Many businesses have not changed their model post the global financial crisis, even though business and consumer sentiment is now markedly different, and proprietors need to address this if they are to take their business to the next level, says Tony Kabrovski, Business Advisory partner at HLB Mann Judd Sydney.
“Businesses need to take stock of where they are and then decide if this is the best model that will take their business forward, or whether it is causing their business to stagnate.
“Even knowing how to be successful now isn’t enough. You must be able to continue that success in the future. That involves articulating a business mission or vision,” Mr Kabrovski says.
Mr Kabrovski and his team take clients through a five step process, that involves defining a business’ value proposition, identifying key clients, articulating how the business communicates with clients, evaluating how to deliver goods and services to them and finally – and perhaps most importantly – ascertaining if the pricing structure is appropriate and profitable.
“Businesses that aren’t charging appropriately now are ensuring that their future success will be very difficult to achieve,” Mr Kabrovski said.
“The maths is simple: revenue less expenses equals profit. If the costs are greater than the revenue, the business shouldn’t take the job on but instead walk away. We work with our clients to identify workable processes, to ensure they can provide products and services efficiently, and at a profit.
“For example, the pricing model in Australian businesses has changed significantly over the past few years and many businesses in the service industry have gone down an hourly rate model. We encourage our business clients to move away from that approach and adopt an ‘option based’ pricing system instead.”
In the case of a cleaning contractor for an aged care facility, this involved moving the business to an option based pricing structure, rather than simply providing cleaning services for a set number of hours.
“The services were broken down into a Bronze, Silver and Gold cleaning packages, with each package representing a particular level of included cleaning tasks. By moving away from an hourly rate based service, the business was able to operate more efficiently and within the timeframe that suited it.”
When helping clients identify the vision for the business HLB Mann Judd considers six key areas: clients, staff, financials, process effectiveness, risk management and the appropriateness of making acquisitions or forming allegiances to meet business demand in non core areas.
“We will evaluate the businesses clients and their behaviour and identify those that are profitable and those that are not. To use an airline analogy, there is no point providing first class service to clients who are paying an economy class price.
“We will review the effectiveness of the people in the business, and consider aspects such as the rate of technology adoption by long-term employees, the introduction of mentoring programs to ensure staff can reach their full potential and the introduction of 360 degree review processes to obtain a full picture of staff performance.
“Process effectiveness, and breaking a job up into individual components, is an area where efficiencies can often be introduced,” Mr Kabrovski says.
In the case of an architectural services firm, HLB Mann Judd evaluated what part of the process had to be performed by an architect with specialist skills and knowledge and what part of the process did not.
HLB Mann Judd has undertaken this exercise with a range of businesses, large and small, including legal firms, aged care facilities, registered training organisation, the poultry industry, professional services firms and the rag trade, and while each business was diverse in industry and scale, they all had one thing in common – a lack of future planning.
“When a business is running profitably, the proprietors don’t always analyse what is leading to the businesses current success and whether it is sustainable. But those businesses that allow their model to stagnate are risking their future success,” Mr Kabrovski says.
HLB Mann Judd Sydney is a firm of accountants and business and financial advisers, and a member of the HLB Mann Judd Australasian Association.
For more information please contact:
Tony Kabrovski – Phone: 02 9020 4109
4 October 2013