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Edition 11 – Capacity Constraints

The first quarter of the 2016 calendar year is almost over and already there is a constant theme that has emerged amongst our Family Business clients, irrespective of industry, the life cycle of the business or the economy.

Too many Family Business owners are constraining the capacity in their business. They are limiting their profitability, impacting adversely on their cashflow and, potentially, turning away the very clients they are looking to do work with simply because they can’t deliver.

Let me explain.

Most Family Business owners are successful at bringing work in the door. They are great at marketing to their existing clients. Some, but not all, aren’t too bad at marketing to new clients. However very few, if any, are preparing their businesses for the new work when the marketing pays off and the client wants your product or service.

Here are a few examples of capacity constraints that we’ve come across amongst our Family Business clients recently:

  1. Not enough staff.
  2. Insufficient stock on hand to meet customer demand.
  3. Lack of trained staff in specific areas of expertise.
  4. Insufficient cash reserves to propel the Family Business through a quiet patch.
  5. Not enough free time in the diary to accept drop in appointments.
  6. Under investing in plant and equipment to the point it breaks when you are at your busiest.
  7. Expertise resting with too few individuals in the Family Business.
  8. Rushing the work & making errors in the process.
  9. Not seeking pre-approval for finance well before the finance is needed.
  10. Leaving it too long to replace staff that have departed.
  11. Not having an alternate supplier in place in the event your first one can’t deliver.
  12. Scheduling maintenance in your busiest trading periods.

Unfortunately, most Family Businesses treat these problems as one offs at the time, rather than reflect on the pattern of recent months. That creates significant long term issues for Family Business as a result of not fully comprehending the lost opportunity to the business.

In my opinion, there is a solution. If you are an owner or a manager in a Family Business, you need to ask yourself these four questions?

  1. If our business grew by 20% today, could we handle it?
  2. If we could handle 20% growth, how would we cope with it in terms of:
    1. Labour.
    2. Finance.
    3. Equipment.
    4. Expertise.
    5. Management capability.
    6. Time.
  3. If we can’t handle 20% growth, what would we need to do so that we could?
  4. What do we need to do today to build wriggle room into the business over the next 6 to 12 months so that we can handle 20% growth?

Why 20%? It’s simple really. If you have a bumper month, that is generally around 20% higher than a normal trading month? If you can’t handle a one off bumper month, then how are you going to handle a 20% lift overall in your business without overpromising and under delivering?

This Week’s Tip

Have you done the numbers on what a 20% lift in your business looks like in terms of revenue, net profit and capital value? Have you then calculated what resources you need to manage the 20% uplift? Could you cope now? If not, what do you need to do to be able to not just cope, but profit from the opportunity?