The Seven-Question Quick Quiz to Evaluate Business Potential

1. IN the business, ON the business:
Where do you spend your time?

1.   I’m up to my neck IN the business, keeping things going and putting out fires… who has time to work ON it?
2.   I do think a lot about working on the business, but I just don't get to it enough. There’s very little in the way of written business plans.
3.   Working on the business is very important to me. We have an annual plan, with benchmarks, which we share with all employees.
4.   Working on the business is a top priority. We’ve got written plans for 1 year, 3 years, and exit. We meet monthly or quarterly with a diverse group of advisors from both inside and outside the business to keep it on track

2. How much of your operations processes are documented? How do you manage profit ratios and cost of goods sold?

1.   Processes? What processes? We just do our thing. As for tracking profit ratios and cost of goods sold – we don’t. Let’s face it: this company would never survive if something happened to the owner.
2.   Some or all of our operations steps have been written down in a binder for people to refer to. As for profits and costs, we ask the accountant every now and then for advice on where we are.
3.   In addition to a binder describing the steps we take in operations, we look at reports quarterly and annually to determine profit ratios and cost of goods sold, and we use what we learn to adjust production and pricing. People work together on process mapping through team meetings every month, so we keep improving how we do what we do.
4.   We have set targets for gross profit, cost of goods sold and productivity levels. We review processes and results constantly with managers and hold people accountable for hitting their targets. The people who make and deliver what we sell are real leaders. This business could survive just about anything.

3. What kind of growth track do you have for the business? How strong is your exit strategy?

1.   Some years the business is up, others it's down; that's just the way it is. And nobody’s even thinking about an exit strategy.
2.   I spend most of my time running the business day-to-day and things are steady, but flat. I occasionally think about getting out and hope some of the next generation of family or employees might want to take over.
3.   Every year we show nice, steady progress – right on plan. We’re making good money, more than enough to be comfortable. We’ve identified 1 or 2 successors to take over the business and are starting to groom them, so they’ll be ready when we are.
4.   Our written 15% - 20% year-over-year growth plan puts us in position to double revenue and triple profits in 5 year horizons… and that promises a hefty exit value down the road – more than enough to retire on. We also know exactly how we plan to sell to business when we’re ready. We’ve bought and sold a couple businesses already, so we know how it works.

4. How well do you control expenses? What kind of reserves do you have in place to support the business in times of need?

1.   Hmmm… I wouldn’t exactly call expenses “controlled.” We spend what we need to spend, and sometimes it’s more than we have. There are no reserves.
2.   I control it by overseeing expenses myself. We have some personal assets to lend into the business if the need arises. We can survive by cutting expenses and borrowing if we come up short.
3.   We meet annually with our accountant and bank to discuss needs. We’re pretty much debt-free and have some reserves in place for emergencies. We have a budget and we review expenses monthly. We’re almost always right on track.
4.   We have detailed forecasts for both income and expenses. We audit inventory and performance quarterly. Employees report on results vs. budget monthly and regularly recommend adjustments to stay on plan. We’ve got 3-6 months of liquid assets set aside inside the businesses. The business is bullet-proof– we can survive anything.

5. How well do you understand marketing? What makes your company superior to the competition?

1.   Oh, I understand it … I understand that marketing is a black hole into which you pour money and hope for something to happen!
2.   We have a logo, a brochure that’s kind of wordy but does the job, and a basic website. We don’t bother tracking our competition; we just do the best we can do.
3.   We have about a dozen ways we generate leads, plus people seek us out regularly. Each year we test 1-3 new marketing efforts and we expand the one that produces above average results. We try to keep tabs on our competition but it’s a sporadic effort.
4.   Everything we do has a consistent message and speaks to brand value. In addition to our own sales plan, we carefully track how our competitors are doing, what they offer, how they price, what’s working for them – and we adjust our plans to stay one step ahead.

6. How are sales going?

1.   It’s all me, baby. Like most owners, I take on a lot of the sales responsibilities myself. I occasionally try to rustle up some new customers - but mostly we live off what we already have. And we don’t always have enough.
2.   It’s okay. There’s more than me selling, but we have no official sales process; when someone expresses interest, we try to close them. We get our fair share. But we could be doing better.
3.   We’ve got a few people in sales; they’re clear about their targets and usually hit their goals. We’ve got a written sales plan and lots of prospects at every stage of the pipeline. We’re growing nicely, consistently.
4.   We’re thriving. We’ve got a dedicated sales team, including a manager, and everyone is at or above their goals. Everyone follows the same process, which is well documented and consistently effective. We regularly look for new recruits and have an abundance of prospects.

7. Where do you stand with job descriptions, reviews, cross training and ability to replace key players; How many people in the company are “on the bus”?

1.   Bus? What bus? Whatever. Basically, I know what everyone has to do, and I’m the one who steps in to take over if anyone struggles or fails. And please, I don’t even want to THINK about key players leaving. We would be in serious trouble!
2.   Some people have written job descriptions and some don’t. But everyone pretty much knows their job, and we informally discuss with people how they’re doing. The higher up you go, the less clear it is. We’ve got no money for formal training.
3.   We have a team of people I can count on. Most positions have written job descriptions. We do formal evaluations annually, including individual training plans and a budget to support employee development. Most people are “on the bus,” and the few who aren’t are being evaluated and coached, and will be encouraged to move on if they’re not right for us.
4.   Everyone is “on the bus,” understands how their work impacts the company’s plan, and is committed to delivering their piece so that the company and everyone in it wins. We’ve got a detailed organizational chart with accountabilities for each position in writing. Employees are evaluated for productivity and growth quarterly and/or annually.