Wednesday, 22 September 2010

Why systemised businesses are worth more

The value of a business depends on its growth prospects, profitability, cash conversion and the degree to which that future cash flow is at risk

o One of the main risks for small businesses is their reliance upon key personnel, particularly the owner, who know and do things that no-one else knows or can do

o This risk is present even if you have no plans to sell the business. If you the owner or one of your key staff are unable to work for an extended period what happens to your business?

o Systemisation is the process by which the processes of the business are documented and standardised and reliance on any one individual is removed

o This process also makes a business scalable; the processes can be replicated, additional staff can be selected and trained and the business can grow beyond the constraints of any one person

How can a business be systemised?

- Document all your processes. Start by asking all your staff (including you) what they spend their time doing and build up a diagram of the different flows of work from the start (say a customer enquiry) to the end (say an invoice paid)

o Post-it notes are a good way to do this. Use different colours for different people or departments and put a different task on each note. Record key dimensions on each task – how many times, how often, how long it takes. Record problems or issues with the task. Organise the notes into sequences of tasks (processes)

o Turn the hierarchy and sequence of notes into your draft written operating manual

- Identify where only one person has the skills to carry out a particular task and examine ways to enable more people to do this

o Delegation and recruitment

o Training

o Cross-skilling, so that people can turn their hand to multiple roles

o Altering the task so that it becomes less specialised

- Look for opportunities to improve processes

o Complexity that has arisen for no good reason over time

o Bottlenecks

o Different ways of carrying out what is essentially the same task

o Specialised resources being used for mundane tasks

- Automate where this is practical

o Streamline and speed processes up using computers and the internet

o Look for opportunities to provide self-service – this reduces cost and improves customer service

- Finalise and issue the operating manual

o Institute regular audits to ensure the manual and the reality match

- Starting with you, the owner, develop a succession plan

o Named individuals selected or recruited to replace the people above them

o The appropriate development plans in place for these individuals

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