Keeping tabs on the COMPETITION is always important. What is Brand X doing better than you? Is their staff friendlier or more knowledgeable? Is their product superior? Having an understanding of your strengths and opportunities within the industry as compared to competition offers the knowledge to make changes to current operations in order to move from #2 or #3 in the marketplace to #1. Simply, what makes YOUR company special/superior when comparing to competition? If you can’t answer that question, your potential customers can’t either.
It is easy to become complacent when business is going well. We become comfortable and forget to keep forging ahead to seek new opportunities for continued growth. Pay special attention to the world around you. IDENTIFYING NEEDS in and around your community may allow you to tweak your business model to fill those needs. For example, many western South Dakota business owners experienced incredible opportunities a few short years ago with the boom in the Bakken Oil Formation. By offering products or services that were already in the wheelhouse but geared towards the oil exploration and services industry, companies were able to capitalize on new profit centers.
A customer never likes to hear the price of their favorite product has significantly increased since their last visit to your store. I suggest making incremental increases in prices so it’s not a shock to customers. For example, a 2% increase each year feels much better than an 8% increase every four years. However, if costs increase, pay attention to pass those COSTS in terms of PRICE to your customer so you don’t give away or lose money on products. Consistent margins are necessary… it’s how you pay bills, pay yourself, and make money!
Growing or expanding your business in terms of adding on to building space or purchasing new equipment involves planning. It may never seem like the right time. However, since experts anticipate a rise in interest rates, now might be a good time to lock in a good interest rate on the amount you plan to finance. Likewise, since interest rates are at historical lows, visit with your banker about refinancing debt to a lower rate. This will allow you to either free up cash flow or to accelerate the payoff of your existing debt. Whether you have current debt or have plans to expand operating space or equipment, recognizing the effect of increasing or decreasing INTEREST RATES is vital.
Researching the major industries within your COMMUNITY will allow you to best understand how you fit into the big picture. The national economy may vary widely from our local one. For example, while national experts might indicate a rosy outlook for your industry, the local outlook for your industry might point to doom and gloom.
Finally, perform RESEARCH to gauge how you are doing as compared to peers in your industry. This will give you an understanding of profit margins and expense ratios for others in your line of business. Sometimes a simple “tightening of the belt” in one area of operations can make a dramatic effect on your bottom line. Check out industry publications for peer analysis. Ask your CPA or valuation professional for guidance and any information they can provide.
The rest of the Strategic Planning series articles can be found at ktllp.com.