In an increasingly global economy, keeping a close eye on your supply chain is imperative. Even if your company operates only locally or nationally, your suppliers could be affected by wider economic conditions and developments. So, make sure you’re regularly assessing where weak links in your supply chain may lie.

3 common risks

Every business faces a variety of risks. Three of the most common are:

1. Legal risks. Are any of your suppliers involved in legal conflicts that could adversely affect their ability to earn revenue or continue serving you?

2. Political risks. Are any suppliers located in a politically unstable region — even nationally? Could the outcome of a municipal, state or federal election adversely affect your industry’s supply chain?

3. Transportation risks. How reliant are your suppliers on a particular type of transportation? For example, what’s their backup plan if winter weather shuts down air routes for a few days? Or could wildfires or mudslides block trucking routes?

Potential fallout

The potential fallout from an unstable supply chain can be devastating. Obviously, first and foremost, you may be unable to timely procure the supplies you need to operate profitably.

The year 2020 has taught businesses many lessons. The sudden onset of the COVID-19 pandemic followed by drastic changes to the economy have forced companies to alter the size of their workforces, restructure work environments and revise sales models — just to name a few challenges. And what this has all meant for employees is change.

Even before this year’s public health crisis, many businesses were looking into and setting forth policies regarding change management. In short, this is a formalized approach to providing employees the information, training and ongoing coaching needed to successfully adapt to any modification to their day-to-day jobs.

There’s little doubt that one of the enduring lessons of 2020 is that businesses must be able to shepherd employees through difficult transitions, even (or especially) when the company itself didn’t bring about the change in question.

Now that 2022 is up and running, business owners can expect to face a few challenges and tough choices as the year rolls along. No matter how busy things get, don’t forget about an easily accessible and highly informative resource that’s probably just a few clicks away: your financial statements.

Assuming you follow U.S. Generally Accepted Accounting Principles (GAAP) or similar reporting standards, your financial statements will comprise three major components: an income statement, a balance sheet and a statement of cash flows. Each one contains different, but equally important, information about your company’s financial performance. Together, they can help you and your leadership team make optimal business decisions.

Every company, big or small, should have a mission statement. Why? When carefully conceived and well written, a mission statement can serve as a beacon to the world — letting everyone know what the business stands for and where it’s headed. It can build customer loyalty and mobilize people behind a common cause. And it can define the company’s collective personality, provide clear direction, and most of all, serve as a starting point for all of your marketing efforts. Here are some elements to consider when writing a mission statement:

Target audience. This starts with customers, of course. But it also includes employees, job candidates, investors, lenders and the community at large. You can focus a mission statement on a combination of these groups or just one of them.

Length. Some mission statements are only a single sentence. Others are long and complex, encompassing philosophies, objectives, plans and strategies. Generally, it’s best to come up with something in the middle that’s concise, easy to understand and actionable — again, a viewpoint from which your company will express itself and make decisions.

The word “concentration” is usually associated with a strong ability to pay attention. Business owners are urged to concentrate when attempting to resolve the many challenges facing them. But the word has an alternate meaning in a business context as well — and a distinctly negative one at that.

Common problem

A common problem among many companies is customer concentration. This is when a business relies on only a few customers to generate most of its revenue.

The dilemma is more prevalent in some industries than others. For example, a retail business will likely market itself to a broad range of buyers and generally not face too much risk of concentration. A commercial construction company, however, may serve only a limited number of clients that build, renovate or maintain offices or facilities.

How do you know whether you’re at risk? One rule of thumb says that if your biggest five customers make up 25% or more of your revenue, your customer concentration is high. Another simple measure says that, if any one customer represents 10% or more of revenue, you’re at risk of elevated customer concentration.

Many people scoff at New Year’s resolutions. It’s no mystery why — these self-directed promises to visit the gym regularly or read a book a month tend to quickly fade once the unavoidable busyness of life sets in.

But, for business owners, the phrase “New Year’s resolutions” is just a different way of saying “strategic plans.” And these are nothing to scoff at. In fact, now is the perfect time to take a critical look at your company and make some earnest promises about improving profitability in 2018.

Ask tough questions

Begin by asking some tough questions. For example: How satisfied are you with the status quo of your business? Are you happy with your profitability or had you anticipated a much stronger bottom line at this point in your company’s existence? If you were to sell tomorrow, would you get a fair return based on what you’ve invested in effort and money?

Your business financials — where they stand currently and where they might be going next year — are incredibly important. Obviously, sales and expenses play enormous roles in the strength of your position. But a fundamental and often-overlooked way of making your cash flow statement shine is to minimize inventory or services so you have just enough to fulfill demand.

Sprucing up

Carrying too much inventory can devastate a budget as the value of the surplus items drops throughout the year. In turn, your financial statements simply won’t look as good as they could. Taking stock and perhaps cutting back on excess inventory:

• Reduces interest and storage costs,
• Improves your ability to prevent fraud and theft, and
• Increases your capacity to track what’s in stock.

One item to perhaps budget for here: upgraded inventory tracking and ordering software. Newer applications can help you better forecast demand, minimize overstocking, and even share data with suppliers to improve accuracy and efficiency.

“Gamification.” It’s perhaps an odd word, but it’s a cool concept that’s become popular among many types of businesses. In its most general sense, the term refers to integrating characteristics of game-playing into business-related tasks to excite and engage the people involved.

Might it have a place in your company?

Internal focus

Sometimes gamification refers to customer interactions. For example, a retailer might award customers points for purchases that they can collect and use toward discounts. Or a company might offer product-related games or contests on its website to generate traffic and visitor engagement.

But, these days, many businesses are also using gamification internally. That is, they’re using it to:

• Engage employees in training processes,
• Promote friendly competition and camaraderie among employees, and
• Ease the recognition and measurement of progress toward shared goals.

It’s not hard to see how creating positive experiences in these areas might improve the morale and productivity of any workplace. As a training tool, games can help employees learn more quickly and easily. Moreover, with the rise of social media, many workers are comfortable sharing with others in a competitive setting. And, from the employer’s perspective, gamification opens all kinds of data-gathering possibilities to track training initiatives and measure employee performance.

Many businesses have a life cycle that, as life cycles tend to do, concludes with a period of decline and failure. Often, the demise of a company is driven by internal factors — such as weak financial oversight, lack of management consensus or one-person rule.

External factors typically contribute, as well. These may include disruptive competitors; local, national or global economic changes; or a more restrictive regulatory environment.

But just because bad things happen doesn’t mean they have to happen to your company. To prepare for the worst, identify a business turnaround strategy that you can implement if a severe decline suddenly becomes imminent.

Warning signs

When a company is drifting toward serious trouble, there are usually warning signs. Examples include:

• Serious deterioration in the accuracy or usage of financial measurements,
• Poor results of key performance indicators — including working capital to assets, sales and retained earnings to assets, and book value to debt,
• Adverse trends, such as lower margins, market share or working capital,
• Rapid increase in debt and employee turnover, and
• Drastic reduction in assessed business value.

Every business with more than one owner needs a buy-sell agreement to handle both expected and unexpected ownership changes. When creating or updating yours, be sure you’re prepared for the valuation issues that will come into play.

Issues, what issues?

Emotions tend to run high when owners face a “triggering event” that activates the buy-sell. Such events include the death of an owner, the divorce of married owners or an owner dispute.

The departing owner (or his or her estate) suddenly is in the position of a seller who wants to maximize buyout proceeds. The buyer’s role is played by either the other owners or the business itself — and it’s in the buyer’s financial interest to pay as little as possible. A comprehensive buy-sell agreement takes away the guesswork and helps ensure that all parties are treated equitably.

By now, some businesses have completed their 2021 budgets while others are still crunching numbers and scrutinizing line items. As you put the finishing touches on your company’s spending plan for next year, be sure to cover the finer points of the process.

This means not just creating a budget for the sake of doing so but ensuring that it’s a useful and well-understood plan for everyone.

Obtain buy-in

Management teams are often frustrated by the budgeting process. There are so many details and so much uncertainty. All too often, the stated objective is to create a budget with or without everyone’s buy-in for how to get there.

To put a budget in the best position for success, every member of the leadership team needs to agree on common forecasting goals. Ideally, before sitting down to review a budget in process, much less view a presentation on a completed budget, you and your managers should’ve established some basic ground rules and reasonable expectations.

Business owners, year end is officially here. It may even be over by the time you read this. (If so, Happy New Year!) In any case, the end of one year and the beginning of another is always an optimal time to look back on the preceding 12 calendar months and ask a deceptively simple question: How’d we do?

Large companies tend to have thoroughly documented strategic plans in place, some stretching years into the future, that include various metrics for measuring whether they’ve achieved the growth intended. For them, reviewing a calendar year’s success in terms of strategic planning is relatively easy. They mostly just crunch the numbers.

For small to midsize businesses, the strategic planning process may be a little more informal and less precise. Yet even if your strategic plan isn’t a detailed document replete with spreadsheets and pie charts, you can still review actual performance against it and use this assessment to look ahead to 2022.

With a difficult year almost over, and another one on the horizon, now may be a good time to assess the size of your sales force. Maybe the economic changes triggered by the COVID-19 pandemic led you to downsize earlier in the year. Or perhaps you’ve added to your sales team to seize opportunities. In either case, every business owner should know whether his or her sales team is the right size.

Various KPIs

To determine your optimal sales staffing level, there are several steps you can take. A good place to start is with various key performance indicators (KPIs) that enable you to quantify performance in dollars and cents.

Some might say the end of one calendar year and the beginning of another is a formality. The linear nature of time doesn’t change, merely the numbers we use to mark it.

Others, however, would say that a fresh 12 months — particularly after the arduous, anxiety-inducing nature of 2020 — creates the perfect opportunity for business owners to gather their strength and push ahead with greater vigor. One way to do so is to ring in the new year with a systematic approach to renewing everyone’s focus on profitability.

Create an idea-generating system

Without a system to discover ideas that originate from the day-in, day-out activities of your business, you’ll likely miss opportunities to truly maximize the bottom line. What you want to do is act in ways that inspire and allow you to gather profit-generating concepts. Then you can pick out the most actionable ones and turn them into bottom-line-boosting results. Here are some ways to create such a system:

Many businesses struggle to turn abstract strategic-planning ideas into concrete, actionable plans. One reason why is simple: ineffective meetings. The ideas are there, lurking in the minds of management and key employees, but the process for hashing them out just doesn’t work. Here are a few ways to run your strategic-planning meetings like they really matter — which, of course, they do.

Build buy-in

Meetings often fail because attendees feel more like spectators than participants. They are less likely to zone out if they have some say in the direction and content of the gathering. So, before the session, touch base with those involved and establish a clear agenda of the strategic-planning initiatives you’ll be discussing.

Another common problem with meetings occurs when someone leads the meeting, but no one owns it. As the meeting leader, be sure to speak with conviction and express positivity (if not passion) for the subject matter. (If others are delivering presentations during the proceedings, encourage them to do the same.)

A strong, discernible brand is important for every business. Even a company that never undertakes a formal branding effort will, over time, establish a brand through its communications with customers and interactions with the public. For this reason, it’s a good idea to regularly take a fresh look at your brand and determine whether tweaks or even a major overhaul may be in order.

Who are you?

When reassessing your brand, consider the strengths of your business and whether these have evolved over time — or very recently. Some companies have pivoted during the COVID-19 pandemic to address the changed circumstances of daily life. Look at strong suits such as:

• Distinctive skills, such as excellence in product design,
• Exceptional customer service,
• Providing superior value for your price points, and
• Innovation in your industry.

You need to match your business’s passions and strengths to your customers’ needs and wants. To that end, ask current customers what they like about doing business with you. Survey both customers and prospects about what they consider when making buying decisions.

Using a strengths, weaknesses, opportunities and threats (SWOT) analysis to frame an important business decision is a long-standing recommended practice. But don’t overlook other, broader uses that could serve your company well.

Performance factors

A SWOT analysis starts by spotlighting internal strengths and weaknesses that affect business performance. Strengths are competitive advantages or core competencies that generate value (and revenue), such as a strong sales force or exceptional quality.

Conversely, weaknesses are factors that limit a company’s performance. These are often revealed in a comparison with competitors. Examples might include a negative brand image because of a recent controversy or an inferior reputation for customer service.

Generally, the strengths and weaknesses of a business relate directly to customers’ needs and expectations. Each identified characteristic affects cash flow — and, therefore, business success — if customers perceive it as either a strength or weakness. A characteristic doesn’t really affect the company if customers don’t care about it.

There are many ways for employers to conduct annual performance reviews. So many, in fact, that owners of small to midsize businesses may find the prospect of implementing a state-of-the-art review process overwhelming.

The simple truth is that smaller companies may not need to exert a lot of effort on a complex approach. Sometimes a simple conversation between supervisor and employee — or even owner and employee — can do the job, as long as mutual understanding is achieved and clear objectives are set.

Remember why it matters

If your commitment to this often-stressful ritual ever starts to falter, remind yourself of why it matters. A well-designed performance review process is valuable because it can:

• Provide feedback and counseling to employees about how the company perceives their respective job performances,
• Set objectives for the upcoming year and assist in determining any developmental needs, and
• Create a written record of performance and assist in allocating rewards and opportunities, as well as justifying disciplinary actions or termination.

Many businesses train employees how to do their jobs and only their jobs. But amazing things can happen when you also teach staff members to actively involve themselves in a profitability process — that is, an ongoing, idea-generating system aimed at adding value to your company’s bottom line.

Let’s take a closer look at how to get your workforce involved in coming up with profitable ideas and then putting those concepts into action.

6 steps to implementation

Without a system to discover ideas that originate from the day-in, day-out activities of your business, you’ll likely miss opportunities to truly maximize profitability. What you want to do is put a process in place for gathering profit-generating ideas, picking out the most actionable ones and then turning those ideas into results. Here are six steps to implementing such a system:

Businesses have had to grapple with unprecedented changes over the last couple years. Think of all the steps you’ve had to take to safeguard your employees from COVID-19, comply with government mandates and adjust to the economic impact of the pandemic. Now look ahead to the future — what further changes lie in store in 2022 and beyond?

One hopes the transformations your company undergoes in the months ahead are positive and proactive, rather than reactive. Regardless, the process probably won’t be easy. This is where change management comes in. It involves creating a customized plan for ensuring that you communicate effectively and provide employees with the leadership, training and coaching needed to change successfully.

Prepare for resistance

Employees resist change in the workplace for many reasons. Some may see it as a disruption that will lead to loss of job security or status (whether real or perceived). Other staff members, particularly long-tenured ones, can have a hard time breaking out of the mindset that “the old way is better.”