goals.
Systemisation of business processes was undertaken and new procedures developed for daily use and training of all team members.
Key result areas used to measure performance and changes to date:
- Sales +11.1%
- Transaction Numbers +1.8%
- Average Transaction Value +6.4%
- Gross Profit +13.7%
- Net Profit +22.3%
- Gross Profit Per Employee +5.8%
- Net Profit Per Employee +13.9%
- Debtors Days -17.5%