By Joe Ciccarello, CPA, MST, Managing Partner, Gray, Gray & Gray, LLP
Chances are you are not managing your oil or propane company the same way you were running things 10 or 20 years ago. But did you arrive at the current state as a result of deliberate changes, or by happenstance? Did you purposely evolve the business to adapt to the market? Or did you let things happen naturally and adjust your management style to fit?
Maybe it is time to take another look. Management consultant Ian Smith recommends a process called zero-based budgeting, which forces you to look at your business “through the eyes of a start-up.”
If you were starting your business today, how would you budget your money? Which costs are essential for profitable operations, and which are the result of “cost creep” that has infiltrated the company over time? Zero-based budgeting is an effective way to expose inefficiencies, identify cost savings, and to honestly assess where your focus should be right now. If an expense is not contributing to profitability, it should be cut.
The same kind of zero-based evaluation should be applied to the organizational structure of your business. Just as the budget must be streamlined to its essentials, you need to make a hard-nosed assessment of employees from top management on down. Their skills and talents must be in line with the company’s needs.
Smith calls it the loyal servant dilemma. “You have great people, but the skills needed in for example, digital marketing, have dramatically changed. You have 25, 35, 105 members of staff, all with different roles and different seniority, that have been recruited over a number of years. Each hire made sense at the time. However, markets, customer needs, and competitive positioning can change overnight.”
Smith is not saying you must clean house. However, your team must match the requirements of your business. This may require reassigning people, training them in a new and necessary skill, and reorganizing to make sure the structure supports the business goals you have established. It may require making new hires to fill gaps.
In some cases you may need to let people go. Perhaps they are reluctant to change, or simply incapable of adopting new methods. Before replacing them look at which functions could be outsourced, such as accounting, marketing, or IT. You may discover that outsourcing a role is more economical and efficient that filling it with a full-time person.
The commitment required to take a zero-based approach is significant. You’ll be turning over the apple cart and shaking up the comfortable status quo. But you can’t expect your business to grow in profitability if you continue to do things the same way. The market will quickly leave you behind.