Systems are an vital part of growing your business and then selling for a great price – but they are also the key to creating more freedom and income with less effort from you.
This is very important to understand because that’s what being in business should be about – it should be an investment that works for you, generating cash-flow and growth in value.
In this eclass, we’ll start by looking at what systems are and how they can increase the value of your business, and then use the 80/20 rule again to identify the areas of a business that will give you the fastest return on time and effort spent systemising.
Finally we’ll look at some examples of the systems you can implement into a business to increase value and profit quickly.
What is a business system?
Systems are the processes that your business uses to run day-to-day – to generate sales and income, deliver products or services, order supplies and stock, deal with clients, manage staff, and record and measure results.
Every business has systems in place, but the problem is usually that the systems are not thought out or designed to make running the business easier, they just appeared as they were needed and may actually be holding the business back.
When we assess the value of a business for sale, one of the first questions we ask is “how does the business run, and is it likely to keep running?” and that’s one of the first questions a buyer or investor will ask too. Remember, when you are selling a business you need to think about what your “target market” are looking for – they will want to see that:
- The business is “safe” – in other words it will keep running and generating the same profits when they take over and you are gone
- They will have an easy transition into the business and easily understand how it works and who does what
- Accurate records of the results and returns of the business are available
- There’s potential for growth, and that the business could handle some growth
- They can get their return on investment with as little work as possible from them
Why are systems so important?
If you look at the selling price of a franchise businesses, you will immediately see how much value systems can bring. The whole point of franchising is that you can sell a business that has no turnover. It sells based on the proof that the systems in place have worked before, so they are likely to work again.
Ray Kroc and McDonalds is the most obvious example – he systemised his fast-food business so well that it could be run by teenagers! And now a new McDonald’s franchise can sell for hundreds of thousands or even millions of dollars because it is such a well proven and finely tuned system.
Again we come back to the concept of “Return On Investment”. If you buy a McDonald’s franchise it is a relatively “safe” investment – you are highly likely to get a business that makes money and will continue to make money, so people are willing to pay a premium for that business.
If you want to grow a business – get more clients, sell more products or get higher paying clients – then you have to increase your capacity to get more done in less time. This doesn’t mean that you personally have to learn to do more work. You just need to be willing to start delegating and let go.
But to be able to do this, you need to be able to clearly show other people what needs to be done and how, or you need to find ways to have tasks completed automatically (preferably with no human involvement!). This means creating SYSTEMS so that your business can continue to run smoothly and efficiently without you doing everything.
When you have a well systemised business and you allow the systems to do the work – it means you don’t have to!
This adds incredible value to a business. Buyers and investors will always ask how many hours the owner works in the business. The less you work, the more valuable your business is because people are happy to pay a premium for the ability to make money with minimum effort.
The 80/20 Rule
The 80/20 Rule refers to the observation that 80% of results or effects often come from 20% of the causes (“The Law of the Vital Few”).
For example, in a business:
Now this ratio is not set in stone (it could be 10/90 or 30/70) but it shows you that there are certain areas where your effort is more highly rewarded than in others.
This is one of our most important learnings, it is the key to creating a fantastic lifestyle as well as great income and wealth through business, and our wealthy clients swear by it.
You can only create the lifestyle you want if you ENSURE that your precious time and effort is well invested. The 80/20 Rule should serve as a daily reminder to focus 80% of your time and energy on the 20% of your business that will get you 80% of the results!
This is an important concept for the 12 Week Turnaround, because the renovation of a business is like the renovation of a property. For the best results in a fast time, you don’t go rewiring the house and doing major reconstructions because you’ll end up spending way too much time and money and never get your profit. You just work on the easiest and most effective parts that will get you a better price when you sell – like paintwork, doorhandles, and modernising kitchen and bathroom.
Same in business, you just want to focus on the areas that will get you the best results, fast.
And you don’t have to completely overhaul the existing procedures – all you want to do is to take a look at the procedures that are already in place and see what you can do to make them work better.
So where do you start?
There are 5 areas of a business that will give you the most results from being systemised, and they are:
- Sales and Marketing
- Processing and Delivery
For most businesses, this is also the order of PRIORITY for systemising your business. So we’re going to go through the Top 3 priority areas to systemise – but first…
REMEMBER! The main goal for systemising your business is to get yourself OUT of the business as much as possible, and allow it to run smoothly without you.
Your first task is to write down all the menial and repetitive tasks that you (or the current business owner) are doing, and find a way that they can be done without you.
The questions you need to ask of each menial task you are doing are:
Can it be Automated?
Using online technology or software, can the task be completed automatically – that is without any human involvement?
A good example of this is customer follow-up and relationship building. Emails can be sent automatically through programs like www.aweber.com, which can be programmed in once and then runs automatically from there.
Can it be Delegated to an employee?
As business owners we are often tempted to think that “no-one can do it as good as me”. But that kind of thinking will always keep you trapped in your business, and will also reduce it’s value.
A better question to ask is “Can I teach someone how to do this as good as me?”. By creating a step-by-step guide to completing the task, you are creating a manual that can be used to teach others how to keep your business running.
Let go of as many menial tasks as possible or you will keep being drawn into the day-to-day running of your business which makes it harder for you to grow the business, and makes you lose your quality of life.
Can it be Outsourced?
The internet is now a reliable source of very inexpensive labour – you can hire people to do a huge range of tasks, virtually anything that can be done remotely can be done by a Virtual Assistant, from placing advertisements to sending emails to making phone calls to scheduling meetings and reminders. We use www.odesk.com for a lot of our outsourcing.
Can it be deleted?
Do you really need that task done? If you stop doing it how will it affect your business?
This is a great way to start freeing up your time. No matter how small your business, you should NOT be using your valuable time doing menial, repetitive tasks.
Once you have that sorted, you can apply the 80/20 Rule to your business to decide where to focus your efforts on systemising. Here are the three main areas to focus on to get the biggest results, fast:
1. Marketing and Sales
Remember that business value is largely determined by profit (Return On Investment again), so the most effective place to start implementing systems is in the sales process. If you can get your business smoothly and efficiently generating leads and sales, then that will be incredibly valuable to a buyer.
First, write down the step-by-step process for how your business generates leads, how or who converts those leads to sales, and how you follow up both the sales and the non-converted leads. Then ask the same questions as above:
Can it be Delegated?
Can it be Automated?
Can it be Outsourced?
Generating Leads – There are many very cost-effective methods of generating leads online using very targeted advertising (such as Google Adwords campaigns or advertising on blogs and other websites), niche websites and SEO (Search Engine Optimisation) and name-capture forms on the business’s existing website. The great thing about this advertising is that it can be set up once and then left to run on autopilot.
You may also be able to automate your advertising by creating referral or affiliate programs, or by asking for automatic renewals of advertising.
Lead conversion – This is often done poorly, and a great quick-fix area of a business that will give you fast results with very little effort. First of all, assess how a lead is converted to a sale and how a customer experiences your business. Who is the customer’s first point of contact with the business? Are they friendly, courteous and ready to make a sale? Do they have a set script to follow? If their first contact is a website, is it easy to understand and navigate?
Is it easy for sales people to make a sale? Do they have all the necessary resources (training, samples, order forms)? Can you make it easier for them to make a sale? How does the customer pay, and is it easy for them to place an order?
To systemise lead conversion you can use automatic sales processes, such as shopping carts or paypal buttons on a website, or affiliate programs like www.clixgalore.com.au or www.clickbank.com (for information products). We’ll cover these in more detail in a later eclass.
You must also make sure there is a written, step-by-step process for how a customer is guided to a purchase, and ensure that it is an easy to follow path for both the customer and the salesperson.
Customer follow-up – is often neglected and can be a fantastic source of increased sales. It can be as simple as offering other relevant products at the time of purchase (“would you like fries with that?”), or taking their details so you can stay in contact and let them know about special offers, new products or relevant industry news.
In previous eclasses we have talked about the many online tools available for automating customer follow-up such as www.aweber.com. You may be able to add a follow-up series of emails, or you could use on online PA or VA to follow-up on the phone.
Sometimes a customer just needs to be asked for the sale, or have an offer made at the right time.
Here’s a great example…
It was my Mother’s birthday recently and I always get her some beautiful flowers. Each year I go to a different florist – whichever I happen to wander into at the time, and each year I have to explain what colours she likes, what design, what size. But imagine if one of those shops took my details and a week before her birthday sent me this note:
This can be all set up automatically, and of course I would definitely be heading back to Jenny’s for my next bouquet!
If you are in a service business, you need to make sure your name is in front of your customer the next time they need you. This could be a sticker on an appliance that has been repaired, or a fridge magnet or some other relevant and useful item you give away for free.
Another quick story…
Our washing machine broke down about a year ago and I rang a repairman in the yellow pages. He was great, he showed up on time, he got the job done fast and neatly, he was polite and friendly and his prices were reasonable. I would definitely use him again – except I now have no idea who he was!
If he had placed a small sticker or magnet on the machine I would know exactly who to call next time, and I would really appreciate not having to search for another repairman. Simple ideas, but powerful.
2. Processing and Delivery
Next take a look at how your business provides the product or service to the customer. Write down the process for how a customer gets their product or service and who provides it. Ideally you want to have a business where the individual who provides it is NOT YOU!
For each product or service you have, describe the process of delivery and ask:
Can it be Delegated?
Can it be Automated?
Can it be Outsourced?
Again, the internet is a wealth of opportunity. If you are in a service business, you can add information products that sell online and are delivered completely automatically. If you want to know more about ebooks and how to create them then we suggest looking at Andrew and Daryl Grant’s ebook site at www.andrewanddaryl.com.
There’s no point changing systems if you don’t know whether it’s having a positive effect – you must be able to keep track of progress and results, not only of the systems you are changing but also the business in general.
Many businesses have no computerised systems for recording transactions, sales, expenses or advertising and promotions results. This is a great way to improve a business very quickly – install software programs that will automatically track these factors so you can keep a close eye on your business and see the results of your efforts and changes.
A quick story…
We were chatting to our local General Store owner the other day, and he had recently installed a computer system for tracking sales in the business and helping to place orders.
By doing that, he realised he was LOSING 20% of his profits from pilfering – both from customers and employees stealing small items, but all those small items added up to a LOT of money!
Having these systems in place will absolutely WOW most buyers. They will feel that your business is a safer investment because they have accurate figures to base their offer on. And the faster you can present accurate, up-to-date figures, the faster the sale process will move and the faster you’ll get your money when you sell.
Systems in practise
We’d like to finish this eclass with a great example of how applying systems in a business can transform not only the value and profits, but the lifestyle of the owner.
Tom had no business experience at all, but he wanted to get out of the grind of his job which had long hours and lots of shift-work. He looked around and found a local fish and chip shop that was for sale.
Now fish and chip shops have long hours, and he knew he didn’t want to throw in his job to go into a business that he’d also have to slave away at every day, so he made himself a goal and a plan to get out of the business as quickly as possible.
So he bought the business and spent the first few weeks watching how everything ran, how the business attracted customers, how a sale was made, who was there and what they were doing. While he did that he also did a facelift on the property – turned it from a dingy looking takeaway into a pleasant and clean place to be. Just a coat of paint, new tables and chairs and new bright and colourful menu boards.
Then he started systemising. The sales process was streamlined, he added cross-sells and trained staff what to say, the hiring and management of staff was systemised so he didn’t have to deal with staff not showing up or calling in sick.
The business grew and become popular with the locals. He grew the staff to 12 easily because he had systems for hiring people.
He now makes over $400,000 a year PROFIT from that shop, and he only goes into work there a couple of days a week. He spends a good part of the year in Europe because he loves it over there, and his business runs just fine without him.
Think about it…
Isn’t it worth taking a couple of hours a week, or a couple of days out to get a business that works like that for you?
Action to take
If you are already in business, set aside a block of time in your calendar each week (start small, even 1 hr) where you work on your systems consistently. Or, book in a day where you will NOTHING BUT sit down and go through the systems in your business and start writing down ways to improve them.
In a future eclass we’ll look at the power of franchising, which allows you to sell your business over and over again. If you find a little business that has the potential to be well systemised and easily run by unskilled people, you may have found a little goldmine if you just know how to extract the gold!
If you have any questions, please feel free to contact us at [email protected]
See you next week when we look at how you can renovate your BRAND to build value and profit in your business.
All the best,
MATT AND LIZ