DAVID SHELTON, Author of ‘The Business of Advice’, published by Taxbriefs Ltd. Head of IFA Consultancy Service – Scottish Widows
There are times when you need to improve the performance of your business without a fundamental re-organisation. Think of your business like a new car: it is designed and built to do a particular job and you may not change it for five years or more. However, it has to be serviced and retuned at regular intervals to keep it in perfect running order. The same approach applies to all businesses, and the advice sector is no different. This applies to all trading conditions, and the process can be used to position the business for a period of market growth as much as to deal with a downturn.
Improving performance requires you to act quickly and decisively within a structured framework: identify all the options, and then concentrate on those that will give the best return.
You should fine tune your business when:
· Your annual business plan review confirms your overall strategy but reveals a number of new weaknesses or threats.
· Your instinct tells you that your business is not as sharp and proactive as it used to be.
· Standards seem to be slipping.
· Clients are leaving unexpectedly.
· There is an upturn in complaints or compliance issues.
· You look enviously at a competitor who seems to do things better than you.
In addition, there are external changes that should trigger fine tuning:
· Sudden change in trading conditions.
· Change in regulations that directly affect the business.
Fine tuning is not a substitute for strategic planning. But it is very useful when your direction and vision are right, but the issues listed above begin to concern you. The 2009/10 recession provides a perfect example, because many businesses reviewed and confirmed their overall strategy and direction but needed to take quick short term action to cope with a difficult market.
You need to take a structured approach to fine tuning, and the framework for this is in the following chart.
To improve performance, there are two routes to pursue:
· Increase the volume and value of sales.
· Increase productivity and cut costs.
You are recommended to pursue both paths as rigorously as possible, especially if there is a rapid and unexpected downturn in the market. You should adopt the same approach as reviewing financial performance, where you need to ask the detailed questions and challenge all assumptions if problems arise. However, don’t assume that the entire answer will be to cut costs.
The top part of the chart is designed to increase sales volume and value and is about clients and services. You should think about what additional services you can provide for existing clients as well as how you can attract new clients. This may lead you to open up new markets and find new routes to market as well as moving into product or financial planning areas that you have not previously developed. An increasing number of practices are moving to “life time planning” which will identify every need and opportunity for individual clients.
The lower part of the chart is about improving productivity and cutting costs to support an increase in profit. Productivity gains can be derived from the current clients through enhanced contact and service and from advisers with the support of para-planners or additional training. In addition there will often be opportunities to directly cut costs. As a rule of thumb, you should seek to cut costs by at least 10% every three years as a means of avoiding cost creep which occurs in all business, particularly when trading conditions are good.
The essential rule is to combine these two approaches to fine tuning which means you manage the health of your business as comprehensively as possible.
The Business of Advice book and website is a complete system for managing and growing advisory businesses. Published by Taxbriefs Ltd. Find out more at www.businessofadvice.co.uk.