Financial Management

A good financial management system tells you how your business is doing--and why.

April 20, 2006|While a well-organized bookkeeping system is vital, even more critical is what you do with it to establish your methods for financial management and control.

Think of your bookkeeping system as the body of a car. A car body can be engineered, painted and finished to look sleek and powerful. However, the car body won't get anywhere without an engine. Your financial management system is the engine that will make your car achieve peak performance.

You may be wondering what exactly is meant by the term "financial management." It is the process you use to put your numbers to work to make your business more successful. With a good financial management system, you will know not only how your business is doing financially, but why. And you will be able to use it to make decisions to improve the operation of your business.

Why is financial management important? Because a good financial management system enables you to accomplish important big picture and daily financial objectives. A good financial management system helps you become a better macromanager by enabling you to:

1. Manage proactively rather than reactively.2. Borrow money more easily; not only can you plan ahead for financing needs, but sharing your budget with your banker will help in the loan approval process.3. Provide financial planning information for investors.4. Make your operation more profitable and efficient.5. Access a great decision-making tool for key financial considerations.

Financial planning and control help you become a better micromanager by enabling you to:

1. Avoid investing too much money in fixed assets.2. Maintain short-term working capital needs to support accounts receivable and inventory more efficiently.3. Set sales goals; you need to be growth-oriented, not just an "order taker."4. Improve gross profit margin by pricing your services more effectively or by reducing supplier prices, direct labor, etc., that affect cost of goods sold.5. Operate your business more efficiently by keeping selling and general and administrative expenses down more effectively.6. Perform tax planning.7. Plan ahead for employee benefits.8. Perform sensitivity analysis with the different financial variables involved.

The first step in developing a financial management system is the creation of financial statements. To manage proactively, you should plan to generate financial statements on a monthly basis. Your financial statements should include an income statement, a balance sheet and a cash flow statement.

A good automated accounting software package will create the monthly financial statements for you. If your bookkeeping system is manual, you still can use an internal or external bookkeeper to provide you with monthly financial statements.

Excerpted fromStart Your Own Business: The Only Start-Up Book You'll Ever Need, by Rieva Lesonsky and the Staff of Entrepreneur Magazine, 1998 Entrepreneur Press

5 financial areas every entrepreneur should monitorProper financial management is crucial because it allows an entrepreneur to make timely, well-informed decisions in response to changing conditions.

Surprisingly, many entrepreneurs look at financial reports only at year-end or even a few months later when financial statements become available. That lack of attention is putting their business at risk, says Jorge Henao, a BDCBusiness Consultantspecialized in financial management and strategy.

Entrepreneurs have to be disciplined in reviewing financial data at least on a monthly basis and conducting more thorough analysis every quarter, Henao says.

You want to compare your companys performance to objectives set out at the beginning of the year, based on a long-term strategic plan. You then make adjustments as necessary throughout the year to accomplish the objectives.

"You want to make decisions at the right time," he says, "If you wait until year end to address issues, it will probably be too late."

Henao says key financial indicators fall into these categories:

GrowthAre your sales and profits increasing or decreasing year-over-year? Is there a trend?

ProfitabilityIs your business making enough profit compared to other similar companies?

LiquidityCan the company meet its short-term obligations?

LeverageIs the company taking advantage of financing to operate and grow?

ActivityAre you managing the assets of the company effectively?

Moreover, its critical for entrepreneurs to project and monitor cash flow, Henao adds. Even a company that is generating profits can quickly find itself in trouble if it doesnt have enough cash to operate. Thus, you should know your financing needs in advance in order to manage your business proactively.

"If the business is growing, you are most likely going to require financing for receivables, inventory, machinery and equipment to hire more people, etc. If you wait until you need the funds, youre putting the company in jeopardy."

Henao recommends that entrepreneursbenchmark the financial performanceof their business against that of similar companies in the same industry. Results that are below the average may highlight areas for improvement.

For instance, a subpar gross profit margin might indicate faulty pricing based on an inaccurate reading of costs. To solve the situation, you will likely have to reduce costs, increase prices or a combination of the two.

"Entrepreneurs often work on intuition," Henao says. "But having the right information at the right time will help entrepreneurs make more educated decisions."

Nico Schuermans succulent dishes have won his Belgian-themed Chambar Restaurant a wall of awards that would be the envy of any chef.

Vancouver Magazine named Schuermans chef of the year in May.But a few years ago, Schuermans decided being a chef wasnt enough. Although he had cooked for Bill Clinton and Mick Jagger and prepared a dish on NBCs Today Show, Schuermans and wife Karri, who co-owns Chambar, had a bigger vision.

They wanted to be food entrepreneurs and had a long list of ideas for new business ventures that could complement the restaurant in Vancouvers Gastown district.But how to go about choosing the right path?

Breaking down major decisions into steps

Experts recommend breaking down major decisions into a series of steps.

You need to know how much a decision is going to cost you and how much you expect it to return, says Laura Sowden,BDC Consultings Director of Core Market Solutions.

Sowden worked with the Schuermans when they approached BDC in 2007 for advice on their plans. Sowden recommendeda financial modelling exercisethat would give the couple forecasts for all their options.

The first step was a strategic visioning sessiona meeting with the Schuermans and top Chambar staff to brainstorm about growth ideas. They took an entire day and came up with about 20 opportunities.

The group then whittled these down to the best five options based on their feasibility and fit with the Schuermans business strategy. They settled on creating a second restaurant for breakfast and lunch customers, a cooking school, a line of packaged foods, a deli and a Belgian beer brand.

Create detailed financial projections

The Schuermans then had some homework to do. They had to create a business plan for each venture that included detailed financial projections.

All that information then went into a five-year financial forecast. A financial forecast includes setting a rate of return on the owners invested capital (typically about 15%). Any new venture should allow the business to exceed or at least match those targets, while not stretching finances.

A key challenge is how to do all this while minimizing external financing and not hurting cash flow, says Bruce Dwyer, a BDC Consultant who helped the Schuermans with the financial modelling.

An ambitious expansion

The couple embarked on an ambitious expansion that has seen their sales close to double since 2007 and their 50 employees grow to 120.

Their first new venture was the Caf Medina, a breakfast and lunch restaurant.

The next expansion venture was the Dirty Apron Cooking School. Here, the couple hit a snag. Their plan to open the school in a residential loft space got nixed when bank loan rules changed. They now needed to come up with the hefty 25% down payment to buy a commercial space, instead of just the five to 10% required for a residential property.

They went back to their financial forecast and plugged in the new numbers. They found out that the cooking school could still be financially successful.

The couple have since opened a deli in the cooking school, where they market their own new food line. And Chambars drinks list now includes Nicos own brand of Belgian beer.

Sowden says a big key to the Schuermans expansion success was the extensive thinking they put into decision-making upfront.

They did so much research on all their alternatives. Thats vital. Its all the unknowns that will hurt you.

Decisions: 7 Steps to Help Remove the Guesswork

1. Bring your top staff together to brainstorm opportunities.

2. Narrow your options down to a manageable list.

3. Create abusiness planfor each option.

4. Create a detailed financial forecast going out three to five years.

5. For each venture, factor in timing of the launch, initial outlay, cash flow and financing.

6. Put your decision into action, assigning deadlines and responsibilities for each project.

7. Break down the forecast into one-year timeframes. Track progress and update the forecast as needed.

Strategic planning: big gains for entrepreneursAs the economy heads into recovery, entrepreneurs should be gearing up for growth. That makes it an excellent time to put strategic planning at the top of the agenda."Strategic planning means looking at where you want your company to be in the next 3-to-5 years and determining what you need to do to get there," BDC Consulting manager Nyron Drepaul says. "Whether it's buying a competitor, increasing your capital or aiming for higher growth, you need the right strategies, structure, plans and controls in place to optimize the return on your investment."

A common misconception is that strategic planning is only for large companies. But the reality is that most businesses can greatly benefit from the exercise.

"If you're always busy putting out fires, you may feel you have no time for planning," Drepaul says. "But by developing big-picture strategies to guide your day-to-day operations and setting goals, you're no longer flying blind. A long-term plan simply increases your chances of success."

Minimizing riskAnother reason for entrepreneurs to make strategic planning a priority is that it reduces risk, particularly in periods of economic uncertainty. "As part of the process, you'll be assessing your current situation, resources, strengths and weaknesses, competitors and the business environment. This way, you will be better equipped to make decisions and therefore to minimize risk."

For Drepaul, strategic planning also helps entrepreneurs to shake things up a little. "It's a way to rekindle the entrepreneurial drive that got you started in the first place. For example, you may have started out with a dream of a $10-million business with stores all over the world. But along the way, you got distracted by daily challenges, lost sight of that dream and settled for less than your true potential."

"Strategic planning reignites that passion for what you're doing. If you have a real plan with goals, it's very rewarding to achieve each milestone. That sense of satisfaction builds the momentum you need to push even further."

Involve your employeesDrepaul recommends entrepreneurs involve their employees in the strategic planning exercise, particularly in smaller companies. When employees contribute, they take ownership of the plan and help you reach your goals, he says. "This builds enthusiasm in your company and gets everybody on the same page." For example, entrepreneurs can ask employees to brainstorm about a company's strengths and weaknesses. After all, your staff knows your company inside out.

A crucial part of successful strategic planning is to ensure you seek anexternal, objective point of view.Most small businesses don't have the resources and expertise in-house to guide them through the strategic planning process. "A consultant can give you a fresh perspective on your business, help you envision the future you want and define your long-term goals," Drepaul says. "An expert can also ensure you follow a rigorous plan with clear timelines and assigned responsibilities.

"It's about getting you thinking differently about your company and bringing you closer to achieving your dreams."

At a glanceStrategic planning enables you to:

Envision your company's future over the next 3 to 5 years

Define your long-term goals

Assess your current environment, as well as strengths, weaknesses, opportunities and threats

Develop strategies and tactics to address any identified problems

Assign timelines and responsibilities to turn your plan into reality

Reduce the risk of doing business based on better decisions and achieve your company's potentialADVICE AN ENTREPRENEUR CAN COUNT ON

Ask any entrepreneur why he or she started a business and at least one answer is inevitable: I wanted to run my own show. So why would a small business owner want to answer to a board of directors?

It turns out there are a lot of good reasons. Just ask David Ganong, chairman of Ganong Bros. Ltd., a New Brunswick family-owned candy maker.

"My grandfather had a saying back when he ran this company: 'When management and ownership is the same, you need a board of directors to protect you against yourself'," says Ganong, whose company has had a board for more than 50 years.

"My experience says that most companies can benefit from a board as a way to generate extremely good, broad advice at very low cost."

Founded in 1873, Ganong Bros., is Canada's oldest candy company. Based in St. Stephen, New Brunswick, the firm employs about 400 people and exports a substantial amount of its production to the United States.

The independence of the company's board has been a decisive element in the firm's long-term success, says Ganong, the company's controlling shareholder.

"I bring most of my big decisions to them to get their feedback -- which by no means implies automatic approval," he says. "In fact, we have had situations in which the business plan I submitted was rejected and had to be reworked."

Ganong's board has an impressive lineup of independent directors with diverse, high-level experience in such areas as manufacturing, accounting and human resources. Corporate lawyer Purdy Crawford is the former chairman and remains on the board.

Ganong, who stepped down from the CEO position in 2008, believes a board is also reassuring to bankers.

Even the smallest company can start with a mentor and then work up to a small advisory board that can grow with the company, he says.

Jean-Ren Halde, president and chief executive officer of the Business Development Bank of Canada (BDC), agrees.

"A well-run board can bring significant advantages to a small business. Entrepreneurs often overlook those benefits," says Halde, who has served on the boards of many businesses and organizations during a career of more than 35 years.

"Their importance, particularly in bringing a fresh perspective, is being increasingly recognized."

Advantages of a board of directors or an advisory boardBoards of directors can bring small and medium-sized enterprises (SMEs) many of the same advantages they bring to larger companies. For example, venture capital funds often want to closely monitor progress and provide advice to companies they've invested in; a board offers a good way to do so.

Michel Nadeau, executive director of the Institute for Governance of Private and Public Organizations in Montral, cautions entrepreneurs that an advisory board, as opposed to a formal fiduciary board, is often preferable for SMEs.

"Advisory board members, who often include old business contacts the entrepreneur knows, retired business executives and others with legal, financial or other specialized knowledge who are willing to pitch in, can often be counted on for advice in exchange for a nominal fee, or even just the price of a dinner," says Nadeau.

Beverly Topping, president of the Institute of Corporate Directors, adds that an advisory board can increase the pool of candidates for directors. "The primary responsibility of directors on public boards is to the company, with the potential for liabilities, which can cause worry among some candidates," Topping says. "However, under normal circumstances, there are no legal implications involved in joining an advisory board."

SME boards: Growing interest despite tough timesThanks in part to research indicating largely positive benefits for SMEs, entrepreneur interest in boards of directors is growing, according to Topping.

"There have been a number of studies that show that better corporate governance leads to improved business practices and lowers risks to borrowers and investors," she says. "This means a company's cost of capital is reduced, which in turn means better bottom-line performance."

David Ganong continues to be more than satisfied with the role his company's board has played during the current tough economic times.

Although the recession has had little effect on demand for the firm's products, the run-up in the Canadian dollar in recent years made it tougher to compete in export markets. "We had to cut fixed costs significantly as a result," Ganong says. "The board played a big role in those decisions."

On the other hand, the stronger loonie caused many of Ganong Bros.' competitors to consolidate operations south of the border and to close their Canadian facilities. That opened up opportunities for Ganong Bros. to boost sales.

Here again, the board offered important input.

"The combined judgment and wisdom of the board is very valuable," says Ganong. "You've got a second line of very qualified thinkers, in addition to management, that's trying to ensure the company is making the right strategic decisions."2 IMPORTANT TOOLS FOR YOUR ENTERPRISE

Having clearly defined goals and measuring your progress as you move toward them is essential to making your business a success. But how do you determine what's realistic to achieve in a given amount of time?2 important planning tools can help. A management dashboard keeps track of your performance so you can see how it evolves. Benchmarking helps you compare your performance to that of other industry players. Both tools will help you keep moving forward as you take your business to the next level.

1. Management dashboardA speedometer and gas gauge give you critical information that helps you get where you're going safely and on schedule; you wouldn't drive a car without them. In the same way, all businesses should monitor certain types of information to ensure that they stay on track. The management dashboard gives you current, objective data about your business, which you can use to make informed decisions.

This tool is also known by many other names, including executive or performance dashboard, key performance indicator (KPI) summary and business scorecard.

Essentially, it is a way for managers to get an at-a-glance view of the most important aspects of their business. It brings together, in a single place, a summary of data collected from various sources across your business. It can include an overview, spreadsheets and graphics such as bar charts or pie charts.

The management dashboard can be created using specialized software packages that give you real-time information updates. But it can also be designed with simple tools like spreadsheet or word processing software, which help you manually track important data on a regular basis.

The benefits of a dashboard are many. It translates goals into measurable data and provides speedy access to objective information. Graphics make quick assessment easy and allow early identification of negative trends or problems in projects or departments

Make the most of your dashboardTo maximize the benefits you get from your dashboard, it must be customized for your business. To decide what aspects of your business you should monitor, review your key business goals. These should be as specific as possible. For example, do you want to increase the number of repeat clients or find more new customers? Is improving cash flow a priority? Maybe you want to fill orders faster or reduce the number of returned products?

Based on your business goals, determine which KPIs you want to measure frequently to track progress on these goals. These KPIs should be SMART: Specific, Measurable, Achievable, Realistic and Time-bound.

Monitor your dataThe data for the dashboard should be collected constantly and reviewed regularly. Studying the dashboard is best done as part of your schedule. Over time, you will be able to spot new trends or anomalies quickly.

What you could monitor.If improving your number of repeat customers is important, you could measure the number who submit a second order within a specific period of time (3, 6 or 12 months). If finding new customers is a goal, you might measure the proportion of leads and referrals that turn into orders within 12 months. If your priority is improving your business's cash flow, you can start tracking the number of accounts that have an excess of 30 days payable. You will quickly notice any increase in unpaid accounts. By acting immediately and doing some collection work, you can correct the situation before it affects your cash flow.

E-dashboardDashboard software usually presents your data in easy-to-understand formats, such as charts, gauges or warning lights. You can also download dashboard widgets -- graphic tools that collect information and display it on your desktop. Like any desktop icon or window, each widget can be moved around your desktop, rearranged or deleted.

If you are considering buying software, know your business requirements. Determine if it accommodates the KPIs you want to track and if you need additional software to collect the data. Verify whether it spans several business areas or is specific to one (e.g., human resources). And ensure that as well as being flexible and easy to customize, it integrates with your other systems, such as client relationship management (CRM) and accounting software. Finally, see if you can change how the reports are created, e.g., by region, by sales rep or by product.

When you have determined what you need, budget for the costs of purchase, installation, training and yearly maintenance. Factor in the costs of updates or additional components. You may also wish to develop a purchasing plan to spread the costs over time.

2. BenchmarkingKnowing how other companies in your industry are performing will help you develop insight into your own business practices.Financial ratiosare often available that allow comparisons to industry averages and medians.

Leading and innovative firms can also act as models for other companies. Benchmarking means identifying the best practices (achieved results) of industry leaders and then comparing your own business performance with them.

A benchmark can help in virtually all areas of your business and be a useful tool in a business's program ofcontinuous improvement.

BenefitsComparing your performance with other businesses also allows for enhancedstrategic planning, more efficient operations and improved products and services.

Benchmarking stepsThere are 6 basic steps to successful benchmarking.

1. Identify the area you want to improve

2. Measure your performance in that area

3. Decide which companies or industry you would like to benchmark

4. Determine how you will collect the data on your target

5. Compare data collected to your performance

6. Develop an action plan to close any gaps you may discover

The federal government offers anonline toolto help Canadians benchmark their businesses against others in the same industry, based on data from Statistics Canada. To get the full benefit, you should enter your entire firm's financial data.

BDC also providesa benchmarking tool. The tool allows industry comparisons within three areas: average collection period, average days payable and inventory turnover. These comparisons can show where your company is successful or where improvements can be made.

Make comparisonsBenchmarking and best practices should be viewed as a means to gain insight into your own business processes. Make sure you understand why your target was successful before emulating it. Practices that work for one company may not necessarily work the same way for others.

Therefore, you should carefully evaluate whether a best practice can work for your business, which may be a different size or have different markets or strategic orientation. Practices should act as a source of inspiration. You can then adapt them to reflect your own realities and needs.

IMPROVE YOUR PROFIT THROUGH INFORMATION TECHNOLOGYInformation technology can be an effective way to make your company more productive and profitable -- especially if you're competing with low-wage countries like China and India.

Whether it's integrating your processes, enhancing your marketing abilities with a customer database, better managing receivables or improving supply chain management, the right technology can dramatically improve how you run your business. Although it sometimes requires a significant investment, the long-term advantages usually far outweigh the initial costs.

Some typical applicationsThe best way to improve your business performance is to examine internal processes that are managed separately and find a way of bringing them together into a single management system. Internal processes that can often be blended in this way include payroll, accounting, customer relationships, inventory control, production control and communications with employees and clients. A number of tools are commonly used to achieve this:

Enterprise Resources Planning (ERP) and accounting systems Supply chain management Customer relationship management Web 2.0 Database managementERP and accounting systemsEnterprise resource planning enables companies to break down traditional business silos, replacing them with tightly integrated structures that encompass internal processes, human resources, technology and organization strategy. Company activities that are typically covered by such a system include accounting, sales/marketing/client management, purchasing management, production management, costing, inventory control and human resources management.

Supply chain managementThe supply chain refers to all of the steps involved in getting a product or service to your customer. Apart from making sure that your own company is operating efficiently, you also have to ensure that your entire supply chain, including outside suppliers, is also performing optimally. Supply chain software helps you automate your processes and track information about orders and deliveries. This helps you forecast supply and demand more accurately and ensure that your inventory can cover client orders. Other benefits include reducing errors by automating transactions, speeding up deliveries to customers and tracking their orders, reducing warehouse space requirements through improved inventory control and decreasing administrative costs by introducing automated systems.

Customer relationship managementAnother term often used in e-business is customer relationship management or CRM. CRM uses technology to improve your insights into customer needs and behaviour as well as the management of your relationships with clients. Some companies use it to create personalized call centres where technology recognizes incoming phone numbers and automatically calls up customer information for the representative taking the call. A CRM system can also allow travelling sales and repair personnel to use mobile wireless transfers to pull up information on customers.

Benefits include an improved ability to anticipate clients' needs based on historic trends, targeted marketing that reaches specific audiences and increased sales through better client relationships.

Even if CRM technology is not within your budget, you can put some of its basic principles into practice. For example, in most businesses, entrepreneurs deal with customers using a variety of means including email, faxes, phone calls and letters. Putting this information together can help you improve customer service by tracking on a spreadsheet your dealings with customers (who said what to whom and when), for example, or by identifying top clients so that you can offer them special promotions. This information can also be used to customize products to suit the needs of customers or to target certain types of clients withspecialized newsletters.

Web 2.0Web 2.0 is a term used to describe a whole array of interactive web technologies, including networking, blogs, podcasts and online social networks. Businesses can tap into these technologies to communicate with customers and partners or to collaborate internally.

Peer-to-peer networking, or P2PBusiness owners can use this tool to share files with other companies and suppliers so as to improve their supply chain and procurement processes. A company and its supplier can communicate using web services, for example, updating each other's inventory and catalogues, which can then be integrated with their respective ERP systems. This type of integration cuts costs, increases productivity and reduces human error.

Podcasts or video recordingsEntrepreneurs can use this medium to communicate with employees, customers or prospective customers and promote new products or features.

RSS (Really Simple Syndication)This enables customers to subscribe to online news, blogs or podcasts in order to receive up-to-date information on developments within your business.

Social networking systemsThese can be set up internally to enable employees to exchange information, skills and knowledge. Suchnetworkscan be used to design, develop and make innovations to your business's products and processes.

Database managementDatabases allow information such as customer mailing lists to be managed in a systematic and controlled way. Relational database management systems can electronically link various aspects of your business, linking a customer with a specific product or service that they regularly purchase, for example. In turn, your business can better keep track of customer behaviour and ensure that targeted marketing reaches such clients. This type of tool allows you to get closer to your customers by better understanding their needs. It also helps you process information such as client sales patterns, analyze data in ways that can shed light on a specific aspect of your business such as marketing techniques and spend less time managing your data.

The best choice of database management software depends on the complexity of your business.

Shop aroundBefore you invest in any of these technologies, do a careful assessment of what's available on the market to determine which is best suited for your company. (Most of the time, you should be able to find an industry-specific solution.) You can do that by subscribing to specialized sources such as electronic journals, databases or research services, attending trade shows frequented by software vendors and networking with organizations in your industry that have already tried and tested new innovations. Finding out what your competitors are doing can also help narrow your search for solutions specific to your industry. The web and universities that publish studies evaluating technological innovations are also good sources of information. Simply type "technology watch" in any search engine and you will find a wealth of information on the latest trends.

All of these tools are readily available today and affordable for small and medium-sized businesses. Each product and vendor has its strengths and weaknesses. Some systems provide rich industry-specific functionality but lack fundamental accounting features. Others provide a broader feature set that can be customized to meet the needs of different manufacturing methods and industry requirements.

When you make your decision about your software application, you need to consider your expected growth, the viability of the vendor, the stability and functionality of the product and the availability of third-party add-on solutions. Other key considerations include the total cost of ownership and the potential return on such an investment.BUILD AGILITY: LEARN 8 STEPS TO INPROVE YOUR REATION TIME

A client needs a product similarbut not identicalto one that your company offers. You are able to react quickly and develop an adapted version that meets his needs. That is business agility. And it has just expanded your business in a whole new direction.

An agile business can move quickly to take advantage of opportunities. In today's economy, where competition is fierce and the landscape changes fast, agility is increasingly indispensable. Remaining nimble, rather than focusing only on long production runs and standard products, can mean the difference between growth and failure.

Agility can also help a company deal with unforeseen risks, such as new regulations in the industry, or a strong competing product with a lower price.

In many ways, agility for a business is similar to fitness and flexibility for a person. Just as good health allows a person to fight off disease and stress, agility allows a business to better deal with changing markets, competition, client preferences and regulations.

To hone their agility, businesses can follow these 8 steps:

Step 1: FocusDetermine your company's core competencies. These are the things that your business does best, that your customers most value and that, ideally, your competitors can't duplicate easily. Knowing these competencies can help in a variety of ways. For example, you may determine that your company's core competency is expertise in a particular type of motor. You can then decide to leverage that expertise to develop that type of motor for varied products in varied industries.

But core competencies go beyond specific products. They can also include technical knowledge or expertise, a manufacturing process, good relationships with clients and suppliers, an extensive distribution network or simply a solid team of employees.

Step 2: RelevanceNext, determine the markets for the products or services that stem from your core competencies. For whom does the company stand out? How can you make money from this distinctiveness?

Market research is key at this stage. It may be helpful to hire anoutside consultantto help systematically evaluate the opportunities available in markets near and far.

Step 3: VersatilityOnce your market is decided on, it's time to assess how you can best serve it.

If your company's capacity to generate value is based primarily on its investment in equipment, then you will need volume to make this investment profitable. Equipment planning plays an important role at this stage.

If, on the other hand, your value is based primarily on know-how or experience, it will be easier to adapt to variations in market opportunities. In this case, you should choose your equipment to make the most of the firm's knowledge.

Step 4: Lean operationsThe goal of lean operations is to reduce wasteactivities that don't add value in your business. Lean operations allow you to provide your product or service as quickly as possible, without sacrificing quality or increasing cost. In fact, they may reduce cost. To foster lean operations, you should eliminate or simplify all processes that don't ultimately create value for your customer.

Ask yourself, what is needed to make the company's operations efficient and effective? Which activities add value and which don't?

Step 5: Commitment and teamworkStaff the company with individuals who have the right aptitudes and attitude. Make them aware of what the company is all about. Give them the opportunity to participate in a common challenge. Act as a coordinator and a facilitator. Take care of those people who look after the company. Encourage a culture of inclusiveness.

Step 6: Continuous improvementMake it a priority that your company is always becoming better at what it does. Committing to a process ofcontinuous improvementmeans a constant focus on improving productivity and quality. It's a process that never stops.

Step 7: SimplicityMake administration as light as can be. What information is truly needed? Why? When?

You can avoid decision bottlenecks by clearly assigning roles and responsibilities. Transparent accountability is essential. Decide who is responsible for making decisions, who has input, who implements decisions and who follows up.

Step 8: VigilanceClosely monitor trends and changes in the company's business environment. Keep data about your key performance indicators (KPIs) at your fingertips so you will quickly notice any developments in your business.

Competitive intelligence is the process of maintaining up-to-date information on your competitors. It's important to take a focused approach to gathering this intelligence. Decide what type of information you need for strategic reasons, and then assign clear responsibilities for collecting, organizing and analyzing it.

Gather information about your industry that can help you improve your strategic approach and specific processes. Be sure to evaluate how applicable these strategies will be to your particular business. What works for one company may not work for another that has a different strategic direction, business model or workforce composition.

CUT COSTS AND BOOST PROFITS IN BAD TIMESChris Wood admits he felt some apprehension before deciding to change the way his company produces stamped metal components for car manufacturers.

But with the auto sector in crisis and entire production lines being cancelled without advance notice, Wood knew he had to reduce the odds that his firm would find itself stuck with inventory his customers no longer wanted to buy.

So Wood and his company, Marwood Metal Fabrication Ltd., turned to a lean management philosophy known askaizen- Japanese for continuous improvement - to help them usher in a more efficient way of producing their components.

"I thought we were going to have a lot more trouble with buy-in on the shop floor - I was worried there'd be resistance to change," said Wood, president of the 200-employee firm based in Tillsonburg, Ontario. "But people really liked the new system."

Involving staff from every level of the companyWood says the changes in production methods brought in as a result of the exercise have saved the company millions of dollars and helped it survive the recession.

Key to the successful transition was involving staff from every level of the company - from senior management to the shop floor - in analyzing how the production system worked and how it might be improved.

That's a central tenet of the Kaizen approach to operational efficiency - a philosophy pioneered in Japan by Toyota Motor Corp. in the 1940s whose influence has spread worldwide.

Kaizen is one of manylean management techniques- including such ones as just-in-time inventory management and value-stream mapping - that companies can use to boost the efficiency of their operations and cut costs.

Kaizen involves taking small groups of workers from throughout a company and having them brainstorm intensively about the way they do their work to identify waste and cut out processes that add cost but not value.

The idea is to achieve incremental changes that can be swiftly implemented.

Kaizen teams always involve a cross-section of the company, from shop-floor workers to senior managers who are freed from their duties to participate in the workshops. Half will come from the area of the firm where the improvements are being sought; the rest come from throughout the company. All decisions are made by consensus.

An economic slowdown can be agood time to introduce such reforms, says James Womack, founder of the Lean Enterprise Institute, a non-profit organization based in Cambridge, Mass., that promotes lean production methods.

"It focuses your mind to have your back to the wall. That's not the way life is supposed to work, but that's often the way life does work."

In tough times, James Womack explains, employees are often open to change and eager to help. Still, he cautions that if Kaizen is used only as a way to finesse staff cuts, employees will see through the ruse, and the entire effort will fail. A basic level of trust between employer and workers, he says, is a must for Kaizen to succeed.

Improving the cash flowKaizen methods are applicable not only to manufacturing; they can be used to improve operational efficiency in a variety of sectors, including by streamlining administrative work flow.

For example, BDC consultant Anselm Almeida helped Wood's company to use Kaizen to improve the company's system for accounts payable and receivable.

"We have improved the company's cash flow because the turnaround on receivables is a lot faster," Almeida said. "We have also eliminated errors in processing orders to suppliers."

Another key area whereKaizen has helpedMarwood has been in integrating databases. Previously, says Steve Spanjers, the company's vice president of operations, the company "had a lot of disjointed databases that didn't talk to each other." Now, everyone works on a single, integrated database.

But to achieve that, rather than simply impose the change from above, Marwood seized the occasion to involve staff from throughout the company to analyze office work flows and how they could be made more efficient. The result, Spanjers says, has been not only to integrate disparate databases into one seamless system, but also to improve the efficiency of the entire operation.

Unlike many companies, Marwood has used Kaizen since it was founded in 1990. Initially, says Spanjers, it was required by the Japanese-owned automakers who bought its components.

"But now we're actively doing it on our own. It's still mandated by our customers, but even if it wasn't we'd still do it, because it's good value."

A Quick guide to think leanThinking lean is a way of doing business in a competitive environment. Ultimately, you want to provide a product or service as quickly as possible at the highest quality and lowest cost. To do that, you need to eliminate or simplify work processes that add no value to the product or service from the customer's perspective. This means you will be getting rid of waste everywhere in your businessfrom overproduction to defective products and even poor employee training.There are 5 basic principles of lean production:

1. Value is what your customers perceive as value.

2. Map out your operations to determine which processes create waste; find ways to improve.

3. Production flow should move smoothly from raw material to finished goods. If that's not the case, identify bottlenecks and improve your processes.

4. Only produce what is necessary; avoid stocking goods. Instead of pushing your products out, let customer demand pull finished goods through the system. You design and produce products according to customer quantity, quality and cost needs.

5. Continuous improvement means there is always room to improve the way you do business by reducing time, cost, space, mistakes or effort.

What are the benefits?By thinking lean, you can push your company to be more productive in a competitive environment. When implementing a lean approach, you can expect productivity increases from 10% to 50%, quicker detection of errors and quality problems, a lower risk of obsolescence, reduced space requirements and shorter travel distances, increased ability to get to market faster, reduced order processing errors and better customer service. This should lead to significant cost savings in reduced inventory costs (30% to 80%), less handling damage and lower material handling costs, reduced set-up time (30% to 90%) and response time (30% to 70%), reduced turnover and costs of attrition, and less paperwork.

A continuous improvement initiativeEver-changing customer expectations, new procedures and technologies, and the desire to run a better, faster and cheaper organization drive the need for continuous improvement. The process never stops. In order to make continuous improvement work, you need to have clear objectives and identify all problem areas.

There are 2 general types of improvement activities: breakthrough improvements and incremental improvements. Breakthrough improvements typically are made by one or a few individuals who bring a new theory, invention or technology to solve an old problem.

On the other hand, incremental improvements are generally less significant improvements carried out by many people over time in gradual and constant small steps. Incremental improvement may not produce a dramatic result, but the results are long lasting. The accumulation of numerous small improvements is often equal to or greater than the value of one or two breakthrough improvements.

Here are some of the steps you can take to keep the momentum going:

Put a team in place with people who are accountable.

Hire an external consultant such asBDC Consultingto review your business processes. A fresh perspective can help.

Do the simple and less costly things first; you don't have to tackle your entire production line. Instead, you can focus on a specific initiative such as reducing inventory.

Always get feedback from your employees and set up a way for them to share their opinions, e.g. a suggestion box, forums, etc.

Engage everyone in the organization to gradually and continuously improve how they work on a daily basis. Reward employees for their improvement efforts.

Put continuous improvement on your business agenda, and make sure it's a regular item at company meetings.

Be sure your customers are involved in your initiatives. Their input is invaluable, and they can help you develop products that add value.

Keep an eye on your industry, and follow best practices.

Make continuous improvement a part of your business culture.

Some popular toolsDespite the popular perception that lean production is a complex and highly costly process, this renowned management approach can be simplified and customized for entrepreneurs depending on their needs. Here are some common lean manufacturing tools or approaches used today.

Push-pull systemThe conventional push system keeps people and machines occupied, literally pushing the product along the production line to the next operation. But working in this fashion creates waste. When you implement a pull system where the customer controls or pulls what is produced, the results are higher customer satisfaction, lower inventory, reduced costs and product design that is constantly evolving to meet changing customer needs.

During production planning, it is important to take into consideration the complexity and product diversity that will be involved. The pull system works under the assumption that there is no disruption in the production process from beginning to end. If your product is relatively simple and product diversity is not a concern, a pull system could provide the best strategy.

BenchmarkingThis enables you to measure your performance and compare it with similar companies in your industry. An important part of benchmarking is measuring how you perform in terms of time, cost and resources. By comparing your processes, you can make the necessary adjustments to improve and set higher standards. Evaluate different departments within your business and ask: Why is one group always meeting deadlines vs. the other? What processes do they have in place that enable them to be more organized? Once you've benchmarked and identified problem areas, work with managers and employees to identify ways of improving things.

Implement an action plan with objectives that can be achieved gradually over a fixed period of time. Constantly review and monitor the parameters of the selected projects as you go along. After all, even lean manufacturing experts build flexibility into their detailed plans. If you have made the effort to clearly understand where the problems lie, your chances of success are much greater.

KanbanA method for maintaining an orderly flow of material, Kanban cards are used to indicate points at which material should be ordered, how much is needed, where it's ordered and where it should be delivered. It is one of the primary tools of the JIT (Just-in-Time) system.

5SAnother tool used today is 5S, which helps ensure you lose no time when looking for materials. A clean and well-maintained factory can help you delay or avoid the need for a larger facility since you should be able to gain 15% more free space after implementing 5S. Following the implementation, businesses benefit from an increase in production quality and productivity.

Sort: get rid of all clutter so we can find the things we need.

Straighten: Be sure everything is in its place and materials stay where they belong. Systematically arrange the plant.

Sweep: Make sure your premises are clean, and install systems to keep them that way.

Standardize: Establish procedures to maintain workplace organization. Assign duties.

Sustain: Manage your system on an ongoing basis.

SMEDSMED (Single Minute Exchange of Die) is a technique to reduce setup time for tooling changes. It's also known as quick changeover, where you eliminate waste from the process. This method helps you identify counterproductive elements and determine which operations you can perform while equipment is running and those for which equipment must be stopped. This method is ideal in smaller manufacturing settings; businesses can benefit from faster delivery, lower inventory and higher overall equipment efficiency.HOW YOUR COMPANY CAN WORK SMARTERTechnological advances, customer expectations and especially globalization have increased the need for higher productivity. After all, Canadian entrepreneurs must now compete with companies in countries such as China and India where labour costs are a fraction of what they are in North America.

In a formal sense, productivity refers to how well an organization converts input (such as labour, materials, machines and capital) into goods and services or output. But today it is no longer limited to measuring ratios of inputs and outputs. Basically, increasing productivity just means working smarter. You can look for opportunities to improve efficiency just about anywhere in your company. Here are some key areas to consider.

Choosing the right equipmentcan help you reduce the risk of costly errors and improve the way you do business. Before you buy any equipment, be sure you are thoroughly familiar with the current and future needs of your business. Ask yourself:

Is the current equipment giving you good results?

Do you need to replace several pieces of equipment with more efficient machinery?

Can the equipment you are replacing be used elsewhere in your company?

Will its acquisition be a long-term investment?

Would it be better to rent equipment?

Will you use all the features, or are they simply gadgets?

Have you considered the costs of training employees on new equipment?

BDC Consultingcan help you analyze your space and resources, improve your plant layout and eliminate processes that add no value.

Use technology to improve your operationsWeb-based technologies enable you to dramatically improve how you run your business. You're a good candidate if you're looking to increase market share, aggressively pursue cost reduction or greater efficiency, or prevent customer-service problems. Production management tools range from spreadsheets to off-the-shelf software solutions or business-specific, custom-developed applications. Here are some examples:

E-purchasing (online buying) is an alternative vehicle you can use to get your materials from suppliers. This technology enables you to get more competitive pricing as you are no longer limited to local merchants. Generally, the cost of transaction processing is reduced and there is less paperwork.

Smartinventory control systemscan help you reduce inventory levels, improve profitability and speed up customer response time. Online and order management systems integrate inventory information with your organization's purchasing, accounting and e-business systems, so you can easily track order status and the movement of inventory within your company. You will also be able to identify peak and low periods, allowing you to adjust supply purchases and better manage working capital.

It also helps to keep abreast of technological developments and ensure that your business is taking advantage of the latest innovations to improve productivity. You can use the web or attend trade shows to stay on top of new technology. Trade shows are a great resource as software vendors often make their information available to attendees. You can also network with other organizations in your industry that may have already tried and tested new innovations. Finding out what your competitors are doing can narrow your search down for solutions that are specific to your industry.BDC Consultingcan help you establish selection criteria and identify potential software suppliers.

Review your existing setupLook at your processesfrom the point of view of a potential investor. Keep in mind the overall objective and vision of the business, and ensure the processes meet those goals and add value. Draw an accurate map of each process in your material and information flow. By doing this, you can better understand the links between various elements of your production, and you will be better equipped to identify and eliminate waste throughout your company.

Implement a continuous improvement approachImproving productivity is an ongoing activity. Here are some suggestions for setting up a continuous improvement plan:

Start by assessing the competition and the best practices in your industry, also known as benchmarking. But don't copy plans of other businesses -- develop one that works for your company.

Get external help to assess your business weaknesses and strengths. This gives you an objective viewpoint from which you can improve productivity and redesign processes.

Take a step-by-step approach rather than tackling everything at once. Focusing on a few priorities will enable you to see results faster.

Assign specific teams to specific problems or processes for redesign.

Put a formal suggestion system in place for employees.

Look for breakthrough accomplishments. Small improvements can transform into major increases in productivity.

Measure your results. Ideally, this should be done by an objective outside party.

Outsourcing can be a cost-effective way to focus your efforts on what you do best as a business and make productivity gains. But whether you choose to outsource logistics, accounting, payroll, public relations or IT, it's vital to first grasp what drives costs and profits in your company. Before you get started, it's important to assess your current production and costs such as location, shipment and client proximity. You need to know exactly which core functions increase revenues and which noncore functions increase your expenses and affect your productivity.

Many entrepreneurs don't tap into outsourcing opportunities because they fear they might lose control of their business or are concerned about expenses. And although these may be valid concerns, outsourcing works if you take the right steps. BDC Consulting can provide direction in determining your best outsourcing strategy.

Strategic alliancesallow you to grow your organization without necessarily expanding its size and incurring more costs. For example, the right alliance could improve your production processes by increasing your economies of scale and broadening your distribution market. An alliance could help your company negotiate better supply deals, share costs such as advertising or take advantage of costly technology. Increasing your productivity could also meangetting into new marketswith new products and services, extending your market reach or accelerating research and development by sharing costs and resources.

KNOW YOUR STRATEGIC ALLIANCE OPTIONSAre you looking for a way to speed up entry into a new market, improve your productivity, gain a competitive edge or increase your range of products? A strategic alliance may be your answer. There are no set rules for such partnerships; they are what the businesses involved want them to be. For instance, a manufacturer might outsource distribution to a specialized firm, and benefit and increase profits by being able to focus on its core business. Or an Internet-based store could team up with an overseas courier company to accelerate delivery to clients in a specific market. There are any number of strategic alliance options available; what's important is to choose the one that fits your business profile.What can an alliance do?A strategic alliance allows you to grow your organization without necessarily expanding its size and incurring more costs. It also allows you to test the market for growth potential. Some possible benefits of a strategic alliance:

Enter new markets with products and services.

Extend your market reach.

Increase the scale of your production output.

Get better prices through bulk purchasing.

Get access to new technology.

Accelerate research and development by sharing costs and resources.

When you're shopping for a potential partner, you should carefully assess the risks. Ask yourself a series of questions:

Do you have a specific list of attributes that you're looking for in your partner: location, market reach, business culture?

Does your partner have management buy-in or commitment from its board?

Have you ranked candidates with your specific attributes in mind? Clarify anything that could make data exchange difficult, e.g., rules for writing figures, measures or local currency.

Do you have the same objectives as your partner? Have you clearly articulated your expectations to each other? Don't offer exclusivity to anybody unless a certain sales level is achieved or objectives are attained.

Will you be competing in the same market? Will your alliance affect your market position?

Are your brands compatible? For example, a cost-focused company and high-end consumer business might not be a good pairing.

How long will the relationship last? Is it a one-time deal or a long-term engagement? Put everything in writing, and be sure you have a systematic way of communicating other than the telephone.

Do you have a strategic plan in mind for your alliance? Do you have an exit strategy?

Do you know what kind of contract you'll be signing? Ensure that it's governed by Canadian law. You will also need to clearly define your terms of payment, which vary in different countries.

Types of strategiesJoin forces to achieve economies of scaleIn general, an alliance can help a company achieve economies of scale. By joining forces, partners can obtain better purchase prices from suppliers and lower their cost per item. For example, a manufacturer of veneers and plywood joins forces with nine of its competitors to select a common transportation company. After guaranteeing the transportation company a minimum volume, these businesses convince the organization to give them a flat rate and to invest in equipment to protect their products during shipping. Or a manufacturer of stone products, having experienced strong growth through acquisitions, decides to outsource transportation to a group of employees interested in taking over this part of the operations on their own. To help them get started, the manufacturer convinces three other small businesses to use the group's delivery services. As a result, each business obtains better rates, and the new transportation company is guaranteed a minimum volume.

Use a larger company's distribution networkBy striking agreements with distributors, you can invest more profits into your core business. However, it is crucial to profile potential distributors to ensure that they are aligned with your needs. Forming an alliance is much like recruiting a new employee. You want someone who matches your company profile and represents you well. For example, a manufacturer of concrete products convinces a large local lumber company to handle its deliveries as their markets overlap. Both companies take advantage of this arrangement to simultaneously expand their basic market. The lumber company now promotes concrete products in lumberyards, and the concrete product manufacturer promotes wood products in superstores and renovation businesses where it already had a presence. Or because of differences in regulations between Canada and the United States, a supplier of truck and auto-body parts has to adapt its products to over 2,000 different requirements. To tap into the American market, it enters into an alliance with a large U.S. company in the same sector. Orders are now centralized in a joint service centre, which checks compliance with local standards and provides some after-sales service.

Pass useful knowledge down the chainYou can also create strategic alliances with suppliers to develop new products and share knowledge and training to improve your production process. For instance, you can coordinate your production schedule with theirs, reduce costs through size and timing of orders and increase your range of products and services. Keep in mind that you will have to update your partner on any changes in new products and share forecasts to develop accurate sales plans.

Choose the best partnerYou should choose your partner based on how the company ranks according to your key criteria. It's important not to be lured by sales pitches that don't meet your demands. You should take the time to do research, check the credit of potential suppliers and get firsthand advice from other companies that may have dealt with your prospective partner. Remember, that although the price is important, so are reliability and speed.

A joint venture for on-site productionAnother alliance strategy is to set up a joint venture where an on-site partner is responsible for production and the distribution of products in a specific area. In general, your partner would transfer knowledge and know-how, and you would collect royalties in return. Your business gains from your partner's specific market expertise, and you get easier access to the market. For example, having developed an innovative product and the requisite machines for production, a manufacturer of timber frame components decides to issue exclusive manufacturing licenses in each U.S. state. This small business now sells, installs and maintains its equipment remotely via telecommunications. It also collects royalties on the products sold. The company prefers this formula to exporting as it foresees an uncertain future for the lumber industry. Or a company that specializes in manufacturing metal structural components has to ship its products by sea to distant markets. In order to penetrate the South American market, this company invests in a Venezuelan business where it transferred its technology and knowledge. Since local companies are familiar with the economic characteristics, business environment and cultural aspects of their region, they have a much-improved chance of breaking into the market and generating a better return on the invested capital.

Thats just a start. There are many other types of alliances you can consider, depending on your business needs. What is important is to select a strategy that will help you bring your business to a whole new level of growth.BEST PRACTICES FOR BUYING GOODS AND SERVICESWhatever your line of business, how you acquire goods and services is a make-or-break factor for success. Small and medium-sized companies spend between 45% and 65% of their sales revenue on procurement of raw materials or services. Even if you reduce your procurement costs by just 1%, the savings can be considerable.

It's not surprising that procurement is one of the most important elements of supply chain management, which is essentially how you manage the flow of goods and serviceseven informationamong internal and external suppliers, distributors and customers.

The challenge is to be sure that procurement doesn't drain your business of cash. This is particularly relevant now since emerging countries such as China and India are putting pressure on Canadian entrepreneurs to lower their costs and be more flexible.BDC Consultingcan help you be more strategic with your procurement activities, maximize your assets and reduce operating costs.

Meanwhile, here are some best practices to guide you in the procurement process. By making some basic changes, you can aim to cut your procurement costs by 5% to 15%.

Improve the way you buyYou don't want everybody picking up the phone and calling suppliers. Manage your acquisitions systematically, either through a purchasing department or by assigning that responsibility to a particular employee. It's also important to have a clear administrative process that outlines the rules of buying.

Conduct a spending analysisA detailed overview of how you spend is crucial to effective procurement. Take a close look at exactly how your spending affects your bottom line. Be sure to look at all aspects that affect the prices of your products, such as:

Cost of raw materials

Inventory costs (interest, space requirement, heating, extra handling, extra manpower, insurance)

Taxes and tariffs

Transportation expenses (inbound and outbound) including freight forwarder fees

Supplier charges

Payment terms

Third-party warehousing and handling costs

Money saved by tightening up spending can be assigned to other aspects of your business that might need more attention, such asoperational efficiency implementation, marketing orhuman resources management.

Do a demand analysisFind out your company's essential needs to ensure that you're focusing on critical demands. This may require you to overhaul internal policies to include new criteria that determine what is essential when it comes to purchasing. For instance, do you always need new equipment, or might used or refurbished equipment do the trick? A demand analysis also means that you need to focus not only on cost but also on quantity. Why have items in inventory that you are not going to use for 6 months?

Buying from lower-cost countriesbe carefulLook at options such as buying cheaper goods and services from abroad. But keep in mind that procuring from foreign suppliers comes with additional costs such as shipping, logistics or expenses associated with customs and duties. Fluctuating currency rates will also have an impact on your business.

Reduce supply complexityAnother strategy is to buy more standard parts, goods or services from suppliers. Customized items are invariably more costly. Talk to your suppliers to be sure that your purchases fit your basic needs and that you're not overspending on unnecessary customization.

Establish strategic partnerships with fewer suppliersIf you deal with fewer suppliers, you'll save time and resources. You're also more likely to have better bargaining power when it comes to negotiating contracts. Your supply partners will appreciate and value your business and be more flexible when it comes to adapting to your needs. Make sure that your suppliers work with you closely, for example, to improve the procurement process or conduct R&D. Your partnership should be mutually beneficial.

When you negotiate, keep in mind that a win-win situation is critical for both parties if the relationship is to thrive continually. Trust is essential to generating a continuous stream of value-added activities from your suppliers.

This type of collaboration will have a positive effect on your bottom line thanks to a reduction of inventory, lower warehousing costs and fewer stock-outs.

Evaluate your suppliers regularlyPut in a system to assess the performance of your suppliers on a regular basis. Companies often use standard forms that help them review factors such as flexibility, just-in-time delivery, consignment inventory, costs and quality of service. A written document also gives your suppliers a means to improve in weak areas.

Train your employees on procurementEstablish a procurement training program that includes such aspects as negotiating contracts and following company policies. Negotiation skills are particularly important to ensure that you're getting the most from your suppliers. Training also ensures that your key procurement personnel know your expectations and are accountable for their actions.

Invest in technologyAs an entrepreneur, you now have access to many technological tools that can streamline your procurement process. The initial expense will generally give you long-term benefits. However, since business cycles are becoming increasingly fast, a good and accurate information system is important.

Look at integrated software such as ERP and accounting systems, supply chain management, warehouse management systems (WMS) and supplier relationship management systems (SRM), as well as Web 2.0 applications that enable suppliers to access product specifications and transmit invoices, and auction sites where you can bid for the best price.HOW SUSTAINABLE PRACTICES CAN PAY BID DIVIDENDSCanadians have come a long way over the last decade when it comes to awareness about environmental issues and the importance of sustainable practices. And entrepreneurs are no exception.

An increasing number of business owners are committing themselves and their companies to improved environmental performance. This is good news for the planet and the bottom line, says Ian MacFadden, Vice President,BDC FinancingandConsultingin Mississauga, Ontario.

A proactive approach to sustainability can pay dividends in reduced waste, higher efficiency and increased customer engagement without requiring large capital outlays, MacFadden says.

A2007 survey by the Canadian Federation of Independent Businessidentified the most important environmental issues for entrepreneurs. At the top of the list were recycling (59.8%), energy conservation (56.1%) and clean water and sewage (50.8%). Note that the top two, at least, involve process changes that dont necessarily require large capital expenditures.

The study also found a near consensus on the idea that its possible to grow the economy and protect the environment at the same time. And entrepreneurs indicated that they are motivated to protect the environment both as a reflection of their personal views and as a potential source of cost savings.MacFadden says there are at least 3 practical reasons for undertaking an environmental review of your business and then taking action to improve your performance.

1. The trend toward resource conservation and sustainable development is here to stay. It has grown over the past 50 years and will advance even faster over the next 50.

2. Businesses that supply large corporations are increasingly being required to improve their environmental performance. For example, Walmart, the worlds largest company, now obliges its suppliers to quantify and reduce greenhouse gas emissions. Companies looking for business opportunities in supply chains would be wise to act now on improvements. One important way to achieve the goal is to implement anISO 14000Environmental Management System (EMS).

3. Consumers are leading the environmental awareness trend and will increasingly vote with their wallets. Products and services that are eco-friendly are already in higher demand, and overall corporate environmental responsibility is a key consideration for consumers. In fact, a 2009 report by the Conference Board of Canada predicted that a green marketing strategy will be the most important source of competitive advantage for companies in the future.

However, the Conference Board report also warns that green strategies must be backed by real action. Otherwise companies leave themselves open to accusations of greenwashing.

The survey found that three-quarters of Canadian consumers believed that environmental claims were often just marketing ploys and 65% said the term green had been used so often it did not have much meaning anymore.

Its never too late to get started on greening your business, MacFadden says. For all of us, becoming more environmentally sensitive is a work in progress. You dont have to be perfect; but you do have to do more than just talk about it.

So go ahead and get your team involved in building a more sustainable business. And when you have made real progress, tell your customers about it.

Thats what we call good business.OPTIMIZE PROCESSES AND REDUCE WASTE

Do you feel like you're being squeezed by the competition? You have to cut costs when there are no more places to cut? You need to turn your operations around before profits and customer satisfaction begin to suffer?

Focusing on operational efficiency can help your business work smarter: increase efficiency, reduce costs, and streamline processes. Are there concrete changes I can make to simplify and improve how my business works?

How do you identify and eliminate waste?

Operational efficiency (OE) and lean manufacturing both target waste. This means finding out where you spend resources (time, money, people, effort, etc.) on activities that do not add value to your product or service, and then eliminating those problem areas. The results are measurable, immediate and sustainable.

Typically, there are 9 main causes of waste in a business: overproduction, delays, unnecessary transportation, too much inventory, defective products, defective design, complicated processes, outdated equipment, poorly trained employees.

How OE can help you work smarter - not harder

BDC's Operational Efficiency approach works because it involves all employees in improving the plant's administrative and manufacturing processes. The benefits derived by companies who have implemented OE measures include:

Significant cost savings that last

Increased productivity (10% to 50%)

Reduced inventory (30% to 80%)

Reduced setup time (30% to 90%) and response time (30% to 70%)

Improved quality control and reduction of non value-added costs (5% to 30%)

Strong competitive advantage

Increased profits

How does OE work?

Our consultants assess your company's management processes, looking at everything from methods and systems to supply chain and human resources. They develop and implement a customized action plan, and identify the necessary training for your employees. The consultants also conduct a follow-up to ensure that new processes are sustained over time.

The following are the main tools used by our consultants for improving operational efficiency:

Mapping:Accurately charting your operations using diagrams and flowcharts to visualize problems and improvements

VSM (Value Stream Mapping)

SLD (Swim Lane Diagram)

SPAG (Spaghetti Diagram)

5S Process(Sort, Straighten, Sweep, Standardize and Sustain): Reducing delays and gaining space through a clean and well-maintained workplace

SMED(Single-Minute Exchange of Die): Reducing equipment changeover time and downtime

PARETO(the 80/20 Law): Targeting 20% of the causes will resolve 80% of the problems

OEE(Overall Equipment Efficiency): Determining the overall effectiveness of equipment by measuring its availability, quality and performance

Benchmarking:Setting standards by measuring your performance and comparing it to similar companies and to industry best practices

Kaizen activities(Continuous improvement): Making ongoing efforts to perfect the way you do business by reducing time, cost, space, mistakes and effort

Kanban:Maintaining an orderly flow of material. One of the primary tools of the JIT (Just-In-Time) system

Page 24 of 24