Small Business Bleeding Can Be Fixed (The Key To Success Series)
Holistic Approach to Winning Business and Avoid “Quote-Everything-itis Syndrome”
A New Hampshire October Sunday afternoon, the lawn neatly cut, hopefully for the last time this year. The leaves have almost reached peak autumn’s brightest colors, that we do so look forward to each year, and we do not look forward to raking leaves, yet such a small price to pay for New England’s seasonal beauty. The wood stove lit, warming my office; and now we turn to write about small business bleeding, a very important subject in today’s poor business market economy. Small business bleeding occurs when a business spends more money than the money it collects for conducting business for any given moment in time. Small business bleeding is the result of three critical negative business variables.
The first business variable is business quality in the form of mistakes leading to rework, scrap, and serious deficits in promised delivery to the customer. When a small business quotes customer’s work, what is clear is that rework or scrap is never calculated into the cost for conducting business. When a business performs do-over-work because of rework or scrap, all hope for profit is gone forever, and a small business bleeds dearly for delivering the customer’s needs. The natural by-product from rework and scrap is late delivery and very high business costs.
The second business variable that is contributing to the business bleeding is representative of incorrect quoting. An area that is often difficult to nail down because a business is focused on the ultimate goal of higher sales, the business loses sight of a tactical part of being in business, making a respectable profit, for that reason revenue potential must match a business’s core reality. Tactically achieving higher sales becomes the target, and not our true business core reality of hopefully lots of money left over after completing the work. It is not uncommon for businesses to become caught up in “The Quote-Everything-itis Syndrome”(Savo, 2009). Quote-Everything-itis Syndrome is a common disease that businesses find themselves engaged in when they forget revenue must match their business core reality to deliver products and services. Businesses do not even realize they are doing it; the only clear sign is that profit goals never seem achievable, and great frustration tends to be the routine because you do not have enough time to quote everything efficiently and smartly.
A business suffering from “The Quote-Everything-itis Syndrome” quotes just about every request for proposal (RFP) and request for quote (RFQ) that comes across their sales team’s inbox, even if it’s something they have never done before. Have you ever heard or said this phrase? “Don’t worry if we win the job, we will figure out how to get it done.” An old culture out there believes that increased sales are a result of quoting everything; however, increased profits have a direct positive correlation for staying within your business core reality. When we quote work well below cost, a business performs the work at a loss and business bleeding occurs.
Occasionally, businesses will take on work at a loss as an incentive to bring in a new customer. This approach is strategic. The problem occurs when the remaining work for this customer is quoted well below cost as well, and the bleeding continues. Taking on unprofitable work also leads to delivery issues, cash flow issues, and the first business variable of poor business quality always creeps in, mistakes, needed rework, and scrap resulting in a dynamic negative domino effect, making it very difficult but not impossible to recover.
The third business variable is unjustified paid over-time, leads to business bleeding, and is negatively affecting the business’s profit margin, and contributing to a weakening or none existent cash flow is the mere fact that the work quoted, is never quoted with paid over-time. Over-time defined as paid wages in the form of time-and-a-half or any paid variable more than one times X for any work performed over a standard 40-hours per week. When over-time is not quoted into the job, the business bleeds and runs at a loss.
The three business variables are quality, incorrect quoting, and unjustified paid over-time. These variables do have proven implementable and sustainable solutions that this author will share with you:
Business’s quality solutions are a regimentation of using the business’s established Quality Management Systems (QMS) Procedures and Processes that are in place today, and enforcing these systems. Empower the business’s employees with accountability, teach and encourage self-audit, empower employees to act like owners, and the business’s owners must treat the employees as owners as well (Howard, 2000). With quality, new ideas are needed from every employee on the business’s payroll, regardless of having owners’ equity in the business or not. Regardless of the size of the business, employees’ minds are an unlimited wealth of experiences, ideas, and stop the bleeding common sense, so listen and learn from these minds.
Business’s incorrect quoting solutions, do not quote any work until all the cost elements involved in the work is clearly documented, and always quote work at a level that the business can make a minimum of a 10% profit. In business, today 10% historically is minimal conservative profit normality, so better yet, strive for 15% to 20% profit, which gives you a buffer in the event that you do have rework and scrap. Insuring profit means your business will have a lower quoting win ratio; the by-product from this quoting strategy is higher business profit margins, greater cash flow, and little to no business bleeding (Bourne, 2002). Quoting work that a business can make a profit on, that is well within the business core reality, and well within the business’s level of expertise, is very difficult to do but not impossible in a hungry business market economy. To achieve quoting success, requires the need to be honest, to allow viewpoints outside the sales group, establishing a natural business’s core reality buffer. Resulting in business bleeding significantly reduced when a business quotes work within its business core reality.
A business’s unjustified paid over-time solutions is cultural related, more than business related. What this means is that the employees have become accustomed to the overtime, and see it as part of their base salary, as an entitlement for working at this business. The new focus must have a structured work hour’s rate and that overtime is only used in the event of an absolute emergency to bring benefit to the business. Overtime is only justified when it is actually quoted as part of the job. Overtime must never become the normal work schedule for any employee in the business. Compensation by using overtime set up a very devastating precedence for any business. A book called Measurement of Productive Efficiency: Techniques and Applications published a study involving the workers hours’ verses worker efficiency. The research concluded that workers efficiency and performance dynamically reduced after 50 hours (Fried, 1993).
This by no means represents the final business solution required to stop business bleeding, but a written beginning to encourage the reader to develop and implement new better solutions, one idea at a time. Understanding what clearly represents true business core reality in a modern market economy is important; your small business survival will depend on it.
Bourne, M., Gregory, M., Mills, J. (2002). Strategy and Performance, Creating a Winning Business Formula: Cambridge University Press
Fried, H., Lovell, C., Schmidt, S (1993). Measurement of Productive Efficiency, Techniques and Applications: Oxford University Press
Howard, H., O’Conor, D. (2000). Managing Quality: Scitech Educational
Savo, P (2007). Holistic Approach to Improving Quoted Business Awards. genonow.com, 172(1),6
Savo, P. (2009). Holistic Approach to Winning Business. Holistic Approach to Winning Business and Avoid “Quote-Everything-itis Syndrome”, from https://pietrosavo.wordpress.com/2009/12/12/holistic-approach/