Flowcharting a process
One of the most effective tools for designing the systems that run your business is flowcharting. It is used regularly by successful business of all sizes and natures to improve their internal operations: to make them more consistent, more reliable, more effective and most importantly, more profitable.
What is a process?
A process is any readily identifiable series of steps, or tasks that are required to achieve an outcome. Typical examples might include:
- From a sales opportunity appearing on the business ‘radar screen’ to receiving an order (ie – the sales process)
- From receiving an order to receiving full payment into the business’s bank account
- From a sales opportunity appearing on the business ‘radar screen’ to receiving full payment into the business’s bank account (this is the combination of the previous two)
- From deciding to recruit a new team member to having the new recruit complete the induction training
- From raising a purchase order to receiving the ordered material into the store
Any business operation will be made up of a number of such processes. The ultimate success of the business will depend on how well each of its processes is defined and documented – and how well the processes are implemented and followed by the team members.
What is a flowchart?
It might sound technical and complex, but a flowchart is essentially just a pictorial representation of a business process. There is a standard set of elements, each of which having a set function in the flowchart. The core elements are:
Forms the connection between different processes, or between pages or sections of a single process
A self-contained group of tasks or activities
With one entry point and up to three exit points, the decision point provides for branching based on the answer to the question in the point
Connects process boxes and decision points to establish a direction of flow
There are many other flowcharting shapes that you can use (any sophisticated word processor or drawing package will include a large suite of them) but these are the core elements. With just these, you will be able to construct simple but effective flowcharts for your business.
To illustrate the use of these elements, here is a basic flowchart mapping a very simplified sales process.
It is advisable to get the team members who are actually involved with a given process involved with the construction of the flowchart. When it’s drawn and displayed up on the wall, someone will inevitably ask “Why do we do it that way?” and the answer can often be something like “Well, I don’t know – we’ve always done it that way…”
The ’As Is’ diagram
When we’re flowcharting any process, it’s best to start with the process that is currently in place. Draw it out exactly as it works now. If, during that procedure, you see there are ways that the process can be improved (streamlined, made more effective, lower cost, etc) then, certainly, keep a note of those changes for later.
When the flowchart is complete, stick the paper up on the wall. Have the team members who are involved with the process look at it. Keep challenging that status quo position by asking “What goes wrong with the current process? When – and why – do the wheels fall off?” You need to make sure it’s easy for the team members to report failures in the process. Don’t let potential embarrassment or fear get in the way of getting the real story from the team.
Keep a list of all the process failures or problems they report.
The ‘Should Be’ diagram
Once we have a clearly documented ‘As Is’ flowchart representing the current process, together with a list of the failures or problems that have occurred with that process, we can then start to consider how the process should look. “How can we change the current process to address all the problems we know exist with it?” It is often amazing how often the simplest changes to the ‘As Is’ can be applied to fix those problems or, better still, prevent them from happening in the first place.
As we make the changes to the ‘As Is’ flowchart to form the ‘Should Be’ version, we need to check against the reported problems list, just to make sure we’ve nailed them all.
Again, stick the ‘Should Be’ flowchart up on a wall for a few days to allow everyone to review it, comment on it and suggest improvements.
Improved processes only bring benefit to the business if and when they are implemented.
As soon as everyone agrees that the process documented by way of the ‘Should Be’ flowchart will work, start taking the required steps to put it into place.
Build the Operations Manual
The flowcharts form a great basis for your Business Operations Manual, which tells all team members – current and newly recruited – how we do things to get the best results. This manual can be paper-based or perhaps it might reside on the business server system for easy access by anyone who needs to see it.
Breakeven Point for Your Business
Every business owner needs to understand the ‘financial dynamics’ of his or her business. That starts to sound pretty complex until you realise that a few key numbers are generally all that is needed to keep the business owner well-informed about the health of their business.
Firstly, it’s important to know when your business starts to make money – ie profits – in any given period.
Any business will have a combination of Fixed and Variable Costs. It is vitally important for the Business Owner to understand at what point the profits we make on sales exceed the total of the Costs. This point is known as the Breakeven Point.
What is the difference between ‘Fixed’ and ‘Variable’ Costs?
Simply put, ‘Fixed Costs’ represent those costs that apply just by way of ‘opening the doors’ of the business, regardless of whether you sell anything or not. Included in this list will typically be items such as rent, rates, electricity, accountant’s fees, employee salaries, vehicle costs and so on. These costs are fixed, in that they do not change with the amount of business you turn over.
‘Variable Costs’, as the name implies, do change with the business you turn over. Basically, they are the costs you incur purchasing items (or labour, in the case of a service business) you will sell. They are sometimes called ‘COGS’ (Cost of Goods Sold) or ‘COPS’ (Cost of Providing Service) depending on the nature of the business.
Only with a clear understanding of how your business operates can you accurately allocate your costs into the ‘Fixed’ or ‘Variable’ categories. And it’s only once that accurate allocation is made, can you really understand the ‘financial dynamics’ of the business that we mentioned at the top of this article.
So, we have determined that the ‘Breakeven Point’ occurs when the profits you make from sales cover the total of the Fixed and Variable Costs. We can understand this more easily by taking a look at the figure below:
In the figure the vertical axis represents $s while the horizontal axis represents the number of items sold.
The Fixed Costs are represented by the green, horizontal line. As we have seen, they represent the costs of just being in business – opening the doors – (rent, electricity etc), and do not vary with the numbers of units sold.
The Variable Costs are represented by the ochre line, which starts at the zero point and increases with the number of units sold. This line can be termed ‘COGS’ (Cost of Goods Sold) or ‘COPS’ (Cost of Providing Service).
So the Total Costs of running the business is shown by simply adding the Fixed (green) and Variable (ochre) Cost lines. In the figure it is the red line.
All Business Owners hate costs. If the total costs are the ‘bad news’ for a business, then the sales are the ‘good news’. The ‘Sales’ are shown by the blue line in the figure. It starts at the zero point on the figure and grows with every unit sold.
So, when the Sales (blue) line crosses the Total Costs (red) line the business is in profit. That is good news! When we are trading above Breakeven, the profit generated is shown on the figure as the difference between the sales and fixed costs lines.
When we are trading below Breakeven, the loss is shown, once again, by the difference between the total costs and sales lines.
It is an interesting exercise to calculate the Breakeven Point for a given trading period – say, a week. If we can calculate the fixed costs involved in running the business for that week, as well as the sales (and COGS) for the same week, we can easily see at what time and day during the week the business moved into profit. It might occur at 2:00pm on Wednesday, or 10:00am on Thursday. It’s a great feeling for the business owner to quietly note that time and day of the week and look forward to the generation of profit for the rest of the week.
The Breakeven Point can be moved around, once the mechanisms at work are understood.
What happens when the business owner increases the price of the items being sold?
Well, in that event, the figure above will show that by the ‘Sales’ line having a steeper slope – ie the $ per unit increases. In that situation we can see that the Breakeven Point actually moves down the sales line, ie to the left, and we are in profit with fewer items sold.
What happens if the Variable Costs increase – ie the price of the purchased stock is increased? Now, the ‘Variable Costs’ line will adopt a steeper slope ($ per unit, once again), which will raise the level of the Total Costs (red) line. In this instance, the Breakeven point moves to the right, so we have to sell more items to be in profit. Unless of course, if we increase the sales price, which will tend to cancel out that effect.
Breakeven Point is a key KPI for any business. All business owners need to understand the concept any know the Breakeven Point for their business.
So, how can we calculate the Breakeven Point for your business? Do we need a degree in accounting to be able to work it out?
You can calculate it using the simple formula:
Breakeven = Fixed Expenses / Gross Margin %
Both the Fixed Expenses and Gross Margin % figures are taken straight from the Profit and Loss statement.
As an example, say a business reports its Fixed Expenses for a year to be $500,000, and the Gross Margin % is running at 30%.
Then the annual Breakeven Point for this business = $500K / .30 which calculates to $1.67M.
If the annual Breakeven is $1.67M, the weekly Breakeven is $32K (assuming a 52 week year). So the question for the owner of that business is: What day of the week do you achieve sales of $32K? Wednesday? Thursday? Friday?
Of course there are many other KPIs that might be important to you as a business owner.
If you would like to discuss any aspect of the Breakeven Point for your business, or, in fact any other aspect of the financial management of your business, please call us at Business Clarity.
Business Clarity can help you take your business to the next level.
If there’s one aspect that separates a ‘great’ business from an also-ran, it’s the quality of the people who work in it.
It is only with great people - well-trained, totally motivated and fully engaged - that your business will really flourish. The people – your team – provide the leverage the owner needs to do more (make more, sell more, ship more, etc) in the business – and get more out of it. And as aleay, it’s the responsibility of the Business Owner to ensure that the business always has the best people.
Your people are your business’s key asset.
So, how do we go about building that great team?
Key elements in forming a great team include:
- A great recruitment process to find an enrol the right people
- The quality of the leadership to engage and motivate the right people
- The quality of the training and guidance provided to the people
- The quality of the environment (physical and emotional) in which the people work
The first step in getting a great team together is finding the people and recruiting them. Business Clarity has a great recruitment process Business Clarity Recruit that will help any business owner with this difficult task – ask a Business Clarity coach to learn more about it.
And the very first step in that recruitment process is designing the role to be filled by the new recruit. As a quick note on what to avoid here, we can say that most role descriptions that we see (prior to our working with a client) have two major problems:
- - They are usually designed around a particular person – often the person currently filling that role. Rather than having a role called ‘Sales Person’ or ‘Warehouse Manager’ etc, they will be called ‘Fred’ or ‘John’. (The only way to recruitment a new person into that role is by hiring someone called John, which, experience tells us, is far from guaranteed to produce the best result…)
- - While most role descriptions attempt to have a list of the activities to be performed, very few will define the ‘outputs’ to be generated by those activities. Business owners will often avoid defining these outputs because, frankly, it’s tough to do. But, are we recruiting a new team member to just perform activities, or do we want them to actually produce something – ie generate an output? The latter, obviously.
The definition of the role is not easy, as we know. It requires careful thought and consideration. Tough as it might be, it is critical to the success of the recruiting process.
The Business Clarity Role-Plan is a great tool that can help you to define the roles you need for your business. We have designed it so the role definition task is simpler, faster, but – most importantly – more effective for you and your business.
Ask a Business Clarity coach about Business Clarity Role-Plan. It is just another way that we bring clarity into our clients’ businesses – and set them up to succeed.
Are you running the Australian office of a global multinational corporation?
We know it can be a tough assignment. In working with clients in this position we have seen problems arise from situations such as:
- - Head office often lacks knowledge or understanding of the Australian business culture
- - Head office often lacks knowledge or understanding of the Australian business environment
- - Poor communications often exists between Head Office and the Australian office – this is obviously problematic if the home language is Japanese or French or German (for example) but it can still represent a challenge even when the Head Office is located in the United States or United Kingdom.
- - The Australian office might represent a small percentage of global revenues, so Head Office can appear to lose sight of the local operation – until things go wrong…
- - The Head Office corporate strategy often totally ignores – or misreads – the local market and the influences on it. Strategies and targets can be set without any understanding of the business conditions.
- - The Head Office will often assume that all customers are the same, worldwide and find it difficult to grasp that Australian customers might have different requirements, priorities or perceptions.
- - The politics of the Head office are unfathomable, and just serve to stymie every strategy that the local office attempts to roll out.
So how can Business Clarity Executive Coaching help?
The Business Clarity principals have extensive experience working at senior levels – successfully – with and within offshore head office businesses. We’ve all cut our professional teeth in that environment, over many decades.
We know how important it is to establish real mutual respect between the offices – and how to do it.
We know how to work with Head Offices to help them understand the local business culture and the influences prevailing on the local business conditions.
We have helped Head Office groups understand the demands of the local market, and (perhaps) the need to tailor global products and services for Australian customers.
We can help you navigate the politics of the Head Office. We have an excellent record in helping the local office make sense of it all and learn to achieve its objectives within – or in spite of – the corporate political environment.
We have even led (notably successful!) campaigns to market Australian-originated products back into the global corporations, which is quite some achievement given the normally somewhat insular nature of most corporate head office operations. A real-world David and Goliath success story…
How have your dealings with your Head Office gone in the past? Can Business Clarity Executive Coaching help you build on that success?
Call us on (02) 9683-6311 to discuss your situation with a Business Clarity Executive Coach. We can help you take your business to the next level.
Do you know what benefits the customer will get through dealing with your company? If you can't think of anything specific, try this.
1. Jot down on the left hand side of a piece of paper in bullet points the great features of your products/services. For example, a bathroom company might have...
- Custom made vanities
- A complete package
- High quality work
2. Opposite, translate each feature into benefits. Think emotion: how will the customer feel. For example, they might say...
- "Unique vanities - we custom design to enhance your bathroom layout and satisfy your personal taste."
- "Our complete package saves you time, your sanity and your money. Just tell us what you want and leave all the running around to us."
- "We guarantee you will be thrilled with your new bathroom. If not, we keep working until you are. For free!"
3. Keep the benefits of your business upfront in your mind as you talk to people. And stack your advertising pieces full of benefits.
Even if your competition has similar products/services, but neglects to spell out the benefits, you're ahead.
If YOU feel passionate about your business, others will too!
Remember, in the example above, they are not selling tiles, taps and toilets. They are selling a dream.