General Business and Finance Blog

Running small business may not be a cake walk for all. It requires a different outlook towards life, a different way of goal setting, if you really want to succeed in it. People who are happy to work for others and be content to pocket their monthly salaries religiously are of one class and those who can’t fit themselves to this comfort zone are of a different class. The second class of people seems to have better chances of becoming entrepreneurs.

If you feel you want to have your own small business and love to manage it all yourself, ask yourself some of these basic questions to ascertain whether you have the entrepreneurship blood running in you to succeed in your wish:

(1) Do you have a dream to realize? Have you a pet idea that you believe will work? Are you willing to pump in every breath in bringing life to your dream? Are you least concerned about position, status, respectability etc in the early stages of working to realize your dreams? Is being the chief of your own little county is more covetable to you than being one of the ministers of a huge empire?

(2) Are you ready and willing to take huge risks if your inner voice keeps saying “you can do it”?

(3) Are you flexible enough to be prepared to live with unsteady and unpredictable income? Do you have wherewithal to guard yourself against financial ups and downs? Is your spouse or parents willing to financially support you till you establish yourself and stand on your own legs? Do you have good savings? Or, are you really capable of jumping into the river and then try to swim against all odds?

(4) Do you take pride in calling your own shots? Do you grasp the fact that you are ultimately answerable to your customers and other stakeholders? Do you understand that, unlike a corporate set up where you might have worked earlier, there will not be a boss above you to take risks nor subordinates below you to blame for the mistakes you committed?

If your answer is yes to most of the above queries, then you have the right entrepreneurial spirit to start your own small business.

Next comes grasping some of the essentials of running a small business:

(1) Do Not Dream Of Making Millions Straight Away

Small business will mostly be with less investment, be less risky and with less “plinth area” and consequently with less scope for making any big money. Not every body can start a venture in the unused Garage and become the owner of a billion dollar enterprise like Steve Jobs. Your goals should be correlated to your line of activity, your investment base and the potential customer base.

(2) Do Not Plan To Have A Large Capital Base

It might be wonderful if you could have the latest computers and gadgets, the best possible machinery and equipment to run your business and a fleet of vehicles to do your deliveries all done from your owned factory building. But until you earn really enough to invest on these on your own, you will be better off with cheaper and less glamorous alternatives, by sub-contracting support services and hire-purchasing the shed, equipment and machinery.

 

(3) Be Minimal On Hired Man-Power

Until you make reasonable money and afford to have additional hands, be prepared to do mantle many roles the production manager, the marketing manager and the accountant all yourself. If you are the bossy type who thinks all managerial work is to be done only by others and you will only give policy guidelines, then better watch out. A small business is not like a corporate conglomerate.

(6) Be Prepared For A Low-Profile, Less Glamorous Life Initially

Small business is mostly a low profile, adventure-less, glamor-less way of life till you establish well. Until you are stabilized, you can not afford costly parties at 5-star beach resorts to your customers, huge advertisements in Newspapers etc. If you are the type who worked in a corporate business house where you had seen extravaganza and you want to imitate them in your small business, you will soon run out of money.

(7) Have Some Rudimentary Knowledge About Accounting And Taxes

In a small business, you must have some basic capacity to plan and manage cash flow, credits, debits and bank transactions. But one area where it is better to pay money and use specialist services/ consultancy is in the area of Taxes. It may not be worth if you waste your time and effort on this slippery area. At least make use of the services of Tax consultants to get the necessary preliminary registrations done at the appropriate Government Departments, get the necessary forms filled and submitted, and get clear-cut guidelines on the types of taxes you have to pay, the exemptions you are eligible for specific to the type of business you are doing etc.

    A lot of hard work must precede tasting success in small business. People without entrepreneurial spirit, particularly those who are used to hi-fi corporate life, may find it extremely difficult to run a small business successfully. No success is possible without the right spirit, perseverance and focused effort.

Introduction

            Focused (or Market Niche) Strategies differ from other generic market strategies in that it concentrates most if not all of its attention on a narrow piece of the total market.  The niche can be defined by geographic uniqueness, by specialized requirements in using the product, or by special product attributes that appeal only to niche members.  The key to this strategy is to remain focused on your target niche and not allow yourself to attempt appealing to everyone.  A company can lower its costs tremendously by limiting its consumer base to a very specific target market.  This strategy is extremely useful to small or medium sized companies that lack the capital to take on multi-national corporations.  The costs of starting a business with a clearly defined and specific target market are far less than those one would have when launching a global product or service.

The Idea in a Nutshell

            To say that one person came up with the market niche strategy would be a stretch.  The truth is this strategy has been utilized since the beginning of civilization, whether it was known by those utilizing it or not.  In ancient times, the largest segment of the population was poor laborers.  This is not the market one sets his sites on when attempting to sell luxurious silk gowns, rare jewels, or the latest invention, trinket, or toy.  The small well-defined segment of nobles was the target niche of ancient times.  One might think that a lot has changed since then, but the truth of the matter is companies such as Godiva Chocolates, Chanel, Gucci, Rolls-Royce, and Haagen-Dazs successfully utilize differentiation-based focused strategies targeted toward particular segments wanting top-of-the-line products and services who are willing to spend more to get the best.  The target market does not have to be wealthy; this is just one example. 

A focused or niche market strategy is one that provides products or services that uniquely appeal to customers in a narrow segment of the market, rather than attempting to appeal to that particular market as a whole.  Community Coffee, of Louisiana, holds a mere 1.1% share of the U.S. coffee market, but it has reported sales in excess of 0 million by appealing to a narrow well-defined market.  In addition, Community Coffee holds a 50% share of the coffee market in the Gulf-Coast region where it is distributed.  The internet is quite possibly the perfect medium for launching a market niche strategy.  Businesses such as Google, E-Bay, and Match.com went from being ambiguous companies to household names in a matter of years. 

The Top Ten Things You Need to Know About Focused (or Market Niche) Strategies

1.            When employing a focused market strategy, keep your consumer-base down to a well-defined and specific segment of the market, avoiding the temptation of trying to appeal to broad interests.

2.            When utilizing a focused market strategy, beware of competitors trying to match your firm’s capabilities in serving the target market.  They will attempt to find effective ways of appealing to your buyers with imitation products or services.

3.            A focused market strategy is best employed when the specific target consumer-base is large enough to be profitable and offers good growth potential.

4.            Your firm stands a greater chance at being profitable if you offer different products and services to a specific group or segment of consumers that have unmet preferences.  These customers will be loyal to your business for catering to their unique needs, and they will think of your company first when others ask them where they got such a specific product or service. 

5.            Ferrari markets its 1,500 automobiles sold in North America every year to a clientele of only 20,000 highly lucrative car admirers.  Only those in the highest tier of this exclusive group were contacted by Ferrari for a chance to put their names on the waiting list for one of the 20 .1 million FXX models.

6.            A quick a decisive strategy should be employed when targeting a narrow segment of any market before consumer preferences tend to drift.

7.            A hyper-focused strategy is best maintained in those industries in which the leaders do not see having a presence in the niche is critical for their own success.  This reduces the risk of smaller businesses having to battle it out against some of the industry’s strongest competitors for a share of the market.

8.            Over-looked or undervalued market segments are prime territories for employing a laser-focused strategy.  Because these consumers are undervalued by other competitors in the industry, the chances of your consumer-base remaining loyal for the long-term are greater.

9.            Use caution when entering markets where segments may become so alluring it is soon flooded with competitors, augmenting conflict and disintegrating segment profits.

10.            A laser-focused strategy can be actualized if there are social and cultural differences within one community that may call for changes to be implemented in a product or service. This invariably produces a niche market.

The Video Lounge

http://www.youtube.com/watch?v=PHhfDkLrOpA

Guy Kawasaki discusses the key success factors that differentiate a strong niche marketing strategy from a poor or run-of-the-mill one.  The two main areas he stresses to be strong in are the ability to provide a unique product or service to the customer and for that product or service to provide value to the customer.

My Take

I think focused or (market niche) strategies are extremely valuable today.  This would be the ideal strategy to implement for any fresh college graduates looking to start an entrepreneurship.  In addition, the internet offers an abundance of channels to get a small firm up-and-running without much startup capital.  This lack of startup capital is another reason why utilizing this strategy is favorable when entering a market or industry with large corporations.  Some of the main points I got out of this were to keep your target market down to a specific and narrow market segment,  market segments that are overlooked or undervalued are the prime meat for employing a market niche strategy, and that this strategy is best maintained in those industries in which the leaders do not see having a presence in the niche is critical for their own success.

References

Jaquier, B. (2003). Focus and niche strategies. Retrieved from http://www.ecofine.com/strategy/Focus and Niche stategies.htm

Marketing niche strategy. (n.d.). Retrieved from http://www.smallbusiness-marketing-plans.com/marketing-niche-strategy.html

Mendoza, M. (n.d.). Focus on your niche. Retrieved from http://www.powerhomebiz.com/vol62/niche.htm

Niche strategy advantages. (n.d.). Retrieved from http://www.marketingtitan.com/niche_strategy_advantages

Thompson, A, Strickland, A, & Gamble, J. (2010). Crafting and executing strategy: the quest for competitive advantage. New York, NY: McGraw-Hill/Irwin, 156-160.

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Contact Info: To contact the author of “Top Ten Management on Focused (or Market Niche) Strategies,” please email Gabriel B. Ordoyne at w0449274@selu.edu.

Biography

David C. Wyld (dwyld.kwu@gmail.com) is the Robert Maurin Professor of Management at Southeastern Louisiana University in Hammond, Louisiana. He is a management consultant, researcher/writer, and executive educator. His blog, Wyld About Business, can be viewed at http://wyld-business.blogspot.com/. He also serves as the Director of the Reverse Auction Research Center (http://reverseauctionresearch.blogspot.com/), a hub of research and news in the expanding world of competitive bidding. Dr. Wyld also maintains compilations of works he has helped his students to turn into editorially-reviewed publications at the following sites:

Management Concepts (http://toptenmanagement.blogspot.com/)

Book Reviews (http://wyld-about-books.blogspot.com/) and

Travel and International Foods (http://wyld-about-food.blogspot.com/).                

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Imagine opening 20 new business locations without having to foot the bill for real estate, equipment and development costs or taking on any of the risk. Even more, imagine finding managers to run all those locations, who are just as committed to growing the company as you, and you don’t have to pay them a dime. Finally, imagine that these managers will hire, fire and manage all employees as well as foot the bill for all operating costs and expenses. Sound far-fetched?

Not if you’re planning to enter the franchise industry, one of the fastest ways to grow a small business without breaking the bank. For many companies, franchising a business (or licensing) is a sensible way to achieve rapid, profitable growth without giving up any control or ownership. Going from a single location to a dozen in a couple years, or a hundred in ten years is possible and well-documented because franchise owner-investors put up all investment capital, shoulder all risk and assume all day-to-day operating responsibilities.

It’s expansion, using OPM – Other People’s Money. Also, the franchise company gets paid handsomely for teaching others the secrets of how to operate its business. First, there’s the up-front “membership” or franchise fee of ,000 to ,000 paid for using the brand name and operating methods. In addition, there are continuing royalties of 5% to 10% of gross sales for ongoing advice and consultation. In essence, a franchise development program allows a company to get out of the trenches and become a highly-paid general overseeing its soldiers. Long-term options are also attractive. Build an empire and relax, or let the franchise company be acquired by an increasing number of large companies that look for small, but growing franchise companies. According to the International Franchise Association, 900 new companies have franchised in the last three years.

ENTERING A NEW BUSINESS
A company planning to franchise must realize it is entering a new business, offering an entirely different service (training & support) to entirely new customers (business owner-operators). This new business requires different skills, abilities and expertise. In the new business of franchising, it is critical to develop effective evaluation, documentation, mentoring, training and consulting skills. Since these new skills are rarely present within existing personnel, an outside franchise expert is needed to train existing personnel and plan the transition. The first step involves determining whether or not a business can franchise, and if so, what needs to be developed. Next, strategic franchise planning is necessary to create a “blueprint” for successful expansion efforts. Experience shows that, just like a building, the foundation developed at the beginning will create lasting consequences affecting the relative success (or failure) of the entire venture. Legal (franchise disclosure document, franchise agreements) and operational documents (franchise operations manual, franchise training program) are prepared and drafted and finally a franchise registration process is required in some 14 states, depending on which state(s) the company sells franchises. These phases are discussed below.

THE FRANCHISE FEASIBILITY PHASE
An indispensable step before any franchise development program gets underway is an analysis of the concept and business model. Has the concept been sufficiently proven in the marketplace? How profitable are existing prototypes or company-owned outlets? Franchising will not solve existing problems, it will only intensify them – and usually at a serious cost to franchise investors. Franchising should not be viewed as a method to raise capital, expand a business that has existing problems, or a way to get rich quickly. There must be sufficient profitability in the business model so that royalty and other payments can be made and leave the franchise investor with a sufficient profit. With a franchise feasibility analysis, a determination can be made about:

(a) whether franchising or licensing expansion ideas should be pursued, postponed or abandoned; and
(b) assuming a positive result in (a), what needs to be fine-tuned or developed from scratch for the franchise program.

Besides determining if and when the business can franchise, the analysis should also include providing guidance and direction so as much of the groundwork as possible can be done by existing personnel. This has proven to be a very effective approach and significantly reduces franchise development costs. If the feasibility analysis is positive, the other phases discussed below follow. My twenty-eight years of experience in the franchise industry lets me share a valuable insight about franchise feasibility studies. Too many companies leap into franchising without doing a feasibility study, or if one is done it is performed by a franchise consultant or group that tells everyone good news – they’re all “franchise-able.” The vast majority of franchise feasibility studies I’ve done either identify areas that need attention before franchising makes any sense or tell the client to forget about it and pursue other options.

THE FRANCHISE STRATEGIC PLANNING PHASE
A successful franchise development program begins with a solid plan – a foundation for franchising. The long-term goal is to establish balanced, integrated, successful business relationships with qualified individuals who support the company’s goals and image. Creating an enduring relationship requires a comprehensive strategy that addresses all aspects of the franchise endeavor.

The starting point is a detailed analysis that covers:

(1) identifying profile characteristics of who will be the best franchise owners for the particular business;

(2) competitive positioning to make the franchise stand out from the other 3,000+ franchise companies;

(3) geographic scope – where and when will franchises be sold;

(4) analysis of the company’s organizational strengths and weaknesses relative to franchising;

(5) identifying the appropriate franchise organizational structure as well as staffing requirements and responsibilities; and

(6) structuring the franchise relationship for a balanced, win-win scenario.

What should emerge from this detailed analysis is a specific strategic plan and framework for guiding virtually all franchise efforts. Despite the long-term importance of the franchise planning step, too many emerging franchise companies enter franchising with no plan or planning – other than “let’s try and sell a lot of franchises.” They rush through (or neglect entirely) the strategic planning process, thereby creating future franchise litigation land mines that are ticking franchise lawsuits waiting to happen.

Often, this is because they only utilize the services of a franchise consulting firm or franchise attorney, where little or no attention is paid to critical strategic planning, operational and organizational issues. Normally, these firms draft “boilerplate” franchise disclosure documents, franchise agreements and franchise operations manuals based on a questionnaire completed by their client, who is presumed to have made all strategic decisions. The franchise documents are presented, along with an invoice and a handshake – hardly the ingredients for success in the new business of franchising.

THE FRANCHISE DOCUMENTATION PHASE
If the company has made doing a good job at the planning stage the number one priority, franchise documentation goals will be apparent. Proprietary and intellectual property assets (like operating techniques, customer information, recipes, formulas and methods) need to be identified and protected. A trade secret protection program is developed and implemented. The name, logo and tag lines should have been previously registered as trademarks or service marks.

franchise operations manuals
Franchise operations manuals and training programs are developed, often from scratch, to impart business operating skills to the franchise owner as well as ensure uniformity of products and services. The franchise operations manual and training program curriculum must be drafted with a particular focus. Certain topics, chapters and policies found in manuals for a company-owned chain, for example, are entirely inappropriate in a franchise environment, creating significant liability (lawsuit) issues for the franchise division.

I routinely find franchise operations manuals drafted by franchise consultants or do-it-yourself manual kitscontaining inappropriate chapters or topics. Not knowing where the bullets come from in franchise litigation, they proceed blindly ahead using “boilerplate” manuals where most (but not all) instances of “hamburgers” are changed to “tax returns.” The support aspect of the franchise relationship needs to be carefully considered, structured and reflected in the franchise operations manuals.

Deciding who writes the franchise operations manual is a relatively simple question to answer, yet many new franchise companies also fall into a trap here. Bewildered by the new business of franchising, with its legal requirements, franchise operations manuals, training programs, etc., they decide to “delegate responsibility,” usually to a high-priced franchise consultant who produces the operations manual and sometimes even the legal documents. Putting aside the practicing law without a license issue on the legal documents, does using someone to write your franchise operations manual who knows literally nothing about your business, ever make any sense?

The best practice approach, developed over almost three decades of my writing, editing and reviewing hundreds of franchise operations manuals is based on common sense. Let the true “expert” in your business write the operations manual. And who is that expert? It’s usually the founder of the business or a handful of your management personnel who know the business inside and out. It’s true, an outside franchise expert should be involved in the process, but this should be limited strictly to a planning and editing capacity – helping develop the overall Table of Contents, giving samples of writing styles and technicques, then reviewing each chapter after it’s drafted by you or your management team. This approach produces a professional, easy to use and update franchise operations manual. It also ensures the most efficient use of resources and talent.

franchise disclosure documents
Finally, and only after all of the above are underway, a Franchise Disclosure Document, similar to a securities (stock offering) prospectus, is prepared by competent franchise counsel and registered with various regulatory agencies to comply with applicable federal and state laws. This document can contain thousands of discrete disclosures within its twenty-three chapters and attached exhibits, and obviously needs to be prepared by a franchise attorney. Doing it properly and with a balanced and fair perspective can help keep the company out of the courtroom later. In addition, a franchise registration process is required before any franchises can be advertised or sold in those 14 or so states having a franchise registration requirement. Having one firm author, edit and review all documents is not only cost-effective – it also avoids inconsistencies that can plague the franchise company as franchise legal pitfalls in the future (see discussion below).

RECOMMENDATIONS
My twenty-eight years of experience has demonstrated that in order for a franchise company to get off to a good start, a heavy emphasis should be placed on strategic franchise planning to manage future franchise relationships as discussed above. Then, before the franchise program begins, management needs training in how to effectively operate a franchise organization. At a minimum, the following programs should be in place before franchise marketing efforts begin:

1. Franchise Lead Processing System (sm):
Two key considerations for all franchise companies engaged in franchise marketing are the careful screening of franchise applicants and adopting the proper media plan, schedule and budget. Only the cream of the crop should be allowed to join the franchise network. Eliminating applicants at the entry stage is far easier than waiting for inevitable and costly problems later on. An examination of franchise networks plagued by troublesome franchise owners (who often ripen into future lawsuits) shows a lack of planning and attention to this relatively simple concept. Given the unlimited personal liability risk inherent in franchising, companies neglecting this important concept, or those using franchise brokers, are simply asking for trouble.

Before franchise marketing efforts start, a company should adopt a customized Franchise Lead Processing System that includes instructing key personnel in:

(1) adopting the proper organizational structure;

(2) defining the appropriate profile characteristics of prospective franchise owners;

(3) developing effective interviewing techniques, marketing materials, procedures and checklists;

(4) using a series of tests and other measures to ensure that inappropriate candidates are disqualified before joining the franchise network;

(5) detecting (and then avoiding) red flags that arise in the franchise marketing cycle; and

(6) adopting the appropriate media plan, schedule and budget.

2. Legal Compliance Program (sm):
A franchise lawsuit can result if inconsistent or misleading communications occur when a franchise is first sold. Most of the legal risk is franchising centers around what happens during the marketing cycle: the twenty-three chapters of disclosures in the franchise disclosure document as well as who said what, and when. Defending any franchise lawsuit, even a frivolous one, can be enormous. Franchise companies involved in franchise litigation are shocked to discover they have fallen into a quicksand that swallows up time and money without limit. The cost of prosecuting or defending even a “small” franchise lawsuit can quickly exceed 0,000, and up. Exposure can run into the millions. Although one study of franchise disclosure documents indicated 27 percent of franchise companies have a history of franchise litigation (slightly greater than 1 in 4), the real percentage is much greater and probably north of 50 percent. This is because only pending litigation and final judgments must be disclosed in franchise disclosure documents. Most franchise litigation cases, like other litigation cases are settled, so they’re only required to be in the franchise disclosure document from the time they’re filed until settled. After that, they vanish without a trace. And whether the chances of getting sued in a franchise lawsuit and getting embroiled in franchise litigation is greater than 1 in 2 or 1 in 4, who wants to get involved in a time-consuming, stressful and expensive mess?

It is almost impossible to avoid potential franchise liability unless a genuine program of education and instruction is conducted with marketing personnel as well as middle and executive franchise management. An integrated Disclosure Compliance Program that specifies rules and expectations (including legal rules in selling a franchise), manages franchise disclosure documents and controls the dissemination of all information is absolutely essential. It is also one of the best investments a franchise company will ever make. For all of the above reasons, the use of franchise brokers is definitely NOT recommended. Their statements (or other actions) made to “close the deal” will make the franchise organization (and the personal assets of its officers) liable for violations of federal or state franchise laws. This also explains why the overwhelming majority of successful franchise organizations set up their own in-house franchise marketing department so that actions and statements made during the franchise marketing cycle can be monitored and controlled within the framework of a Franchise Sales Control System (sm).

3. Franchise Sales Control System (sm):
Franchise Sales Control is the other half of the entire compliance equation. While legal compliance specifies rules and expectations, franchise sales control is the mechanism for detecting gaps and inconsistencies. When detected, their causes can be identified and corrected before injuring the franchise effort. A Franchise Sales Control System should be designed with this in mind, and should include a variety of feedback mechanisms to monitor performance and retrieve pertinent information for review by management. This not only increases the effectiveness of franchise marketing efforts – it also greatly reduces the likelihood that sales personnel will deviate from established procedures in selling franchises. Finally, a well-designed Franchise Sales Control System creates a complete back up file for every franchise sold that will qualify as business record evidence in the event of a future franchise dispute. It also satisfies the legal requirement of various states that franchise companies maintain a complete set of books, records and accounts of franchise sales. Since most of the legal risk in franchising arises during the franchise marketing cycle, a comprehensive Franchise Sales Control System is the company’s best protection against the quicksand of franchise litigation.

4. Managing Franchise Relations:
As franchises are sold, the communication lines that develop between the parties will have a major impact on the success or failure of the ongoing franchise relationship. Controlling who is brought into the network through the steps outlined above is the critical first step. Once inside the franchise network, franchise owners must be taught to realize they are members of a system of mutually dependent outlets, each working for the better of the entire network. Developing an awareness of this concept early in the relationship and implementing a franchise feedback system will create a positive attitude, encourage innovative ideas from franchise owners, ensure timely royalty payments and prevent franchise relationship problems later on.

© 1982-2008, Kevin B. Murphy, B.S., M.B.A., J.D. – all rights reserved

For more information, visit the Franchise Foundations website.

 

 

Account Management – Bridging the Gap

Ask most sales managers what they require of their sales people when it comes to account management and you will get a variety of responses. Typical of these responses are the following:

‘I want my sales people to:-

Have a clearly defined strategy for each key account
Demonstrate that they have all angles covered with an account management plan
Identify and manage key decision-makers
Understand how buying decisions are made
Use a process to actively manage the account.

Ask customers what they look for in a good account manager and the responses take on a different emphasis. They express the skills in some or all of the following ways:

‘I want account managers to:-

Show that they are constantly thinking about us
Be active in bringing us new ideas
Be highly responsive to our needs and problems
Show sensitivity in working with our decision-making processes
Support us with state of the art technology, products and processes.

In summary, the supplier sees the account manager as someone whose job it is to PROTECT AND GROW the account. The customer sees the account manager’s primary role as someone whose job it is to CARE FOR AND CULTIVATE their account. The reality is that the account manager has to fulfil both roles, and bridge the gap between these two sets of requirements.

The tensions facing account managers surround the issue of how they should position themselves between these two requirements. If they are seen to be acting too much in the interests of their own organisation the trust between them and their customers may suffer. If, on the other hand, they are seen to be acting too much in the interests of their customers, they may be perceived as being disloyal, and the trust between them and their organisation may suffer.

Account management is about handling this unenviable task of pleasing two masters, each of whom will have a say in the account manager’s success.

Account management therefore is about BRIDGING THE GAP between the interests of suppliers and their customers.

As with most things it all starts with planning.

PLANNING
The only place to start when it comes to planning account management activities is with the customer’s business.

In today’s turbulent markets organisations have spent a great deal of time and energy defining their mission, vision and values. While they have done this essentially for internal communication purposes they undoubtedly expect their suppliers to understand and focus on them as well.

Where these statements exist, good account managers not only record them, but positively acknowledge them in their dealings with their customers.

Behind these statements of intent however lies the customer’s actual business. The history, the current objectives, the strategy, the resources, the structures, the systems, and the skills required of their managers and employees are all relevant pieces of information for the successful management of the account. All need to be understood by today’s account managers to enable them to place their products and services into the overall context of the customer’s business.

Increasingly, customers also expect account managers to understand how their business plans will impact their use of the account manager’s products. They expect account managers to be thinking about the issues of cost saving and quality. They take for granted that account managers will readily understand how their products and services may need to change in the light of expansion into new markets and territories.

From the customer’s point of view therefore good account managers show that they have a complete grasp of their business and their contribution as a supplier to its profitability and growth. They can show that they have a real empathy with the customer’s situation and needs.

When it comes to these issues, suppliers have the same interests but for different reasons. Their interest lies in their desire to constantly spot openings for more sales and to see opportunities for the introduction of different products, technologies, and applications. Their concern with these issues is more to do with the vulnerability of the account to competitor threat, and how the customer’s future plans will present either opportunities or risks for them. Empathy for them means staying close to customers, and close is the only place to be these days.

From the point of view of suppliers therefore it is vital that their account managers have a firm grasp of all the commercial issues surrounding the account, because only if they do can they hope to get closer to the account, act in a more strategic way, and so shut out the competition.
Planning account management activities also involves the people issues which play a part in the successful management of the account. Customers want their buying and decision-making processes respected, and require sensitivity from account managers to their internal politics, power-bases and personalities. They want a sales effort that is co-ordinated with the account manager involving specialists and other colleagues in a planned and structured way. They want to have a say about the frequency of visits and with whom they prefer to deal. In short, they want to be managed but with the involvement and agreement of their key people.

Suppliers likewise want their account managers to plan and manage the people issues. They know that internal roles, levels of authority and discretion, and the structures (formal or informal) within the customer all play a part in buying decisions. They know that these decisions are not always rational but can be based on perceptions, feelings and subjective judgements. They recognise the need for individuals within the customer to feel included and cared for. They understand that clumsy account management, involving many different people in an unstructured way, will annoy the customer and reflect poorly on them as a supplier. They recognise that insights into the people issues at the planning stage are key to their success.

It is the job of account managers therefore to know, understand, and to be able to use all available information to plan their account management activities. Planning is the first step to satisfy the needs of both parties.

Planning then translates into defining account management goals and strategies. Again there are two sets of requirements of the account manager when it comes to approaching the task of achieving the goals and strategy in the best way. The requirements involve a complete understanding of the buying cycle-as seen by the customer and as seen by the supplier.

MANAGING THE BUYING CYCLE
Approaching the task of managing accounts involves seeing the buying cycle from two perspectives-the customer’s and the supplier’s. Both perspectives are similar but are subtly different and it’s important for account managers to understand the differences if they are to play their dual role.

When it comes to the buying cycle from the customer’s perspective it follows a six step process. The process exists whether the customer is an existing account or a prospective account.

1. Need/problem identified
At this step the customer recognises that it has a need or a problem which it has to address. Having ascertained that it cannot supply the solution itself it embarks upon a search to identify the best provider of the solution.

To do this it may contact one or a number of potential suppliers and briefs them on its need or problem. The intention is to find the best solution.

2. Exploration of options
The next step in the buying cycle involves the exploration of options with various external suppliers. The customer will make comparisons, weigh up the pros and cons of different approaches put forward, and will make both objective and subjective judgements as to whom comes closest to its buying criteria. Those suppliers who come the closest are normally invited to present their solutions more formally.

3. Presentation of different solutions
By the time different potential suppliers are asked to present their solutions, the customer will have prioritised the requirements in their buying criteria and will have agreed the roles of different individuals in the buying decision. At this step the customer is looking for shortlisted suppliers to show a complete understanding of its needs and priorities, and is looking for a convincing presentation of the best solution.

4. Decision to buy
The decision to buy is largely dependent on the quality of the presentation of solutions and results from a number of factors. Ultimately they can be summarised by the ‘SPACER’ mnemonic as follows:

Security Is the organisation/product/service a safe bet and risk free?
Performance Will the solution proposed perform as promised?
Appearance Will those involved in the buying decision look good as a result; will the customer look good?
Convenience Will the solution be easy to implement?
Economic Does the solution provide a financial benefit?
Relationship Is there a relationship which can be developed into the future?

If, for the costs involved, all or many of the above benefits are supplied then the customer is likely to buy. If, on the other hand, the costs do not provide the benefits, and in addition involve risks, then the customer is unlikely to buy.

5. Implementation
Having decided to buy what is perceived to be the best option, the customer implements the solution and experiences the reality of its purchase. At this step the customer is usually anxious in the early stages and seeks all the support and reassurance the supplier can give.

Throughout the use of the product, process, or application it is the visibility and frequency of contact between supplier and customer that is all important to ensure total satisfaction with the solution bought.

6. Progress and evaluation
The customer’s future depends on its abilities to profitably satisfy the needs of its own customers, and its customers’ needs will certainly change in the light of market conditions. These days it is not long before progress and change are followed by evaluation and new needs or problems are identified of concern to the customer which impact the supplier’s product. At this point the buying cycle starts again and is repeated.

Seen from the supplier’s viewpoint the buying cycle is slightly different.

1. Need/problem identified
Either by proactively seeking out the business, simply working closely with the customer, or responding to an enquiry, the sales person identifies the customer’s needs or problems.

2. Investigation
Depending on the complexity of the need, the sales person, alone or with others, carries out a thorough investigation of the needs or problems, and prepares a formal proposal, or simply presents solutions (if the customer is well known and a good relationship exists).

3. Presentation of solution
The sales person presents his/her product/service/technology as a solution to the need or problem and answers questions/objections relating to the solution. Other suppliers may be asked to do this as well if they have been involved at steps 1 and 2.

4. Buying of solution
The customer buys the solution, with or without a negotiation, and formalises the agreement to buy in a contract or agreed terms of trading.

5. Implementation of solution
The solution is implemented and the customer has the ultimate ‘show proof’ in the product/service/technology provided by the supplier. After sales support is the key requirement of the sales person at this step.
6. Progress and evaluation
As the customer’s business moves on the requirements change. They grow, they differ, they evolve, and as a result of the customer’s demands and market-place trends, needs are re-assessed, problems identified and the opportunity for selling arises again for the supplier, and the process is repeated.

While the buying cycle is always obvious at the time of securing a new customer, it is very often neglected when it comes to account management. And yet it is this process that is constantly going on and which produces the opportunities to protect and grow the account as well as care for and cultivate the customer. It is the process through which all successful account management takes place.

The successful account managers constantly monitor and evaluate their customers’ progress, needs, and problems and actively use the buying cycle to spot and manage new sales opportunities.

Successful account managers also know how to manage individuals involved in the buying process, the next key ingredient to their success.

MANAGING DECISION-MAKERS
The decision-making processes within an account vary significantly. Rarely do they involve just one individual, and rarely are they discernible simply by looking at the customer’s organisation chart.

Buyers, line mangers, specialists, accountants, senior influencers, directors and even entire boards can be involved in all or part of the decision-making process.

Successful account managers are able to understand the concerns, the role, and the personality type of each influencer involved in a sales opportunity, and are able to respond convincingly to each one.

Each influencer will have a perception of the progress the organisation is making, and the needs or problems it has. Account managers need to understand these and the reasons behind them. To do this, they need to enlist the help of a ‘champion’ who wants the sale to succeed. Good account managers have ‘champions’ in every account and know how to work with them to manage the decision-making process in the best possible way.

From the customer’s point of view, account managers are doing a good job in managing their decision-making processes when they can relate to a wide population of people within the account and can talk their ‘language’. The issue ultimately is one of trust born out of an account manager’s credibility with a wide variety of people

From the standpoint of suppliers, the more people their account managers know both up and across their customer accounts, and the more aware they are of the decision-making process and influencers within them, the greater the likelihood of ongoing success in servicing and growing their key accounts.

Account managers can only do so much to achieve success in these areas on their own. The help of internal colleagues can make all the difference. Their final skill is that of being able to manage and motivate account management teams, usually made of individuals over whom they may have no direct control.

MANAGING ACCOUNT TEAMS
Account management teams can exist for a particular sale, for the duration of the relationship with the customer, or at a point in time during the relationship with the customer. They can vary in size and membership and the individual members usually play different roles in the management of the account.

There are many good reasons for having more than one person involved in the management of an account.

Greater depth and breadth of expertise brought to the customer
Like level people dealing with one another
Avoidance of exposure to just one individual
The gaining of different access points to the customer
Coverage of split sites, different locations, and different decision-makers

Account teams however need to be managed, and this is not always easy given that account managers may not have direct control or authority over other team members. Accountabilities of team members can often be very blurred.

Successful account managers are able to influence others from within their organisation to assist them; they can co-ordinate the efforts of colleagues to bring an impressive team together for the customer’s benefit.

The skills of consultation, persuasiveness, negotiation, and relationship-building all play an important part in this aspect of the account manager’s role. Without these skills and the active support and involvement of colleagues the account manager can be severely disadvantaged.

SUMMARY
Account management is a balancing act. It requires great sensitivity to the needs of both the customer and the supplier. Both parties rely on the skill of the account manager for the success of the ongoing relationship.

The account manager needs to be constantly in touch with what is going on within the account and how this translates into the buying cycle. The buying cycle continually produces opportunities for the account manager at the progress and evaluation stage. At this point, being able to consult, manage, and influence decision-makers is critical to the account manager’s success.

The whole account management process can be helped significantly through the use of account management teams who need to be properly led and co-ordinated.

Account management is a difficult and demanding skill requiring planning, insight and a high degree of sensitivity. As an extension of both the customer and the supplier the ultimate challenge for account managers is quite simply TO BRIDGE THE GAP.

1. Introduction

Enterprise Resource Planning is the latest high end solution, information technology has lent to business application. These days we are living in a globalized world, where competition is not absent. This is why it is essential for managers of the enterprise to develop different strategies to satisfy client needs, many of which have become hard to see. They are trying to anticipate what clients will want or need, and in that way they work to offer customized products. Companies are looking for software that can be capable of administrating every aspect of their business integrally. Many of them have been seeking new technological tools that can optimize their internal procedures and make them more efficient.The ERP solutions seek to streamline and integrate operation processes and information flows in the company to synergise the resources of an organization namely men, material, money and machine through information. The emergence of ERP systems offer businesses a set of integrated application modules which span most business functions (Scapens and Jazayeri, 2003).  Today many companies in India have gone in for implementation of ERP and it is expected in the near future that 60% of the companies will be implementing one or the other ERP packages since this will become a must for gaining competitive advantage. The aim of this paper is to demonstrate the impact of ERP implementation as a new system on management accounting practices. The management accounting and ERP system will be introduced and clarify how are they working together. This paper will view a definition of an ERP system implementation, defining the management accounting, the dimensions of management accounting such as the roles and attributes of management accounting, finally implications of impact ERP implementation on management accounting.

2. ERP system implementation

ERP (enterprise resource planning) is an industry term for the broad set of activities supported by multi-module application software that help a manufactures  or other business manage the important parts of its business, including  product planning, parts purchasing, maintaining inventories, interacting with suppliers, providing customer service, and tracking orders [  Olson 2004].

Implementing an ERP package has to be done on a phased manner. Step by step method of implementing will yield a better result than big-bang introduction.The normal steps involved in implementation of an ERP are as below:

Project Planning, Business & Operational analysis including Gap analysis, Business Process Reengineering, Installation and configuration, Project team training, Post implementation.

The above steps are grouped and sub-divided into four major phases namely 1) detailed discussions, 2) Design & Customization, 3) Implementation and 4) Production. The phases of implementation vis-à-vis their tasks and respective deliverables are as below:

Detailed Discussion Phase: Task: – Project initialization, Evaluation of current processes, business practices, Set-up project organization 
Deliverables:- Accepted norms and Conditions, Project Organization chart, Identity work teams.

Design and customization Phase: Task :- Map organization, Map business process, Define functions and processes, ERP software configuration and Build ERP system modifications. 
Deliverables :- Organization structure, Design specification, Process Flow Diagrams, Function Model, Configuration recording and system modification.

Implementation Phase: Task :- Create go-live plan and documentation, Integrate applications, Test the ERP customization, Train users 
Deliverables :- Testing environment report, Customization Test Report and Implementation report

Production Phase: Task:- Run Trial Production, Maintain Systems 
Deliverables:- Reconciliation reports, Conversion Plan Execution

3. The main role for management accounting in the organization

“Management accounting is a system of  measuring and providing operational and financial information that guides managerial action, motivates behaviors, and supports  and creates the cultural values necessary to achieve  an organization’s strategic objectives”[ Jan, Shahid, Homas and Arol 1999].

Management accounting is often defined as a system that provides useful information for managers in terms of decision making, planning, control and performance evaluation (Drury, 2004, p. 20). A definition by Atkinson et al.1 (2001) describes management accounting as:

“A value adding continuous improvement process of planning,  designing, measuring and operating a nonfinancial and financial information system that guides management action, motivates behavior, and supports and creates the cultural values necessary to achieve an organization’s strategic, tactical and operating objectives”. Management accounting measures and reports financial and non-financial information that helps managers make decisions to fulfill the goals of an organization.Managers use management accounting information to choose, communicate and implement strategy, coordinate product design, production and marketing decisions, Management accounting focuses on internal reporting, and Management accounting is future oriented.

4. Attributes of a good management-accounting system

The management accounting can be success if contains some attributes which enhance its process such as the following attributes: [Jan, Shahid, Homas and Arol 1999].

The management accounting can be success if contains some attributes which enhance its process such as the following attributes: [Jan, Shahid, Homas and Arol 1999].

Good management accounting information has three attributes:

■Technical—it enhances the understanding of the phenomena measured and provides relevant    information for strategic decisions.

■Behavioral—it encourages actions that are consistent with an organization’s strategic objectives.

■Cultural—it supports and/or creates a set of shared cultural values, beliefs, and mindsets in an organization and society.

5. The impact of ERP implantation on management accounting system

The involvement of management accountants is seen as another important success factor for ERP implementations. Management accountants play a critical role in providing data and information to manage the business, their participation is critical to ensure that the needed data are available and so that the management accountants will know how the data are obtained and reported. Literature review has shown that involvement of the management accountants results in better outcomes in the ERP implementation. – In a number of organizations, the management accountants played a critical role in the implementation and success of the ERP system.  The more active the role played by the management accountants, the higher the level of perceived success for the ERP implementation.  This was consistent across all organizations visited.  If the management accountants were actively involved in the ERP implementation from the beginning, and acted as a change agent, the system was a success.

6. The impact of ERP systems on the role of management accountants

ERP is a broad term for any software application that integrates all business processes and data into a single system (Waxer, 2006). ERP facilitates company-wide Integrated Information System covering all functional areas.ERP provides for complete integration of Systems not only across the departments in a company but also across the companies under the same management. ERP not only addresses the current requirements of the company but also provides the opportunity of continually improving and refining business processes.

ERP provides business intelligence tools like Decision Support Systems (DSS), Executive Information System (EIS), Reporting, Data Mining and Early Warning Systems (Robots) for enabling people to make better decisions and thus improve their business processes. As these ERP systems are integrated, all data are available to all personnel throughout the organization at any time (Aidan O’ Mahony, John Doran 2008)These software packages can be customized to cater for the specific needs of an organization (Esteves and Pastor, 2001; Granlund and Malmi, 2002). ERP systems have become the system of choice for the majority of companies. These systems have changed the way accounting information is processed, evaluated and reported throughout the business. ERP systems are comprehensive systems as they operate throughout the entire company maintaining large amounts of data. They are also modular systems which are based on a client/server technology. Data are stored in a single database, whicheliminates the need to update data in several different subsystems (Davenport, 1998; Rosemann, 1999). By providing universal, real-time access to operating and financial data, the systems allow companies to streamline their management structures, creating flatter, more flexible, and more democratic organizations (Davenport, 1998; Ross, 2000; Jackling and Spraakman, 2006).

The Institute of Certified Management Accountants (ICMA, Australia) describes the management accountant as someone who applies his or her professional knowledge and skill in the preparation and presentation of financial and other decision oriented information in such a way as to assist management in the formulation of policies and in the planning and control of the operation.  The changes which are affecting the core role of the management accountant are in large part due to the popularity of ERP systems such as SAP and Baan, particularly in large companies (Foote, 2006; Jackling and Spraakman, 2006; Bae et al. 2004; Booth et al.  2000; Burns et al., 1999; Davenport 1998).

In this new environment the management accountant must acquire a broad knowledge of the business, and add value to the organization by bringing financial expertise to the management process and participating as team players. The management accountant must now move into the spotlight and become an integral part of the management team by using a broader range of skills, utilizing both financial and non-financial indicators; taking decision-making roles in cross functional teams; and integrating operational and strategic control. The management accountant must broaden the nature of their role and become a strategic manager (Collins, 2000; Murphy, 2004; Parker, 2002; Pierce, 2001).

 

7. Benefits of ERP

The main benefits of using ERP systems identified could be summarized as follows

The benefits accruing to any business enterprise on account of implementing are unlimited. According to the companies like NIKE, DHL, Tektronix, Fujitsu, Millipore, Sun Microsystems, following are some of the benefits they achieved by implementing ERP packages:

Gives Accounts Payable personnel increased control of invoicing and payment processing and thereby boosting their productivity and eliminating their reliance on computer personnel for these operations. Reduce paper documents by providing on-line formats for quickly entering and retrieving information. Improves timeliness of information by permitting, posting daily instead of monthly. Greater accuracy of information with detailed content, better presentation, fully satisfactory for the Auditors. Improved Cost Control. Faster response and follow up on customers. More efficient cash collection, say, material reduction in delay in payments by customers. Better monitoring and quicker resolution of queries. Enables quick response to change in business operations and market conditions. Helps to achieve competitive advantage by improving its business process. Improves supply-demand linkage with remote locations and branches in different countries.

Provides a unified customer database usable by all applications. Improves International operations by supporting a variety of tax structures, invoicing schemes, multiple currencies, multiple period accounting and languages. Improves information access and management throughout the enterprise.

Provides solution for problems like Y2K and Single Monitory Unit (SMU) or Euro Currency.

 

8. Change in the Role of the Management Accountant

The suggestions in the literature that the role of the management accountant has changed and that one of the main reasons is the implementation of ERP systems is supported by the interviewees (Aidan O’ Mahony, John Doran 2008). This is in line with similar literature where research shows that ERP systems have only a limited impact on management accounting practices (Fahy and Lynch, 1999; Granlund and Malmi, 2002; Scapens and Jazayeri, 2003). However there are conflicting views as some literature state that the adoption of an ERP system can bring around a redefinition in the tasks and responsibilities of the management accountant (Brazil and Li, 2005; Carruth, 2004;

Gabriels, 2002). It is clear that ERP is influencing the management accountant and is a valuable tool which assists the management accountant in fulfilling their core activities. However the core responsibilities remain and there is still a high priority to provide the financials on a monthly basis. The extent to which the new system has had an impact on the role of management accountants was assessed by several.

Changes in time spent on data collection – All firms agreed that the management accountants spent

significantly less time on data collection following the implementation of the ERP system irrespective of whether the implementation was a success or not. There was also an indication that the type of data collected had changed.  For example, company E indicated that the manual accruals had decreased considerably since implementation of the ERP system.

Changes in time spent on data analysis – Most companies agreed that management accountants are spending a lot more time on data analysis. This was particularly the case for the more successful implementations. Management accountants: a profession dramatically changed by ERP systems.

Changes in involvement in business decision-making – All companies agreed that management accountants were more involved in business decision-making following the implementation of the ERP system. This also varied with the relative success of the ERP implementation, with the changed involvement in business decision-making being scored highly for the most successful implementations. Case studies in literature review showed that the extent to which the new system has had an impact on the role of management accountants was assessed by several criteria:

Changes in focus on internal reporting – The focus of the management accountants on internal reporting (for example performance measures and control issues) increased most companies.

Changes in focus on external environment – The focus of the management accountants on the external environment (for example benchmarking) had increased where it was applicable to the company. This change in focus was not related to the success or otherwise of the ERP system implementation.

Changes in focus from historic to forward looking analysis – In all the organizations that had a successful implementation, the management accountants are involved in significantly more forward looking analyses.  This is most likely a result of the capability of the ERP systems to generate virtually any desired historical-based report. As such, there is limited need for the management accountants to perform this type of task. The management accountants are spending much more time and effort on business planning.

Changes in focus from domain specific to cross-functional analysis – The implementation of ERP systems is viewed as a prerequisite for cross- functional analysis for most of these organizations.  In virtually every instance, prior to the implementation of the ERP system, the data wasn’t available to undertake cross-functional analysis.  Now that the data is available, the management accountants are able to be involved in cross-functional analysis.

Changes in use of time resulting from elimination of routine report generation – Since routine report generation was previously the responsibility of the management accountants, they now have more time available to complete other tasks.  In most organizations, this time has resulted in a change in how the management accountants approach their job, and in how the management accountants are perceived by others in the organization.  In some settings, the management accountant is becoming more of a business partner to senior management.

Changes required in the management accountant’s communication skills – Management accountants need to be technically competent, and must be able to communicate those technicalities.  While communication was always important, the study found that the need for improved communication skills has expanded because of the way management accountants are now involved in discussions with the business management team.  In order to be business partners, management accountants must provide insight and present the information at the time that the manager needs that information.   Changes in the formal and informal communication structure resulting from the ERP system – No link was found between the implementation of the ERP system and the changes in the formal and informal communication structure.  The ERP system, by its very nature, results in significant centralization of data.  This is often associated with a more formal communication structure.  The existing organizational structure and culture seems to have a greater impact on the communication structure than does the ERP system.

Changes in the management accountant’s satisfaction resulting from the ERP system – The ERP systems implementation generally resulted in increased job satisfaction for the management accountants.  Job satisfaction needs to be examined over a period of time, rather than at a specific point in time.  If asked immediately after the ERP system was implemented, most management accountants would be very frustrated with the software, the hours, the task, and many other aspects.

The management accountants’ contribution to the ERP system success – In a number of organizations, the management accountants played a critical role in the implementation and success of the ERP system.  The more active the role played by the management accountants, the higher the level of perceived success for the ERP implementation.  This was consistent across all organizations visited.  If the management accountants were actively involved in the ERP implementation from the beginning, and acted as a change agent, the system was a success.

 

3. Recommendations for management accountants in an ERP environment

The participants in this research were very consistent with their perception of the skills needed by management accountants in ERP environments.  All of the interviewees started from the perspective that the management accountant has both appropriate and adequate accounting training.  Some believed that a formal accounting qualification was very desirable as a way to signal that a management accountant possesses the requisite skills.  Almost every participant identified the need for good communication and interpersonal skills.  Analytical skills and the ability to focus on objectives and prioritise work (work management) were also deemed important.

The increased importance in understanding the business was also emphasized, as was the need to have ‘entrepreneurial salesman skills.’  That is, the management accountants need to be able to communicate with the management team and synthesize and explain the results (the impact of the financial data) in a way that can be easily understood.  Management accountants need to take on a partnership role with the managers.  This will sometimes result in the management accountants supporting major decisions by influencing managers onto the right area through a thoughtful and reasoned explanation of what the information means.  Along with these skills, other non-traditional skills were identified.  These included being an educator as the management accountants must be able to explain how the numbers were obtained and what they mean, and they might also be asked to explain how the system generates those numbers.  Patience was also identified as needed since the ERP packages are very difficult to use when they are first implemented.

 

10. Findings

. The findings of this study indicate that when management accountants are involved in the implementation of an ERP system there is an increased likelihood of success. The task is not easy and there was much frustration in the implementation process. However, in the successful implementations, data quality increases, there is more timely access to information, and decision-making is improved. Furthermore, a successful ERP implementation results in significant changes in the tasks of the management accountants. The management accountants become more closely involved in business decision-making and perform other value adding tasks rather than the mundane reporting tasks that are now performed automatically using the ERP.

 

11. Conclusion

In conclusion the findings suggest that the ERP system has had a positive effect on the role of the management accountant, however the rise of these ERP systems has not changed the ultimate responsibility of accountants which is the end of month figures. The ERP integrates operation processes and information flows in the company to synergize the resources of an organization namely men, material, money and machine through information.  ERP effortlessly communicates information across various departments and improves efficiency, performance and productivity levels.

12. Limitations

There were also a number of limitations of the ERP systems currently used. These include not getting the full capability of the ERP system and the manipulation of information that is needed to generate a final set of accounts. One of the most interesting findings highlighted in the study relates to the problems that can arise where an ERP system becomes too customized towards a company’s needs. This is partly due to the fact that an ERP vendor may not support an over-customized system. It is well documented that there has been a shift in the role of the management accountant. ERP is one of the major contributors to the change in the role of the management accountant. Accounting personnel feel that ERP allows them to expand their roles and instead of producing figures allows time for further analysis and value adding activities in areas such as cost control. An interesting finding in this study is in relation to the idea of non-management accountants becoming accountants. Prior to the introduction of ERP systems accounting was exclusively completed by personnel in the finance area. The introduction of ERP systems has allowed tasks such as reporting and journal bookings to be completed by non management accountants. But despite this, core accounting activities related to finalizing accountants are still completed by the finance personnel. From these findings the authors would argue that ERP is having a positive effect on management accountants. Although there are negatives the overall view is that the positives of ERP far outweigh the negatives.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Business management refers to one’s ability to manage a business effectively and efficiently while retaining profitability. But what does that mean? Anyone can ‘manage’ a business, right?
But do we really know how to manage a business? And if we do, what does that entail? Do you just run around your company telling people what to do or run to the bank and make deposits at the end of the each week? Is that business management?
If that is all it takes to run a business, why isn’t everyone a business owner? If managing a business is so easy, why are there consultants? Simple answer: business management is more daunting a task than we may think.
I have always said that no matter how large or small a company is, it is an overwhelming task to manage the everyday issues. We could all use a little bit of help.
Traditional business management, which is what I have studied and is the methodology I use when discussing business issues with clients, takes into account all aspects of running a business, large or small.
Whether it is a million-dollar company or a billion-dollar company, all companies run the same.
Traditional business management is pretty much self-explanatory; it is managing business through traditional methods that have been used for many years.
Those traditional methods incorporate three aspects: sales and marketing strategies, efficient operation and productions methods, and finance and accounting (SG&A). I believe all business owners should have some understanding of these areas of business and try to manage them as best they can. Most large companies focus on these areas in that they have the resources to pay employees who specialize in these particular areas.
For example, consider some of the largest companies in the United States like Home Depot, Starbucks and Dell. These companies require precise and expert management of their business operations at all times while maintaining a positive financial position for investors. These businesses pay full-time employees to function in the company in particular capacities.
When we look at small businesses in the United States, we have to ask, “Do small businesses have the financial resources to pay for similar resources such as a chief financial officer, or a qualified VP of Sales”? Quick answer: no! Actually, no is the only answer.
When we look at larger companies and how they manage their sales and marketing efforts, we find that larger companies have the financial resources to hire employees on a full-time basis who are experts in sales and marketing.
We can say the same for the third aspect of traditional business management, operations and productions. Once again, large businesses have the revenue available to have full-time positions for a general manager, a production manager, and sometimes, a Vice-President of Operations.
Again, small businesses rarely have the opportunity to pay experts full-time salaries, which could cost a business thousands of dollars annually.
So, now we know that traditional business requires the expertise of individuals in particular areas, such as finance, marketing, sales, production, operations, and management.
As a small business owner, can you pay the full-time wages of each of these employees? Do you have to hire all these employees in order for you to spend less time in the office worrying about business issues?
I have seen many million-dollar companies and I have seen a few billion-dollar companies; the only difference is that one pays for expert full-time employees and the other doesn’t. Obviously, the larger companies have the money to pay for expert employees, and small businesses don’t.
So how does the small business owner learn the basics of business management without paying for an MBA or spending thousands of dollars in annual salaries for experts?
Recently traditional business management had to make room for a new aspect of business: technology.
Through the years traditional business management has had to marry its strategies with the proliferation of technology where every business owner from Starbuck’s to Jim’s Auto has had to incorporate technology into its everyday operations.
The problem is that business believed that technology was going to be the solution for every problem, but it wasn’t until recently that business management thinkers realized that technology will fail if it is not implemented properly. That is, traditional business management must seamlessly marry itself with technology.
So, now you have this traditional business model to think of, and you also have to think that the model has incorporated technology. You see, managing a business is not as easy as it sounds. When you look at this business model I know for sure that you have never looked at your business in this way before. Believe it or not, graduate schools teach this stuff and larger companies obviously have the money to pay someone to think of this stuff, but what about the small business owner?
Small business owners do not have the financial resources to pay for this thinking and consulting companies for some reason; do not necessarily speak to the small business owner. Why not? Most consulting companies are always looking to fry the “big fish”, the 1% of businesses in the United States that can afford the phenomenal fees they charge.
Larger consulting companies do not have the time or the desire to speak to small businesses, nor will they change their fees which range over $400.00 per hour.
One of the comments I hear often in small businesses is, “Great idea, I wish I could get my people to do that, but I can’t expect them to change their ways.” I say, “You’d better get them to change their ways or you could be out of a job”!
Oddly enough, small business owners are reluctant if not skeptical in getting help for their business. To this day, I have yet to figure that one out. Why don’t small business owners look for help?
I firmly believe that business is business regardless of the size of the company, the annual revenues, or the number of employees. Keep in mind that the largest businesses in the world were once small businesses and today they are worth a great deal of money. All businesses “managed” their way to the top, regardless of the industry.
I have seen numerous multi-million dollar businesses in every industry, to include contractors, restaurants, service companies, and manufacturing companies. And I have also worked for companies that are worth billions and billions of dollars. They all have one thing in common: They all run the same some just have more revenue than the other.
I have always said that no matter what you produce to sell, HOW you produce it is what is of paramount importance to the growth of your business.
Your business is not too small or too large for a review of its current business processes. I have not met a business owner, a president or CEO of a company who can tell me that their business is running so smoothly that they don’t need to change. That is simply not true.
The natural stirring of the U.S. economy is what causes the need for change in all businesses of all sizes and I guarantee that if you are not constantly rethinking your business strategies, your competition is.
Can you say that your business is flexible enough to manage your competition and stay ahead of the curve, or that your business can handle the daily economic fluctuations in the U.S.?
Ask yourself some of the following questions.
1.Have your total revenues gone up or down from last year?
2.Has your profitability gone up or down from last year?
3.Where is the next dollar coming from?
4.Are you tired of going to work?
5.Do you have adequate inventory levels?
6.How many employees report to you on a daily basis?
7.Do your employees actually do what you ask and expect of them?
8.Do you have a management team in place?
9.Is there business expenses you wish you didn’t have?
10.Does every employee in your company have a specific job function that justifies their labor burden?
11.Do you remember when owning your business was fun for you and your family?
12.Do you believe your company operates as smoothly and efficiently as it could?
13.Do you have a long-range plan?
14.Do your employees share your vision of the business?
15.Who do your employees go to when there is a problem?
16.If you actually met me, would you be able to tell me that your business doesn’t need to change, or that it is truly profitable?
If you are ready to move your business forward, get some help. Believe it not, the success of your business is important to this great Nation.

You want Business Management Software that sees to all your business needs.

Many companies are looking for new and improved ways to increase the sales within their company and one way this can be accomplished is by Business Management Software. If your business is very busy and you often are having problems staying on top of all your contacts and business leads then business management can help to assist you with organization. Whether your have large or small sales team it can be hard to keep organized without the help of a Business Management Software. If you are interested in purchasing Business Management Software you need to understand that all Business Management Software is not created equal. Some types of Business Management Software do not have a great amount of flexibility and that is an important aspect of Business Management Software. You want to purchase Business Management Software that can see to all your business need.

Prophet Business Management Software has many great features.

If you are looking for a flexible Business Management Software that can help you with all of your business needs then you should take a close look at Prophet Business Management Software that is offered by the Company Avidian. Prophet is Business Management Software that can help a business of any size. You can check out Prophet Business Management Software at Avidan.com to explore all that the software has to offer. You will find that Prophet Business Management Software has many attractive features that will be a huge help to your business. You may find that Prophet Business Management Software is what you need to solve your business woes.

Prophet Business Management Software is easy to use and will help your sales team.

If you decide to purchase Prophet Business Management Software you will find that it is easy to implement into your company and will be easy for all to use. Prophet Business Management Software uses modern technology to help make all your business tasks easier and quicker to complete. Prophet Business Management Software is based on Microsoft Outlook and it is easy to transfer your existing data into this program. One feature that Prophet Business Management Software contains is called a sales opportunity window. This feature of Prophet Business Management Software helps your sales associates access customer and lead information quickly.

Prophet Business Management Software offers more features than most Business Management Software.

Prophet Business Management Software not only allows you to quickly find contact information, but will also help you find any relating documents. You can easily find previous contracts and previous correspondence that has been stored within your Business Management Software. You will also find that you can track your leads and how they pan out with your Business Management Software. Prophet Business Management Software will also alert you of appointments coming up. Prophet Business Management Software offers many features, while other Business Management Software only offer very limited features.

Prophet Business Management Software can help sales run smoothly.

Prophet Business Management Software makes it easy for managers to evaluate and monitor all tasks that are being worked on, or have been completed. You can also look through all the tasks using your Business Management Software to see what leads need to be assigned. You can also use Prophet Business Management Software to manage your email and set up mass emailing. You will find that Prophet Business Management Software will help ensure that your whole sales team runs smoothly and effectively. Prophet Business Management Software will let no opportunity slide through the cracks.

Prophet Business Management Software has a great reporting feature.

Business Management Software also helps to generate reports about how your sales are looking. You can even use Prophet Business Management Software to make up a daily report on current sales leads. Prophet Business Management Software makes reporting very easy since it will draw up all the reports for you automatically, which saves you a lot of work. There are many template reports that you can use and Prophet Business Management Software also gives you the option of customizing these reports as well. Prophet Business Management Software offers superior flexibility in reporting.

Prophet Business Management Software is cost effective.

In today’s high tech marketing world Business Management Software has become a need, not just a high-priced luxury to be considered. While some companies may be afraid of the cost of implementing Business Management Software, it can actually be done in an affordable way. Avidian’s Prophet Business Management Software is very cost effective for businesses and is worth the purchase since it can save so much money in the long run. Prophet is Business Management Software that will improve your company and it can be bought at a reasonable price. You will also find that Prophet is easy to use and will work well with your existing information. You can check out more about Prophet Business Management Software and take a closer look at their great prices by visiting Avidian.com.

Prophet Business Management Software can help to streamline your sales process.

You will find that using Prophet Business Management Software will help maximize your sales efforts. Business Management Software can help to streamline your sales processes, which will result in more sales made and more profit for your company. Not only will Prophet Business Management Software help you find new customers, but it will also help you to build customer loyalty with existing customers so they will keep coming back. Your sales team will be able to work together effectively, using Prophet Business Management Software, to keep sales rolling through and helping to increase the profit for the company. Prophet Business Management Software offers so many different tools that you will find valuable for your business, such as organizing customers and organizing leads, and this will help ensure success for your company.

Each business should consider implementing Prophet Business Management Software to ensure success.

Every business wants to build a solid future and wants to increase their sales and amount of profit. Prophet Business Management Software can help you do these things. Prophet Business Management Software can help your company go beyond mediocrity to be a company of excellence. You will be able to take giant steps toward success using Prophet Business Management Software. If you want your company to climb the ladder of success and become known for excellence then you should take the steps to purchase Prophet Business Management Software. If you take the time to go to Avidian.com and purchase the Business Management Software, you will find yourself on your way to being a top marketing company with a solid and bright future.

About Avidian Technologies:

Avidian Technologies is a software company specializing in creating software solutions for users of Outlook and Exchange. Prophet, developed by Avidian Technologies on the .NET platform, is the leading contact management and sales CRM software built in Outlook. The company is headquartered in Redmond, Washington. For more information, please visit http://www.avidian.com or call 1-800-860-5534.

Introduction

Networking is a popular buzz world in the business world today. The importance of making and utilizing contacts to expand your business and develop professionally is key to being successful and rise above your competition. It can be tricky however to manage all the contacts you make through networking and all the different networking opportunities you have, such as meetings, lunches, appointments, and other social gatherings. However, there is a Business Contact Management Software available on the market today to help you make the most of your networking contacts and opportunities. This Business Contact Management Software is Prophet offered by Avidian. There are many reasons why you and your company can benefit by using this Business Contact Management Software.

Using Business Contact Management Software makes sure that all information is kept together in one place.

One of the hardest parts of networking is keeping track of all your different contacts. Some individuals choose to keep their networking contacts on a rolodex, but this just sits on a desk and takes up space. Others choose to keep their contacts by keeping their business cards in or on their desk. This too takes up space and can be hard to keep organized. One of the best ways to keep track of all your business contacts is through Business Contact Management Software such as Prophet. This Business Contact Management Software keeps all your contacts in one place without taking up any space on your desk.

Information is easily accessible using Business Contact Management Software.

By using Business Contact Management Software, such as Prophet, it makes all your business contacts easily accessible. Prophet Business Contact Management Software uses the common email program, Outlook, to keep track of all your business contacts. This Business Contact Management Software makes sorting, tracking, and accessing your business contacts easy with just a few clicks of your mouse.

Business Contact Management Software helps you track past and future contacts

Anyone who is good at networking has several different business contacts. Some of these contacts you work with on a regular basis, while contact with others is irregular and minimal. However, these are important people in your network, it’s just that time doesn’t allow for you to contact them as regularly as you would like. Business Contact Management Software can help you keep track of all these different contacts now matter how often you touch base with them or work with them. One of the great things about Prophet Business Contact Management Software is that the Business Contact Management Software keeps track of all the times you contact your business contacts. For example, Prophet Business Contact Management Software tracks meetings, lunches, and other appointments you have with your contacts. Business Contact Management Software also can track phone calls, emails, and other contacts you have. Business Contact Management Software helps you when you are trying to figure out where you left a discussion or project with your business contact or helps you see when you need to make contact with them to keep them involved in your network. Business Contact Management Software makes keeping track of past and future contacts easy.

Business Contact Management Software reminds you of key networking times.

One of the great assets of Prophet Business Contact Management Software is that it keeps track of key networking opportunities, such as lunches, meetings, appointments, and other social gatherings where you can touch base with current or past business contacts or meet new ones. Business Contact Management Software is especially great if you are a busy individual, who doesn’t have a lot of time to manage a schedule. You’re computer and the Business Contact Management Software simply does it for you and then just reminds you before the time.

Prophet Business Contact Management Software is easy to use.

Time is money in the business world, so executives and managers want Business Contact Management Software that is not only compatible with their current computers and software but business contact management that is also easy for their employees to use. Prophet Business Contact Management Software is one of the easiest types of Business Contact Management Software to learn to use. Not only is Prophet Business Contact Management Software user friendly, but Prophet Business Contact Management Software also provides a tutorial and several help information sections in case anyone has questions about a specific feature of the Business Contact Management Software. Many executives and managers have switched to using Prophet Business Contact Management Software after discovering how much easier it was to utilize than the competitors’ Business Contact Management Software.

Business Contact Management Software is compatible with several other types of software.

Compatibility of Business Contact Management Software is a key concern of most managers and executives of companies. They want Business Contact Management Software that is not only easy to use but Business Contact Management Software that is also compatible with the current software the company or business already owns. Prophet Business Contact Management Software is compatible with many different types of software and information and can be used or accessed through Word, Excel, PDF, and HTML file formats.

Prophet Business Contact Management Software can serve other purposes.

One of the great things about Prophet Business Contact Management Software is that you can use Business Contact Management Software for other things besides managing your business and network contacts. For example, if your business is driven by sales, you can use the Business Contact Management Software to manage your different sales contacts, sales opportunities, and all correspondence with those you do business with. In addition, Prophet Business Contact Management Software allows you to easily sort the different sales categories, so you can see how sales are for different employees or groups using only your Business Contact Management Software. Prophet Business Contact Management Software can also help you track your past and current revenue, as well as predict what your future revenue will be.

If you are an executive or manager in a company or business that is looking for Business Contact Management Software to suit your needs, consider Prophet Business Contact Management Software by Avidian. Prophet Business Contact Management Software is compatible with a variety of different types of software, and Prophet Business Contact Management Software is easy to use. Prophet Business Contact Management Software can help you manage your business contacts and networking opportunities with just a few clicks of a mouse. If you’re interested in Prophet Business Contact Management Software, check it out at www.avidian.com.

I have read, over my business career, well over 10,000 different articles and lists about how anyone can be successful with a small business be it an independent business or a franchise. Many well intentioned and intelligent consultants I have come across professionally believe that a great idea with a great marketing scheme and superior desire can make anyone successful. Do yourself a favor and tell the next person spewing this nonsense that they are absolutely wrong!

The success or failure of the vast majority of all small businesses has little to do with the desire, marketing scheme or the great idea that created the business. While these three items must be present in every successful business, solid fundamental management principles will allow a small business to prosper and succeed. Every successful company, be it a small, medium or large business, uses the same set of management principals. The size of the business determines the individuals principals used and the sophistication of the principle. As an example, a small business normally has informal and perhaps even unwritten employee hiring guidelines. A medium sized company has a legally approved, comprehensive employee manual with employee hiring guidelines as a separate section. A large global business has an entire department writing several employee manuals in several languages with employee hiring guidelines based upon legal and social issues in each country. However, the common sense management principal that all companies should have a fair, consistent and applicable employment program must be used by every company.

As I have spent the vast majority of my career with small and medium sized businesses, here is a simple and select set of management principles that every small and medium business should follow to ensure success and profitability:

 

A good accounting department with timely monthly financial statements provides the basis for all management decisions. Any business owner or officer who believes purely in his or her “gut” feel, is running what will be a failed business. Regardless of the business size, every owner and senior executive must have valid data to confirm the decisions their “gut” tells them to make. Your financial statements are a factual record of your business history and we must all clearly understand our history so we do not repeat the mistakes of the past. How can you determine whether your recent marketing campaign is a success unless you see and evaluate the financial results? We have all heard stories about the marketing campaign that brought many new customers to the company but killed the company because the advertising expense was greater than the profit margin on the new sales. A business owner does not need an accounting degree but should know enough to understand and participate in the financial information review.

Running a small business based on the cash balance in the business checking account also violates this management principle and will severely inhibit the growth and success of the business. Unless you want to remain a “mom and pop” business forever, good accounting information is a requirement.

 

Standardize and automate all routine functions. Have you ever noticed that most successful business people have a routine for most of their daily functions? They have staff meetings at the same time, they want all reports in a specific format, they want all PC’s and software to be the same in the office and they want the external phone calls to be answered with a specific greeting. By standardizing all routine functions, successful business people do not have to think about or manage these functions. They can concentrate their time and efforts on managing non routine situations.

This same principle also applies to your business. I personally know a company that, 10 years ago, had a credit department with 15 employees and 3 managers who made many decisions daily. Today, that company has doubled its sales and now has a credit department consisting of 5 employees, one manager and a set of software programs that manages electronic payments and even sends out reminder letters and emails to customers.

 

Review and analyze the Balance Sheet before the Profit and Loss Statement. Your monthly P & L tells you whether you were successful last month from your operations but your Balance Sheet tells you what shape your business is in and what you can do in the future. I have seen a company that doubled sales one year and closed their doors less than six months later. I have also seen a business that went bankrupt even though their P & L’s showed reasonable success. The company Balance Sheet shows how the company uses its daily operations to fund the long term success of the business. Analyzing Fixed Assets, Accounts Receivable, Long Term Debt and Retained Earnings will give us the long term view for our company. It is not as exciting as analyzing our new customers and product offerings but is necessary for the long term.

 

Business Planning and Budgeting will allow you to slow down the daily business fires and take advantage of opportunities. There are an unusual number of small and medium businesses that do not work hard at either annual or strategic planning and budgeting. Most are too busy fighting fires and struggling to keep up with daily business activity. There is no time for planning and budgeting in their 80 hours work weeks. We have all been in this position. The unfortunate issue here is that the fire fighting and long weeks will never slow down or cease until some planning and budgeting is put in place. The need for planning and budgeting becomes more intense as a business grows due to your inability to “manage by walking around.” The planning and budgeting can start simple and will grow naturally as the business expands. This management principle will allow all employees to see the vision and the focus of the business which will start to reduce the daily fires that pop up.

The greatest advantage of planning and budgeting is that it allows every business owner to evaluate quickly and easily how an unexpected opportunity might be of benefit to the business. I have talked to many business owners who stumbled across a sudden and potentially great opportunity such as a competitor for sale, a good supplier needing a partner, a potential new customer that would immediately double sales or a potential new product that would require an entirely new set of tools and equipment. These opportunities happen to all business owners regularly but many also go away quickly. Those companies that have a good plan and budget in place can evaluate these opportunities quickly and easily to determine if the new opportunity fits into the company’s long term plans. These companies also have the ability to quickly approach a bank with solid financial proformas if additional capital is needed. 

 

It isn’t a sale unless you collect. Most small and medium businesses spend way too much time in the sales process and far too little time with the collection process. Most companies are willing to pay a six figure salary to a salesman who can generate tremendous sales for the company and, at the same time, put an entry level accounting clerk in charge of collection with little or no oversight and procedures. The company borrows more and more money to increase sales while an accounting clerk with no customer service experience struggles to collect. The sales department in every business must have a part in the collection process and the company must have a strong, fair and customer oriented collection process to ensure that a sale really means money in the bank.

This process must always start before the sale is made. Collecting information up front to determine whether the potential customer is able to pay and ensuring the potential customer clearly understands the credit terms and payment requirement will benefit all parties. All good potential customers will appreciate this process because we all enjoy dealing with quality companies. I have never found any company that was unwilling to pay for quality products and services when everyone understood the terms and requirements.

The credit department must also have a good set of processes and procedures to ensure that the payment process flows smoothly and efficiently. Supplier employee turnover, cash flow issues and other unexpected issues stop or slow down the payment process. The credit department must, in a customer oriented fashion, work to keep our cash flowing.

 

Run the business as if it your grandchildren will take it over.  Every business is a living and vibrant organization that has many similarities to our children. Your business starts out as an infant and learns to crawl and eventually walk. We would never make a decision for our child that does not take into account the child’s future and we should not do this with our business either.

Working with a supplier who has inferior quality but the cheapest price might be a great short term cash solution for our company but will eventually run off our customers and destroy our business. How many times has a business lost all its records because it decided it couldn’t afford computer backups or a fire alarm system on its warehouse? Have you hired an employee before you had them take a drug test? I even once jumped at the chance to hire a salesman from a competitor because I thought he would be able to bring over many customers. Unfortunately, he cost too much and didn’t bring over any good paying customers at all. There is no such thing as a good short cut for efficient management principals and the long term success of your organization.

 

Hire the smartest and best people. How many of us have hired our friends, the salesman we thought was a bargain, the bookkeeper who spoke the best during the interview or the manager we thought was most like us? Many small and medium sized businesses are littered with employees who were hired for these reasons because small businesses can’t afford high wages and all the fringe benefit packages that large companies can afford. We tend to hire the best we think we can get.

We need to set our expectations higher and use our planning process to find perfect employees. The first issue is that your company must have a good annual plan as well as a logical 5 year plan on where the company will be. Your company can then lay out what employees will be needed during this 5 year period. Now that we have defined what employees and what responsibilities are required, we need to find the individuals who meet these requirements and not just who we can afford today.

I have always tried to hire people who are smarter and have more experience than I have at the specific position. Any owner who believes he is the smartest individual in every area will never be able to hire the right people. A company will never be greater than its weakest employee so we must always hire the best.

The last company I worked with laid out a plan showing they were going to need their first CPA in 5 years. After 3 years, they told me they hired this CPA and were very surprised because this individual had other job opportunities with large national firms who were offering huge benefits. However, this small firm could offer professional growth and responsibility not available at the larger company. The vast majority of good employees prefer to have a more responsible position with a smaller company with a grand future than a less responsible position with a large company.

 

You can grow yourself out of business. Cash is king in business and those who recognize this fact will succeed and prosper. I have seen far more businesses that grow too fast with no good business plan and are forced to close their doors or find a quick buyer. Companies that are struggling watch their cash daily and doing what they need to keep the doors open. However, those companies doubling their sales see huge profits on their monthly financial statements and get caught up in the emotion and success. They watch their Accounts Receivable double, their Inventory double because they must buy much more product, their employees double because they must take care of these sales and suddenly they do not have the ability to make this week’s payroll because they have no cash in their checking account. Their company literally grew itself out of business which many small and medium business owners have trouble understanding until they have lived through it.

 

The culture of every business is as important as its mission. As mentioned earlier, a business is a living and breathing organization. The culture of every business is as important to the overall success of the company as the products and services offered. The owner of the business cannot delegate this function and must be involved. There is no right or wrong here as the business culture is a reflection of the quality, morals and ethics of its owner. A successful company’s culture is not a constantly changing but evolves based upon the growth and expansion of the organization. Constantly changing a company’s culture is a sure way to close a business.

A company with a strict dress code, time clocks that are strictly enforced, and many processes and procedures is no better than another company with no dress code, few processes, and telecommuting for employees. The only difference is the type of employees they retain and the way they do business.

 

Your quality competitors are essential to your long term success. You can stop laughing now because this is really a fact that every successful company understands. This is an unusual concept but one that great businessmen and women all embrace. Competition is a wonderful concept in every free market economy and quality competition makes us all better. Quality competitors push us to come up with quality improvements, quality products and services and ensure that we have a quality customer oriented operation. We have all seen businesses spring up offering a 50% price reduction for a cheap knock off of our products. Our sales drop and we spend time and effort away from our core business chasing this situation. They stay in business for a short period of time and accomplish nothing more than causing our customers to question our industry. Quality competitors push us all toward greatness and there is plenty of room in every industry for multiple organizations.

 

 

Outsourcing reduces costs and improves your weaknesses. Many individuals hear the jokes about the language issues at large company call centers in India or the Philippines and tell themselves they will never make that mistake. However, that might be one situation that is not really a mistake. A good IT programmer in the U.S. can cost upwards of $100,000 annually with payroll taxes, fringe benefits, etc. That employee in India with the exact same intelligence, skills and experience can cost as little as $30,000 annually.

The management principle here is that we should all concentrate on our strengths and outsource everything else where feasible. No business person thinks twice about using an outside tax accountant to do our Federal and State taxes. This is a highly technical area that changes constantly. Most of us also have an outside legal firm. Why do we primarily limit our use of outsourcing to those two areas?? Today, there are professional payroll firms, employee leasing firms, credit and collection firms, IT and Web programming firms and marketing firms. These companies work with many business organizations, stay on top of industry best practices and can better stay on top of the technical changes in their area of expertise.

The only area of any company that I advise against outsourcing is the area that is crucial to the success of your company. Never allow the core of your success to get outside your control. As an example, if your company has a proprietary marketing scheme or a customer database or an engineering method or a production process that is key to your success, do not let it out of your control.

Imagine opening 20 new business locations without having to foot the bill for real estate, equipment and development costs or taking on any of the risk. Even more, imagine finding managers to run all those locations, who are just as committed to growing the company as you, and you don’t have to pay them a dime. Finally, imagine that these managers will hire, fire and manage all employees as well as foot the bill for all operating costs and expenses. Sound far-fetched?

Not if you’re planning to enter the franchise industry, one of the fastest ways to grow a small business without breaking the bank. For many companies, franchising a business (or licensing) is a sensible way to achieve rapid, profitable growth without giving up any control or ownership. Going from a single location to a dozen in a couple years, or a hundred in ten years is possible and well-documented because franchise owner-investors put up all investment capital, shoulder all risk and assume all day-to-day operating responsibilities.

It’s expansion, using OPM – Other People’s Money. Also, the franchise company gets paid handsomely for teaching others the secrets of how to operate its business. First, there’s the up-front “membership” or franchise fee of $20,000 to $50,000 paid for using the brand name and operating methods. In addition, there are continuing royalties of 5% to 10% of gross sales for ongoing advice and consultation. In essence, a franchise development program allows a company to get out of the trenches and become a highly-paid general overseeing its soldiers. Long-term options are also attractive. Build an empire and relax, or let the franchise company be acquired by an increasing number of large companies that look for small, but growing franchise companies. According to the International Franchise Association, 900 new companies have franchised in the last three years.

ENTERING A NEW BUSINESS A company planning to franchise must realize it is entering a new business, offering an entirely different service (training & support) to entirely new customers (business owner-operators). This new business requires different skills, abilities and expertise. In the new business of franchising, it is critical to develop effective evaluation, documentation, mentoring, training and consulting skills. Since these new skills are rarely present within existing personnel, an outside franchise expert is needed to train existing personnel and plan the transition. The first step involves determining whether or not a business can franchise, and if so, what needs to be developed. Next, strategic franchise planning is necessary to create a “blueprint” for successful expansion efforts. Experience shows that, just like a building, the foundation developed at the beginning will create lasting consequences affecting the relative success (or failure) of the entire venture. Legal (franchise disclosure document, franchise agreements) and operational documents (franchise operations manual, franchise training program) are prepared and drafted and finally a franchise registration process is required in some 14 states, depending on which state(s) the company sells franchises. These phases are discussed below.

THE FRANCHISE FEASIBILITY PHASE An indispensable step before any franchise development program gets underway is an analysis of the concept and business model. Has the concept been sufficiently proven in the marketplace? How profitable are existing prototypes or company-owned outlets? Franchising will not solve existing problems, it will only intensify them – and usually at a serious cost to franchise investors. Franchising should not be viewed as a method to raise capital, expand a business that has existing problems, or a way to get rich quickly. There must be sufficient profitability in the business model so that royalty and other payments can be made and leave the franchise investor with a sufficient profit. With a franchise feasibility analysis, a determination can be made about:

(a) whether franchising or licensing expansion ideas should be pursued, postponed or abandoned; and (b) assuming a positive result in (a), what needs to be fine-tuned or developed from scratch for the franchise program.

Besides determining if and when the business can franchise, the analysis should also include providing guidance and direction so as much of the groundwork as possible can be done by existing personnel. This has proven to be a very effective approach and significantly reduces franchise development costs. If the feasibility analysis is positive, the other phases discussed below follow. My twenty-eight years of experience in the franchise industry lets me share a valuable insight about franchise feasibility studies. Too many companies leap into franchising without doing a feasibility study, or if one is done it is performed by a franchise consultant or group that tells everyone good news – they’re all “franchise-able.” The vast majority of franchise feasibility studies I’ve done either identify areas that need attention before franchising makes any sense or tell the client to forget about it and pursue other options.

THE FRANCHISE STRATEGIC PLANNING PHASE A successful franchise development program begins with a solid plan – a foundation for franchising. The long-term goal is to establish balanced, integrated, successful business relationships with qualified individuals who support the company’s goals and image. Creating an enduring relationship requires a comprehensive strategy that addresses all aspects of the franchise endeavor.

The starting point is a detailed analysis that covers:

(1) identifying profile characteristics of who will be the best franchise owners for the particular business;

(2) competitive positioning to make the franchise stand out from the other 3,000+ franchise companies;

(3) geographic scope – where and when will franchises be sold;

(4) analysis of the company’s organizational strengths and weaknesses relative to franchising;

(5) identifying the appropriate franchise organizational structure as well as staffing requirements and responsibilities; and

(6) structuring the franchise relationship for a balanced, win-win scenario.

What should emerge from this detailed analysis is a specific strategic plan and framework for guiding virtually all franchise efforts. Despite the long-term importance of the franchise planning step, too many emerging franchise companies enter franchising with no plan or planning – other than “let’s try and sell a lot of franchises.” They rush through (or neglect entirely) the strategic planning process, thereby creating future franchise litigation land mines that are ticking franchise lawsuits waiting to happen.

Often, this is because they only utilize the services of a franchise consulting firm or franchise attorney, where little or no attention is paid to critical strategic planning, operational and organizational issues. Normally, these firms draft “boilerplate” franchise disclosure documents, franchise agreements and franchise operations manuals based on a questionnaire completed by their client, who is presumed to have made all strategic decisions. The franchise documents are presented, along with an invoice and a handshake – hardly the ingredients for success in the new business of franchising.

THE FRANCHISE DOCUMENTATION PHASE If the company has made doing a good job at the planning stage the number one priority, franchise documentation goals will be apparent. Proprietary and intellectual property assets (like operating techniques, customer information, recipes, formulas and methods) need to be identified and protected. A trade secret protection program is developed and implemented. The name, logo and tag lines should have been previously registered as trademarks or service marks.

franchise operations manuals Franchise operations manuals and training programs are developed, often from scratch, to impart business operating skills to the franchise owner as well as ensure uniformity of products and services. The franchise operations manual and training program curriculum must be drafted with a particular focus. Certain topics, chapters and policies found in manuals for a company-owned chain, for example, are entirely inappropriate in a franchise environment, creating significant liability (lawsuit) issues for the franchise division.

I routinely find franchise operations manuals drafted by franchise consultants or do-it-yourself manual kitscontaining inappropriate chapters or topics. Not knowing where the bullets come from in franchise litigation, they proceed blindly ahead using “boilerplate” manuals where most (but not all) instances of “hamburgers” are changed to “tax returns.” The support aspect of the franchise relationship needs to be carefully considered, structured and reflected in the franchise operations manuals.

Deciding who writes the franchise operations manual is a relatively simple question to answer, yet many new franchise companies also fall into a trap here. Bewildered by the new business of franchising, with its legal requirements, franchise operations manuals, training programs, etc., they decide to “delegate responsibility,” usually to a high-priced franchise consultant who produces the operations manual and sometimes even the legal documents. Putting aside the practicing law without a license issue on the legal documents, does using someone to write your franchise operations manual who knows literally nothing about your business, ever make any sense?

The best practice approach, developed over almost three decades of my writing, editing and reviewing hundreds of franchise operations manuals is based on common sense. Let the true “expert” in your business write the operations manual. And who is that expert? It’s usually the founder of the business or a handful of your management personnel who know the business inside and out. It’s true, an outside franchise expert should be involved in the process, but this should be limited strictly to a planning and editing capacity – helping develop the overall Table of Contents, giving samples of writing styles and technicques, then reviewing each chapter after it’s drafted by you or your management team. This approach produces a professional, easy to use and update franchise operations manual. It also ensures the most efficient use of resources and talent.

franchise disclosure documents Finally, and only after all of the above are underway, a Franchise Disclosure Document, similar to a securities (stock offering) prospectus, is prepared by competent franchise counsel and registered with various regulatory agencies to comply with applicable federal and state laws. This document can contain thousands of discrete disclosures within its twenty-three chapters and attached exhibits, and obviously needs to be prepared by a franchise attorney. Doing it properly and with a balanced and fair perspective can help keep the company out of the courtroom later. In addition, a franchise registration process is required before any franchises can be advertised or sold in those 14 or so states having a franchise registration requirement. Having one firm author, edit and review all documents is not only cost-effective – it also avoids inconsistencies that can plague the franchise company as franchise legal pitfalls in the future (see discussion below).

RECOMMENDATIONS My twenty-eight years of experience has demonstrated that in order for a franchise company to get off to a good start, a heavy emphasis should be placed on strategic franchise planning to manage future franchise relationships as discussed above. Then, before the franchise program begins, management needs training in how to effectively operate a franchise organization. At a minimum, the following programs should be in place before franchise marketing efforts begin:

1. Franchise Lead Processing System (sm): Two key considerations for all franchise companies engaged in franchise marketing are the careful screening of franchise applicants and adopting the proper media plan, schedule and budget. Only the cream of the crop should be allowed to join the franchise network. Eliminating applicants at the entry stage is far easier than waiting for inevitable and costly problems later on. An examination of franchise networks plagued by troublesome franchise owners (who often ripen into future lawsuits) shows a lack of planning and attention to this relatively simple concept. Given the unlimited personal liability risk inherent in franchising, companies neglecting this important concept, or those using franchise brokers, are simply asking for trouble.

Before franchise marketing efforts start, a company should adopt a customized Franchise Lead Processing System that includes instructing key personnel in:

(1) adopting the proper organizational structure;

(2) defining the appropriate profile characteristics of prospective franchise owners;

(3) developing effective interviewing techniques, marketing materials, procedures and checklists;

(4) using a series of tests and other measures to ensure that inappropriate candidates are disqualified before joining the franchise network;

(5) detecting (and then avoiding) red flags that arise in the franchise marketing cycle; and

(6) adopting the appropriate media plan, schedule and budget.

2. Legal Compliance Program (sm): A franchise lawsuit can result if inconsistent or misleading communications occur when a franchise is first sold. Most of the legal risk is franchising centers around what happens during the marketing cycle: the twenty-three chapters of disclosures in the franchise disclosure document as well as who said what, and when. Defending any franchise lawsuit, even a frivolous one, can be enormous. Franchise companies involved in franchise litigation are shocked to discover they have fallen into a quicksand that swallows up time and money without limit. The cost of prosecuting or defending even a “small” franchise lawsuit can quickly exceed $100,000, and up. Exposure can run into the millions. Although one study of franchise disclosure documents indicated 27 percent of franchise companies have a history of franchise litigation (slightly greater than 1 in 4), the real percentage is much greater and probably north of 50 percent. This is because only pending litigation and final judgments must be disclosed in franchise disclosure documents. Most franchise litigation cases, like other litigation cases are settled, so they’re only required to be in the franchise disclosure document from the time they’re filed until settled. After that, they vanish without a trace. And whether the chances of getting sued in a franchise lawsuit and getting embroiled in franchise litigation is greater than 1 in 2 or 1 in 4, who wants to get involved in a time-consuming, stressful and expensive mess?

It is almost impossible to avoid potential franchise liability unless a genuine program of education and instruction is conducted with marketing personnel as well as middle and executive franchise management. An integrated Disclosure Compliance Program that specifies rules and expectations (including legal rules in selling a franchise), manages franchise disclosure documents and controls the dissemination of all information is absolutely essential. It is also one of the best investments a franchise company will ever make. For all of the above reasons, the use of franchise brokers is definitely NOT recommended. Their statements (or other actions) made to “close the deal” will make the franchise organization (and the personal assets of its officers) liable for violations of federal or state franchise laws. This also explains why the overwhelming majority of successful franchise organizations set up their own in-house franchise marketing department so that actions and statements made during the franchise marketing cycle can be monitored and controlled within the framework of a Franchise Sales Control System (sm).

3. Franchise Sales Control System (sm): Franchise Sales Control is the other half of the entire compliance equation. While legal compliance specifies rules and expectations, franchise sales control is the mechanism for detecting gaps and inconsistencies. When detected, their causes can be identified and corrected before injuring the franchise effort. A Franchise Sales Control System should be designed with this in mind, and should include a variety of feedback mechanisms to monitor performance and retrieve pertinent information for review by management. This not only increases the effectiveness of franchise marketing efforts – it also greatly reduces the likelihood that sales personnel will deviate from established procedures in selling franchises. Finally, a well-designed Franchise Sales Control System creates a complete back up file for every franchise sold that will qualify as business record evidence in the event of a future franchise dispute. It also satisfies the legal requirement of various states that franchise companies maintain a complete set of books, records and accounts of franchise sales. Since most of the legal risk in franchising arises during the franchise marketing cycle, a comprehensive Franchise Sales Control System is the company’s best protection against the quicksand of franchise litigation.

4. Managing Franchise Relations: As franchises are sold, the communication lines that develop between the parties will have a major impact on the success or failure of the ongoing franchise relationship. Controlling who is brought into the network through the steps outlined above is the critical first step. Once inside the franchise network, franchise owners must be taught to realize they are members of a system of mutually dependent outlets, each working for the better of the entire network. Developing an awareness of this concept early in the relationship and implementing a franchise feedback system will create a positive attitude, encourage innovative ideas from franchise owners, ensure timely royalty payments and prevent franchise relationship problems later on.

© 1982-2008, Kevin B. Murphy, B.S., M.B.A., J.D. – all rights reserved

For more information, visit the Franchise Foundations website.