With the coronavirus leading so many headlines around the world, health is on everyone’s mind. But what about the health of your business? If you’re like most small-business owners, you spend most of your time working “in” your business, rather than “on” your business. In other words, you probably get caught up in the day-to-day operations, putting out fires and dealing with vendors, customers and employees. It’s important to put all of that aside from time to time to assess where your business is—and where it’s going.
Just as everyone should see his or her physician for an annual check-up, it makes sense to do the same for your business. There are big-picture items and small—yet important—details that can get lost in the everyday goings-on of a shop. Taking time to examine these areas annually will create not only a smoother running operation with a sense of direction, but also a nimble company—one that is in a good position to take quick advantage of opportunities as they arise.
An annual business “health check” forces you to take a hard look at some items that you might not look at very often—or that you might even avoid all together. It ensures that you have up-to-date, accurate and complete information readily available in case something unexpected comes up. Let’s say you suddenly want to apply for a loan, expand the business, acquire a business or, perhaps, even sell your business. Having documents ready to go is essential.
On that last point, all of the information presented here is essential to have in writing if you’re considering selling your business at some point. We know that these are the types of things a potential buyer will want to see. All too often, business owners have to spend a lot of time and energy creating these documents.
Below are the areas that you’ll want to assess every year. If you haven’t looked or evaluated these items in a long time, take time to do it. The health of your business is at stake.
Some business owners know them cold. Others don’t. Make sure you have at least three years of historical financial statements available in both hard copy and in electronic format. This should include all tax-related documents, plus the current year financial statements. There should be supporting documents for these statements, including sales/invoice registers, accounts receivable and payable aging reports, detailed inventory valuation reports, fixed asset records and expense documentation. It may seem obvious (you’d be surprised), but be current on the payment of expenses associated with the business, including all taxes, payroll, operating costs, employee benefits and notes.
You should have up-to-date documentation for all compensation plans, benefit plans and any oral agreements understood between you and your employees. In fact, this would be a good time to put these oral agreements in writing to ensure there are no later misunderstandings.
Have up-to-date documentation for all contracts with customers, vendors, landlords, tenants and outside service providers.
Does your business have a succession plan? It’s a fact that most tire dealers don’t. And don’t think that just because you’re young and healthy that you don’t need one. Every business needs a succession plan—in writing. One of these days you will exit the business. Do it under your terms. A succession plan lays out what happens to the business once you’re out of the picture. After all, you never know what tomorrow will bring.
You should have current information on your geographic market, competitors and opportunities for growth. This would include your business segmentation—in other words, how much business do you do in tires? Service? Parts? What is the outlook for these segments? What are the trends in your market or industrywide that create challenges and opportunities? Have a written market analysis, including an assessment of your competitors and potential threats.
Most businesses have a written business plan, but most business owners don’t update these plans over time. This is important to do annually because markets and businesses change, and you want to be thoughtful about how your business evolves over time and how you plan for it.
Review your business organizational structure. Are there any open positions that you have not been able to fill? If so, what are your plans to recruit new employees? Make a list of the skills that these new employees must have. After all, a good service writer has distinctly different skills than a tire tech.
Assess your inventory levels for things like product mix, aging/obsolete inventory and make sure you process your returns and defectives. Working capital is tied up in inventory, so it’s a good practice to periodically review your inventory on hand. Also, work with your tax professional to ensure that your inventory is properly accounted for.
An annual business health check will make your business stronger through a careful examination of the basics of the business. It’s easy to allow yourself to get side-tracked with the daily operations of your business. Once a year, take time to look at these areas and your business will be better positioned for whatever the future brings.
Check out the rest of the March digital edition of Tire Review here.