When Was Your Company's Last Physical?


djc home \| top \| special issues index April 24, 1997

When Was Your Company's Last Physical?

By ELAINE ERVIN
Moss Adams

Owning your company is more than just a job for you. Implicit in all your efforts is the desire to convert the value of your company into cash for retirement, or at least that should be the case. But whether you plan to retire in the next few years or are new to your position as a business owner, creating value for the future means creating a formula for success today.

In order to maximize the value, you need to know where your company is healthy -- and where it isn't.

You can begin by assessing the company's financial position. This involves more than just computing some financial ratios that may identify only symptoms associated with problems in your business. Getting past the symptoms involves taking a tough, honest look inside your company and how it operates. Much like a building, the strength of your business is based on a fundamentally sound foundation.

Cornerstones to creating value

Vision
The process begins with your vision for the company. Have you developed one and do you communicate it to your people? A well-constructed vision indicates that a business owner understands the company's core competencies and has a sense of how to best utilize the company's resources. Without a well-defined vision and clear communication about it, you cannot expect your management team to operate with the same goals and objectives in mind. The company will become dysfunctional and disconnected.
The next step is to develop a strategic plan for implementing your vision. A plan helps you establish both short and long-term goals. It should be reassessed every year to be sure it keeps you on target with your vision. If it isn't, you may need to make some changes. Your management team should be included in the strategic planning process. They know your company and the industry and they will assume greater ownership of the plan if they are one of the architects.
People
Probably the most important asset in any business is its people. The ability of a company's employees to be productive, be efficient, manage themselves, manage other people and take ownership in their jobs will determine whether or not a company meets and exceeds its goals. Do you have the right people to bring about your vision? Will these people be part of your exit strategy? Do you give them room to do their jobs? Do you solicit their ideas? Do you trust them to have the company's interest at heart? Do they trust you?
Do not underestimate the importance of this last issue. When a "them-and-me" or "them-and-us" approach replaces trust, it becomes a money issue for the employees. That's when turnover, productivity and other issues become problems.
Creating a positive environment for both your employees and management team goes a long way toward fixing operational problems. Your strategies should include a plan for attracting, developing and retaining people who will help you be successful. Be proactive on this front!
Marketing
Marketing is an issue for any company no matter what industry it is in. Deciding your marketing approach and constantly evaluating its effectiveness should be part of your ongoing strategic process. Have you clearly defined what and how big your market is? Do you and your people actively market your company and its qualities? Or do you wait for business to come through the door? Do you develop long-term relationships with clients, generals, subs and suppliers? Or is it everyone for himself?
Most of the time you have to be willing to give a little in order to get a lot. This is not bad business practice. Your success depends on more than just the self-sufficiency of your company.
Several factors may be outside your control. However, reliability, integrity, and an emphasis on good service and relationships are all controllable factors. You can choose the image you want both internally and externally. If you don't, your people and clients will choose it for you.
Technology
Technology plays an ever increasing role in business. Properly used it can give your company a competitive edge by capturing real time data and communicating it to your field people. You should be continually assessing whether the receipt of internal information is fast enough or detailed enough to make good management decisions.
How quickly do you discover problems and communicate them with your project managers and vice versa? The risk you face is a delay in arresting and resolving problems. This impacts your profitability on the job. As your company grows, your challenges change. Improved technology offers solutions to help you adapt to these changes.

Business physical

Now, let's get back to the financial trends of your company. Your financial information can be powerful as a management tool. Your company's historical trends are the basis from which you can project into the future. They can also be used to evaluate how your company's trends are tracking with the industry. Then you can benchmark how you are doing compared to your peers.

Once you understand what fundamentally influences the numbers on your financial statements, and if you are willing to make some changes, you can set your sights on more than just a comparison to your peers. You can be one of the best in the industry.

If your company is already one of the best, you have a lot to be proud of. But remember there is always room for self-evaluation and improvement. Your competitors are certainly willing to pick up the slack if you lose momentum.

Look outside your industry for new ideas to solve age-old problems. Most industries do an excellent job of brainstorming within their own industry, but only an inadequate job searching outside their industry for new ideas. Look at successful companies in other industries and how they manage the fundamental elements mentioned above.

Most important of all, do not lose sight of your passion and motivation. This is why you chose your career as a contractor and this is what attracts people to your company. This is why you took on the risk of running your own company. You can and should expect financial reward for the risk.

However, be aware that there is a correlation between your passion and the value of the company. When the time comes that you lose the passion, it is time to let go of the company. When a business owner remains in the company after the passion has gone, the company deteriorates in all the fundamentals and ultimately in value.

When developed and implemented successfully, the company's vision and strategies will spark passion in your key people. The goal of a business physical is to assist you in consistently achieving financial results that exceed those of your competitors. Understanding the results of your physical can also allow you to treat the real problems in the organization, not the symptoms.

The final reward is that a healthy company is worth more and is a better environment for employees. Stay healthy and both you and your company will have a long prosperous life.

Elaine Ervin is a senior manager at Moss Adams in the Seattle office and has 15 years' experience. She has specialized in serving contractors for over 15 years.

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