As a business owner or manager, it is important for you to step back and regularly do a competitive business health assessment even though you are pulled in many directions handling the day-to-day activities of running the business. Even a successful business can fall victim to changing market conditions or major disruptions in the industry if they are not paying attention. Evaluating the following key factors will help you assess your business’ competitive health:
Industry environment. Determine whether there are any threats facing your industry that could affect your business’s ability to operate. This could be anything from extreme weather to a product or service that customers might use less should the economy sour or buying trends significantly change.
Tangible and intangible resources. Competitiveness can hinge on the resources to which a business has access and how it deploys them to earn a profit. What types of tangible — and intangible — resources does your business have at its disposal? Are you in danger of being cut off or limited from any of them?
For example, do you own state-of-the-art technology that allows you to produce superior products or offer premium services more quickly and cheaply than competitors? Assess how suddenly this technology could become outdated — or whether it already has.
Strength of leadership team. As the owner of the business, you may naturally and rightly assume that its management is in good shape. But be open to an objective examination of its strengths and weaknesses.
For instance, maybe you’ve had some contentious interactions with employees as of late. Ask your managers whether underlying tensions exist and, if so, how you might improve morale going forward. There’s probably no greater danger to competitiveness than a disgruntled workforce.
Relationships with suppliers, customers and regulators. For most businesses to function competitively, they must rely on suppliers and nurture strong relationships with customers. In addition, if your company is subject to regulatory oversight, it has to cooperate with local, state and federal officials.
Discuss with your management team the steps the business is currently taking to measure and manage the state of its relationships with each of these groups. Have you been paying suppliers on time? Are you getting positive customer feedback (directly or online)? Are you in compliance with applicable laws and regulations — and are there any new ones to worry about?
Financial metrics. There are some key metrics that should be monitored on a regular basis to help you gauge your performance against industry benchmarks.
Pre-tax net profit margin can warn you if expenses start to creep up or your pricing strategy needs to shift. Your current ratio, accounts receivable days and accounts payable days will give you a picture of your ability to meet the cash obligations of the business. Your accountant should be able to provide these and other important metrics to watch.
As a business owner there is a lot of competition for your attention and it’s easy to miss important signs that the business climate is changing. Taking time to assess these factors on a regular basis can help you recognize where adjustments are needed before there are more disastrous consequences down the road. Contact us for more information.