Many years ago we used to illustrate the importance of a ‘balanced’ and well managed business by referring to a three legged stool.

One leg was Sales, another Production and the last Finance.  The concept was simple, in that for the business to be stable, all three legs need to be the same size.  In a business where there was too heavy a focus on sales and perhaps a poor grip on finance, the stool, or business would wobble. In one where the owners were technical people focussed on building quality products, there may not be the calibre of sales people to win the business at the right margins.  Again, stability is at risk.

Another, more complex tool we use is the ‘rocket diagram’

 

We work with clients to assess how well they are doing in each of these key business areas.  A simple self-assessed score out of 10.  When we do this we often find very similar situations …

  • They are naturally biased towards key areas, and weak in others.  Sales people score high in sales and marketing and low in finance for example.  There may be two or three areas with a score of say 8 or 9, and a few with scores of 3 or 4, with the rest in the middle range.
  • When there are multiple people involved, we ask “who drives that area”.  This is  met with blank faces (no one does!) or three hands go up because they all think they are driving it.
  • More time effort and resources are being spent on areas where the scores are already high (because they like doing this stuff and are good at it), and little on the areas where scores are lowest (They have low confidence and skills in these areas).

In our experience, the clarity over ‘who’ is driving ‘what’ is really important, but simply diverting some time and effort away from areas you are already good enough at, into areas that require attention, will make a huge difference to overall success.  A business that scores ‘6’ in each area will always outperform one with a wide range of scores, even if some of them are 9’s or 10’s.

So how is this idea of balance important now?

We talk regularly to clients of all shapes and sizes and in a range of different sectors.  There are some common themes which will make it hard for many of them to keep all areas of their business balanced in the next few years.  Let’s go back to the simple three legged stool idea…

Sales

The Bank of England is forecasting over 7% growth for the UK in the next year, and over 5% in the year after.  These are the highest figures since the end of the Second World War, and way above a normal good year of say 2%.  This is a combination of factors, but principally a huge pent up demand from over a year of lockdown.  Consumers in almost every market are keen to spend money they have been unable to spend for a year. Hungry customers with cash to spend.

So whilst no one should be complacent, demand should be strong for most businesses.  

Production

Many businesses are telling us that they are having difficulties getting raw materials they need.  This is a combination of reduced production during lockdown, and supply chain issues from Europe’s churlish response to Brexit.  There is a worldwide shortage of microchips which has already seen the latest iPhone launch delayed.  Construction clients are finding limits on buying plasterboard or other core materials.  So reduced production over the last year and a surge of demand as economies bounce back, may see many businesses struggle to get raw materials.

But you also need people to make and move stuff.  The lockdown has seen unemployment rise, buy predominantly in unskilled leisure, tourism and hospitality.  Most of our clients are seeking skilled or experienced people and are finding a ‘war for talent’ right now.  Is this likely to change?  It is hard to see how we can grow the skilled labour force quickly without an influx of workers from abroad, and pandemic restrictions on free movement of people will make that very difficult.

Finance

In the last year or so, the Government has thrown money at businesses in a variety of ways.  This included easy access to relatively cheap loans via the CBIL and BBL loan schemes, and the new Recovery Loan Scheme that replaced them.  Many lenders have huge loan books with these government backed debts, and are already taking aggressive action where it now transpires that the borrowers may have been a little ‘creative’ with their loan applications.  So we are likely to see a significant tightening of lending in the near future as banks return to ‘normal’ lending practices and seek to get back the money they lent during the pandemic.  Borrowing will get harder and slower.

So of the three legs of the stool, we are expecting sales to be fine, but production and finance to be much more challenging.

Is your business balanced?  Would you like help to assess where your attention should be focussed?  Are you planning ahead for supply chain issues, recruitment requirements and funding needs?

If you want help, give us a call on 01752 220979

THINK PLAN ACT