When Should I Conduct a Business Review

In our previous post, we explained why even small business owners and leaders should conduct periodical Business Reviews to identify their growth opportunities, manage risks and increase the business's value.  Now we will explore when Business Reviews should be undertaken.

Businesses are like living creatures - in a sense, they are born, they mature, they get sick, they get well, and they can also die.  So the Business Review for a “newborn” small business might be similar to the way that a paediatrician examines an infant, looking for congenital health issues and supporting appropriate development.  On the other hand, the Business Review for a mature business that is rapidly losing market share and money might require some “Accident and Emergency” triage, to figure out which injuries and diseases to treat first.  This means that:

 

Firstly, Business Reviews should be carried out early - before any chronic issues hindering sustainable growth or locking in unacceptable risks become established.

 

For example, an organisation selling specialised goods might not implement good sales and procurement practices while it is focusing on initial product design and launch marketing, and lock itself into working with expensive resellers and / or manufacturers that will eventually bleed them dry.  The FMCG sector has seen many good products and businesses come and go for those simple reasons.

 

A small business owner or leader can use an early Business Review to fix a simple mistake before it burns too much cash and before it becomes easier to “wedded” to the wrong decisions.  As the health and wellness saying goes, “prevention is usually better than a cure”.

 

Business Reviews should also be carried out when an established business is in need of “turnaround”.  Now that might seem logical, but most troubled businesses only deal with their problems in a superficial way, through a misplaced sense of urgency, and don’t step back and think strategically.  Using our “business health” analogy again, if a sick small business owner or leader treats the visible symptoms of a business challenge without diagnosing the causes, the disease will inevitably recur, when there will be much less time and fewer reserves left to treat the real problems.

"Businesses are like living creatures - in a sense, they are born, they mature, they get sick, they get well, and they can also die."

Example Strategic Business Review

Here’s an example of how a strategic Business Review works better than a tactical, panicked response:

 

  • A tour operator tried to retain market share in a declining market through discounting, forcing cuts to service quality and innovation that inevitably led to customers moving to other tourism destinations, accelerating losses.

 

  • Given that the underlying issues were oversupply and slim margins, our strategy advice was that our client should acquire an undercapitalised competitor for a bargain, using the increased scale to spread costs while also reducing pricing pressures.

 

  • Unfortunately our client’s owners were divided and paralysed.  They kept on discounting until they risked breaching licensing requirements, and actually gave their 30 year old, award winning business away to their major local competitor, to honour their commitments to clients and employees.

 

  • The remaining major player was thus able to pick up clients and great staff, maintain its prices and increase its profits.  Ironically, that business was a previous client of ours.

 

SMEs that are “in their prime” should schedule Business Reviews say every two to three years, focusing on sustainable growth through honing what they already do well and spotting the early signs of emerging risks - in the same way as adults should schedule regular checkups with their GP.

 

During this period there may be almost invisible changes taking place that might significantly shift an organisation’s growth opportunities and risk profile, for example when an SME passes a threshold that introduces new regulatory requirements, or when a new business partner brings welcome capital but also sparks conflict.

 

We will next explain “How” to plan a Business Review that will be right for its time.

Matt McDonald

About Matt McDonald

Matt has been a Chartered Accountant since 1991, a Chartered Secretary since 2004, holds a Bachelor Degree in Commerce and a Masters Degree in Legal Studies and is also a former Certified Internal Auditor.

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