Last time I discussed the foundation blocks toward building the business management documents. Transitioning your thoughts into documents can help both you and your business partners ensure you have thought of everything as well as form the foundation of managing the business. Whether you are beginning the business or already rolling it takes only a short time to develop. If you do not have these documents in hand, it is recommended you progress through them. These are all that more important if you have multiple partners. Ensuring all of the partners are functioning on the same platform, agenda, and expectations is paramount to your success. In part 3, I wrote about the financial and marketing plans. These are extremely important to ensure you can actually carryout the Business plan. They will also support you when applying for funds with a financial institution. In the end, its all about the risk factor and to how far you are willing to go with your vision. Simply getting lucky doesnt happen too often.
This week I will start what I typically call some of the meat and potatos
.componentize the business. This is where the internal details of the entire business are identified to a level that will provide adequate monitoring, tracking, and measuring for improvement and control. Basically
you will build a puzzle to identify where the pieces fit, how they fit together, and what the internal picture actually looks like. It will help you to understanding each component within the organization. Some of the obvious components are things like stock materials, processing departments, packaging departments, fabrication, assembly, drywall, tiling, etc. Not so obvious components can be things like project management, shipping, engineering, etc. By determining the different components within the organization will allow you to perform many business related functions. Reporting on efficiencies and effectiveness of each is crucial for determining improvement opportunities, gaps, and product or service dependencies with each component. Other aspect of managing the business required a full understanding of each component is regarding pricing and quoting. You cannot adequately establish a profitable price if you do not have a full understanding of each component, its function within the product or service, and economic effects for each one as things change both internally and externally to the business. Of course this pricing can only be accurately achieved by determining the costs.
Costs are the one of, if the, most important aspect of each component to fully grasp and clearly understand. Each component has an individual cost associated to it. Determining the cost is easily done with relatively simple tracking methods. Preferably, this tracking should be managed in a database of some sort that can handle each component separately and in an additive tracking method as well as potential report segregation. Minimally, this should be done in Excel, Ill write more later with this topic. There are costs generally easy to determine with basic pieces such as labor time, maintenance costs (If you track it to an asset or area), operating supplies, etc. Others costs are a bit harder regarding such things as utility usage, specific administrative, transportation, storage, materials from bulk storage areas, etc. Determining these does not require specific detailed tracking by item so long as the accumulative is covered on an accumulative level. These items should not be considered profit margin areas. They are not your primary product or service, but do have a factor in achieving them.
Establishing components that make up your product or service is extremely important if you ever hope to fully understand future efficiencies, effectiveness, economic impacts, and ultimately the profit margins. Any possibility of tracking for improvements to reduce waste and excess costs can only be achieved with tracking each component. Adjusting pricing structures and offerings against competition and market changes can only be achieved effectively by tracking each component. It is extremely important to fully define each component within the organization if you ever hope to grow the business, transition the business, jointly run the business, and/or establish the value of current and future business worth.