Diary of a Non-Accountant: An Apple Turnover

Not the actual turnover (the actual one got eaten)

It is Friday.  I usually
spend Fridays in the office to ‘provide support to staff’, which actually means
I get recharged in their lovely company and get very little of the actual work
done.  It is good for my soul, like a
mini family reunion.  I travel to clients’
sites much of the week or work from home to keep focused, so seeing my team on
Fridays is a welcome change.

It is less good for my diet. 
Clare, our illustrious bookkeeper and payroll specialist – also a
WeightWatchers queen – brought cream
apple turnovers
today. This is on the day when I was actually quite good
and packed carrots and grapes alongside my sandwich (on granary).   I ask
you!

It was Clare’s idea that I start this blog.  Now, I don’t know whether this is a good idea.  Having said that, none of Clare’s ideas so
far were bad, so maybe I should listen to her.

It is really difficult for me to listen to Clare (or anyone else
for that matter) because I am a professional adviser and I am supposed to know
it all, right? (ha!)  Does asking other
people and following their advice means we are not competent enough?  That we haven’t got the answer?

I’ve come to the conclusion that the idea of ‘competence’ or
feeling that one must have answers to all the questions is fundamentally
flawed.  What it creates is a closed
mindset, where our only source of ideas is ourselves (and let’s face it, a
shallow pool it is). 

I admire our clients who ask me to sit on their Boards and
challenge their ideas.  Or clients who
come to us admitting their finance is in a bit of a mess and asking us to help
them.  If the discomfort I felt today at
asking for help was anything to go by, I can only conclude it takes great
strength of character to admit vulnerability and imperfection in a bid to grow
oneself and one’s company, to learn and to improve.

Maybe I should listen to Clare more – she does have some cracking
ideas.  Come to think of it, even the
apple turnover wasn’t such a bad one after all.

When Good Things End

Sometimes being a business owner means making tough decisions. This week, I had to say a couple of good-byes. 

 

No matter how we dress it up or how justified the cause, partings are always difficult. They signify a death of something. They can, and often do, resonate with our earlier experiences of loss. They are tough, both for the initiator and for the receiver of the news.

 

We often avoid good byes, because fundamentally we are nice people and we don’t want to upset anyone. It is one of the reasons conversations about performance never happen, issues are buried and skirted round, negative feelings are never acknowledged and dealt with. Instead, we get on with it and hope the issues would resolve themselves somehow. It takes courage to recognise that, despite all reasonable effort, things are no longer working and call it quits.

 

What happens then is a burst bubble effect – the break-up is unduly harsh and does not afford the opportunity for both parties to talk it through, show respect for one another and part gracefully.

 

In business, all associations are partnerships. Be it an employee, a business partner, a supplier, a customer, or a service provider – everyone offers themselves up as a human being, with their gifts, talents and humanity, in a ‘give-and-take’ relationship. Sometimes what is given does not equal what is taken, or what is given is not what the business requires, and the partnerships have to end. 

 

Not all break-ups are bad. Some are necessary and avoiding them harms both parties. If that is the case, prolonging the break-up can be an excruciating experience, like dying a slow death.  If there is a recognition that partners must travel different paths, a quick break-up is infinitely better than a slow fading-away. We owe it to each other not to prolong the agony and to allow the grieving process to take place.

 

In my business, I invest myself fully in the partnerships I form. I seek emotional connection and similarity of values. I think this is what gives my work meaning. Personally, I find it heart-breaking when partnerships end, because the struggle of split loyalties is palpable. Do I stay true to my values and my mission, and ultimately to myself, or do I compromise to keep a partnership going?

 

In the past, I have ignored my intuition, dithered and delayed the inevitable because it was too painful. I hid from it, even though I knew it was the right thing to do. Inevitably, this made the subsequent parting unnecessarily more difficult and hurt me and my business in the meantime.

 

So, if a ‘break up’ is something that is on the cards for you, my advice is – do it swiftly and gracefully. Allow yourself time to grieve and be sad. In 100% of cases, letting go means a start of something new, for both parties. What it doesn’t mean is a wasted journey – simply that from now on, each of you must travel their own path.

Lessons in Extraordinary Customer Service

Like most business owners, I am often preoccupied with how I can create a better customer experience for my customers. With customers’ expectations increasing all the time, the bar against which our services are evaluated is higher than it has ever been. Today, I have experienced first hand what it is that takes customer services from ordinary into extraordinary.

I went to get a haircut. What do you expect when you go to get a haircut? You expect a good quality cut, a cup of tea and a feeling of being pampered. Long gone are the days when a good haircut alone was enough. My local hairdresser, aptly called the Hairclub, is a lovely little boutique where everyone knows your name and remembers what you told them last time you visited. If I’d been asked ahead of time, I couldn’t have thought of what else they could have done to make my experience better.

But today was that little bit different. When a cup of tea was made for me, I was asked if it was sweet enough. When an assistant took me to one side to wash my hair in preparation for the cut, she offered to make me another cup of tea in case the one she made for me not 5 minutes before was getting too cold. My next appointment was arranged while my haircut was being finished, saving me precious 5 minutes at the end of my visit. And, when I casually mentioned that I was walking home that day because my car was being serviced, the owner of the boutique offered to drive me home.

They were just a few little extra touches, not strictly necessary in the process of delivering a quality haircut. As a customer, however, I felt that there was nothing more important to the Hairclub than my needs, wants and unspoken wishes at that moment in time. Note – none of the touches were in response to my requests; they were all offered pro-actively.

While Michael Gerber is right in insisting that we codify the extra touches in our systems and our processes, the effect created today was only possible because of the people striving to do their best and the culture created by the owner. Needless to say, my customer loyalty increased about ten-fold today. If the owner decided to raise the haircut prices, I am quite sure I would be very happy to pay, making me a price-insensitive and a highly desirable customer. And which service business wouldn’t want all this for a few pro-active customer-focused little touches?

Allowable Business Expenses if you are Self-Employed

I am asked quite often whether a business expense is ‘ok’.  Let’s clarify…

 

man-67334_640If you are a sole trader (i.e. you are self-employed), the law does not distinguish your business from you personally.  There is no Board of Directors, no shareholders – only you.  As an individual, you can pay for whatever you like.  The significance of ‘allowable’ business expense is in the context of the tax computation.  Tax is levied on business profits, and in calculating profits, only certain expenses are allowable – the others are, in effect, ‘owner’s drawings’.

 

Your accountant will be eternally grateful if you are able to keep your ‘allowable’ business expenses in your business books, and non-allowable in your personal accounts – although I admit this is not always possible.  To help you decide which is an ‘allowable’ business expenses, HMRC have helpfully produced a list, with some examples!

 

 

 

 

 

Category Allowable Expenses Non-allowable Expenses
Accountancy, legal and other professional fees Accountants, solicitors, surveyors, architects and other professional indemnity insurance premiums Legal costs of buying property and large items of equipment; costs of settling tax disputes and fines for breaking the law
Advertising and business entertainment costs Advertising in newspapers, directories etc. mailshots, free samples, website costs Entertaining clients, suppliers and customers; hospitality at events
Bank, credit card and other financial charges Bank, overdraft and credit card charges; hire purchase interest and leasing payments. Alternative finance payments Repayment of the loans or overdrafts or finance arrangements
Car, van and travel expenses Car and van insurance, repairs, servicing, fuel, parking, hire charges, vehicle licence fees, AA/RAC membership; train, bus, air and taxi fares; hotel room costs and meals on overnight business trips Non-business motoring costs (private use proportions); fines; costs of buying vehicles; travel costs between home and business; other meals
Communications, stationery and otheroffice costs (mobile, internet, email costs) Phone, mobile, internet, email and fax running costs; postage, stationery, printing and small office equipment costs; computer software Non-business or private use proportion of expenses; new phone, fax, computer hardware or other equipment costs
Construction industry – payments to subcontractors Construction industry subcontractors payments (before taking off any tax) Payments for non-business work
Cost of goods that you are going to sell or use in providing a service Cost of goods bought for resale, cost of raw materials used, direct cost of producing goods Cost of goods or materials bought for private use; depreciation of equipment
Depreciation and loss/profit on sale ofassets Depreciation and loss/profit on sale of assets are not allowable expenses – any amount entered here should also be shown in box 43 of the tax return Depreciation of equipment, cars etc. Losses on sales of assets (minus any profits on sales)
Insurance policy Costs of any business-specific policy Recoverable costs
Interest on bank and other business loans Interest on bank and other business loans. Alternative finance payments Repayment of the loans or overdrafts, or finance arrangements
Irrecoverable debts written off Amounts included in turnover but unpaid and written off because they will not be recovered Debts not included in turnover; debts relating to fixed assets; general bad debts
Other business expenses Trade or professional journals and subscriptions; other sundry business running expenses not included elsewhere Payments to clubs, charities, political parties etc.; non-business part of any expenses; cost of ordinary clothing
Rent, rates, power and insurance costs Rent for business premises, business and water rates, light, heat, power, property insurance, security; use of home as office (business proportion only) Costs of any non-business part of premises; costs of buying business premises
Repairs and renewals for property and equipment Repairs and maintenance of business premises and equipment; renewals of small tools and items of equipment Repairs of non-business parts of premises or equipment; costs of improving or altering premises and equipment
Wages, salaries and other staff costs Salaries, wages, bonuses, pensions, benefits for staff or employees; agency fees, subcontract labour costs; employers’ NICs etc Own wages and drawings, pension payments or NICs; payments for non-business work

List reproduced from http://www.hmrc.gov.uk/factsheets/expenses-allowances.pdf

Further guidance is available at http://www.hmrc.gov.uk/incometax/relief-self-emp.htm

3-point health check for the success of your business

When you look at your finances, what you really want to know is – ‘how are we doing?’  It is quite easy to drown in numbers and not see the stories the numbers are trying to tell us.   After all, a number is only useful if helps you make business decisions.

 

For profit-making companies, here is a 3-point checklist to assess the financial health of your business and understand the stories the numbers are telling.

 

  1. SALES

 

Not rocket science!  Sales tends to be the first thing a business owner looks at.  How do sales compare with the last month/quarter/year?  Are we growing?  More interesting analysis is around what makes sales grow (or not) – is it volume, price increases, or a combination of the two?  It may be useful to break sales down into geographic areas or customer groups, to see how performance varies.  It may well be that underneath an average sales performance overall, there are successes in some areas and failures in others.  Once you understand what these areas are, there are some decisions to be made.

 

  1. PROFIT MARGIN

 

There are two numbers to explore:

 

Gross Margin or Contribution is your sales minus the cost of goods, or sales minus variable costs (i.e. not overheads) for service businesses.  This figure will tell you how much money you make on your basic business activity and whether it is worth your while.  It is useful to compare your gross margin as a percentage to the prevalent margin in your industry.  If you are making 20% of sales in gross margin, while your industry peers are managing 40%, perhaps you need to examine your costs.  If you have several product lines, look at the contribution of each of the product lines – are they all performing well?  Do they cross-subsidise each other?  Unless the product which is losing you money is a loss leader you have consciously committed to, you may want to review your product offering or product mix.

 

Net profit margin – in simple terms, it’s your profit after all costs have been deducted; in percentage terms, it’s your net profit figure over sales.  A positive profit figure is, obviously, desirable, as it indicates that you have covered all your costs and made some money.  Taking a step further, is your net profit margin reflective of your industry?  Does it represent a reasonable return on investment? (to find out the latter, take net profit and divide it by your capital employed, i.e. equity plus long-term debt)  If your gross margin is ok but your net profit margin is too low, it is time to examine your overheads and/or create a strategy to grow your sales.

 

  1. CASH

 

Cash is crucial for small and medium-sized businesses.  Even if the business is profitable, lack of cash can quickly lead to problems.

 

Quick ratio – this ratio is your current assets (cash or what can easily be converted into cash, but NOT inventory and NOT fixed assets) over your current liabilities (current means due within a year).  This ratio helps you assess whether you have enough ‘liquid’ assets to cover your debts.  While the exact figure varies by industry, 2 to 2.5 is a good rule of thumb for most businesses.  If your quick ratio is low, beware of potential cash flow problems.  If it is too high, consider investing excess cash into longer-term investments to maximise your income.

 

Cash flow forecast – while this isn’t exactly a ‘figure’, forecasting your cash flow is crucial for businesses which are growing, or businesses which are in a downturn.   It is a planning tool, which can prompt a number of actions to remedy the cash position.  You may find that you need to chase your debtors more actively or negotiate with your suppliers for longer periods of payments.  You may also find that you need short-term finance to support your rapid growth.

 

3 focus areas for Business Success

Create a Business Growth Plan in 3 steps

Everyone has a slightly different approach to business planning and there have been lots of credible articles written on the subject.  Over the last few weeks, I have been working on my own business growth plan and I’ve found that 10- or 14-step instructions are far too long for a document that needs to be short, snappy and to the point.  I am used to seeing business plans that run to 50-60 pages long, which is a sure sign that they will never be read, let alone actually used to grow the business.  Also, an important point for me (and no doubt any investors looking at your plan) is that a business growth plan ties in your delivery plan with the all-important figures.

 

I will follow the ‘Rule of 3’ (see an interesting article about this here – but after you’ve read this blog!) and offer a roadmap to build a business growth plan in 3 steps.

3 steps to Business Strategy

Step 1 – Where will the growth come from?

OK, so you want to grow – where will your growth come from?  There are a series of questions to answer here.  Will you develop a new product or service in addition to what you are selling now?  Will you offer this product to your existing customers or will you go for the new markets?  A well-known Ansoff’s matrix is a handy tool to think through your generic growth strategy:

 

Ansoff Matrix
If you are a landscape architecture company, do you intend to get the local market to re-design their gardens (market penetration), to offer garden maintenance service or design of roof gardens (product development), to offer your landscaping services to new geographic areas (market development), or are you considering branching out to running a garden centre (diversification)?

 

If you are developing a new product or service, is there a current market gap for it?  What does the competition look like?  Are you entering a crowded marketplace?

 

Once you’ve decided on where your growth will come from, do you wish to grow organically or will you accelerate growth via partnerships / acquisitions?  For example, a professional services firm may grow its client base through introducing a referral scheme, by partnering with providers of complementary services (e.g. accountants or independent financial advisors) or by buying an existing practice and its customer base.

 

If you’ve thought about growing your business, you will have thoughts of all these questions and will probably have the answers ready.

 

To complete this step, you need to quantify your growth ambitions.  Will you grow by 20% a year, or by 100% a year?  What is your end goal? Be realistic.  Organic growth is always slower than growth by acquisition.  Create a timeline, showing when your new sales will come in (don’t aggregate with the existing sales).  In project management terminology, the new sales are a benefit you are trying to achieve.  Here is a simplistic example:

 

Income timeline

 

Step 2 – What do you need to do?

With a clear goal in mind, begin thinking about what you need to do in order to achieve it.  Start from the end goal and break it down:

  • Do you need to develop a new product or service?  How long will you need?  What resources will you need?
  • How will you reach your market?  Advertising?  Which channels?  What about social media?  Referrals?
  • Capital – what will you need?  Will you need new people? How many?  What about new premises?  Equipment?

Once you are confident that you have a good grip on what you need to do or get, quantify the responses (how much will it cost?) and plot them on a timeline.  Your timeline is likely to be a lot busier and more complex than a simple sales timeline.   This timeline will become the backbone of your delivery plan and the figures you identified will become the costs of implementation.  By doing this first (in some detail), you will ensure that any cost implications are linked to the delivery plan and form a correct cash flow picture.

 

Step 3 – Do the financials

This is the step which many people start with, but to me the financial plan comes second after the delivery plan.  Granted, the delivery plan may need to be amended if you discover you are running out of cash!

In step 3, build a cash flow forecast using the timelines you have created in the first two steps.  The resultant picture will help you with two things:

  1. Evaluate the financial merit of your idea.  How quickly will the investment be paid back?  Do you have a positive net present value?  Ultimately – is it worth it financially?
  2. Understand the degree and timing of the cash you will need (see my earlier blog on Financing Your Business Growth).  Here you will need to think about how you finance your cash needs: working capital?  Equity? Debt?  If you need to raise finance, be sure to add this to your timeline of ‘things you need to do’.

If you struggle with this bit, get a good accountant to help you.

 

By this point you should have a pretty good idea of what you want to achieve, what you need to do to get there and whether it’s worthwhile.  Good luck!

Choosing an accountant for your growing business

Your relationship with an accountant is likely to be a long-term commitment, so you need to choose carefully. What are you looking for from this relationship?

 

If you run a steady-state lifestyle business, are not looking at any major changes, feel you’ve got a good handle on things – then a high-street accountant who does your taxes and  year-end accounts is probably all you’ll ever need.  You need to be sure that your accountant is competent (i.e. member of one of the professional accountancy bodies and relevant experience) and provides a basic level of customer service (returns your phone calls, keeps promises, takes reasonable time to do the job).  Other than that, you are likely to be interested in price above anything else.

 

SeagullsIf you are looking to grow, however, then your demands for a relationship with an accountant should be much higher.   Your accountant needs to be able and willing to:

 

1)      Help you grow – this means going beyond compiling the figures.  She should be able to tell you a credible story about what the figures are saying and identify areas where business changes should be made to improve profitability.  Should your working capital be improved?  How?  Should you re-consider your service or product mix and focus on the areas with the highest margin?  Which one of your customers should you nurture, and which should you leave behind?   Your accountant should help you find answers to all these questions, and many more.

 

2)      Care about your business – your accountant is unlikely be a specialist in your business, but you should expect your accountant to try and understand your business and care about it.  If he doesn’t care about your business and you as a business partner, question whether you are in the right relationship.  

 

3)      Challenge you – if your accountant truly cares about your business growth, you should expect her to challenge you (constructively, of course).  You should expect your accountant to look for, find and act on any anomalies, early warning signs and potential opportunities – pro-actively.  If your idea is unlikely to help the business grow, you should expect your accountant to tell you so.  You don’t want a wet rag who agrees with you and just counts the beans, do you?

 

4)      Practice what he preaches – if he advises you to look for customer feedback, does he ask for yours?  Does he understand and respond to your needs?  Your accountant should speak out of experience when it comes to business growth.  Your relationship with an accountant should be a two-way street, with challenge both given and graciously received.

 

5)      Earn your trust – your finances are close to your heart and a topic you would not discuss with just anyone.  You should meet and like your accountant and feel that you can trust her.  If you feel no spark, look for someone else – the relationship will only blossom if there is a genuine connection.

 

Recommendations of those you trust are a good starting point – however, what works for one person may not work for you, as you will have your own style and may have different needs.  If you are growing, you may want to consider a management accountant (look at Your Management Accountant site or check out the Chartered Institute of Management Accountants to find one in your area), who will provide a combination of accountancy expertise and commercial skills.  Meet with at least three different ones (unless you find love at first sight) and ask questions.  Trust your gut feel and go for it!

Financing Your Business Growth

It is a well-established truth that businesses live or die based on their cash flows.  If you intend for your business to grow, you will most certainly need more cash than what is required for maintaining a steady turnover.  You might be asking two questions: 1) How much will I need? and 2) Where will I get it?

How much will I need?

In any business, cash is typically tied up in the short term in things like stock (be it raw materials or goods ready for re-sale) and debtors, i.e. customers who owe you money.  On the other hand, your business will probably take advantage of your supplier’s credit terms, which gives you some cash in the bank for the duration of the credit terms.  However, this cash is not usually enough to finance your operation while you are waiting for the inventory to become sold goods and for your customers to pay their debts.  This shortage of cash is known as working capital requirement.  It is useful to look at the working capital requirement as a percentage of sales.  For example,

Current Assets                                             £250,000

Current Liabilities                                        £150,000

Working Capital Requirement                     £100,000

Sales                                                              £500,000

% of sales                                                       20%

 

What this means is that for every pound of sales, £0.20 will be required to fund the working capital.   If your business wants to grow its sales, you can work out the cash requirements using this model.  For example, if your business wishes to grow its sales from £500,000 to £750,000, the working capital requirement will grow from £100,000 to £150,000, or by (£750,000 – £500,000) x 20% = £50,000.

Besides the working capital, funding growth may require investment in fixed assets, e.g. new equipment, new premises, etc.  Cash required for this capital investment needs to be added to the working capital requirement to determine how much additional cash the business needs to achieve a set level of growth.   In our example, let’s assume the new level of growth can be achieved if we invest £75,000 in new machinery.   The cash requirement for the first year becomes:

Working capital requirement                      £50,000

Capital investment (fixed assets)               £75,000

Total Cash Requirement                              £125,000

 

Where will I get it?

There are two main sources of funding – shareholders / owners and debt.  If the additional sales (£250,000 in the example below) bring in profit (let’s say at 30%), this could be used as part of the funding.  In our example, 30% margin would give £75,000 in profit, which leaves £125,000 – £75,000 = £50,000 to be found via a loan.

If, however, the business is generating a loss, there may not be enough cash left in the business to reinvest in growth, leaving a much higher proportion of growth to be funded by loans.  Banks, or other sources of debt finance, may view a high proportion of loan funding as too risky, which essentially leaves the business without the necessary cash to fund the desired growth levels.

But do not despair: there are numerous ways to improving your working capital – including (among many others) reducing the debtor days, just-In-time stock management, different pricing strategies and internal efficiencies – which will allow you to fund growth internally.  Whatever the scenario, staging your growth in such a way that you can grow safely is paramount to your business survival and success.

Have you claimed your Growth Voucher of up to £2,000 yet?

Business Engine Room is an approved provider for the Growth Voucher SchemeGrowthVoucher_small

We are delighted to have been accepted as an approved provider of strategic advice under the Growth Voucher scheme.  The government is providing match-funding of up to £2,000 to qualifying small businesses to receive business advice.  20,000 businesses across England will be selected for this scheme, so apply today!

 

If you are a small business (less than 50 full-time equivalent staff) looking to grow, follow these simple steps:

 

Step 1. Apply to the programme online through GOV.UK.

Step 2. You will be asked to either complete an online questionnaire or to meet an advisor face-to-face in order to assess your strategic needs.

Step 3. After completing the assessment, you will be given a suggestion about which area of strategic advice would be the most appropriate. You will be told, at this stage, whether or not you’ve been allocated a voucher.

Step 4. Applicants will then be advised to find a Growth Voucher adviser on the Enterprise Nation Marketplace.

Step 5. Choose an appropriate advisor – Business Engine Room is on the list of advisers in the Finance and Cashflow area.  Vouchers will cover up to half of the cost of paying for strategic advice up to a maximum of £2,000 (non-inclusive of VAT).

Step 6. After paying for services, submit your claim for.  Claims will be processed on receipt and should be paid within 30 days.

 

More about the Growth Voucher Scheme

The Growth Vouchers programme is also being run as a randomised control trial (RCT) by the Department for Business, Innovation and Skills and the Cabinet Office’s Behavioural Insights Team. RCTs are widely regarded as a gold standard for empirical research. This is the first time an RCT has been run on this scale and aims to find out what sort of business advice is most effective for government to support.

The marketplace is designed to make it much easier for businesses to find providers of strategic advice on key topics like:

  • Improving leadership and management;
  • Making the most of digital technology;
  • Managing cashflow, late payments and negotiating finance;
  • Marketing, attracting and keeping customers;
  • Developing skills and taking on staff.

Businesses that have been running for a year, with fewer than 50 employees, and have not paid for strategic external advice in the past three years will be able to apply at https://www.gov.uk/apply-growth-vouchers They will go through a process which will help them identify what sort of advice they might benefit from. Small business network Enterprise Nation has developed a marketplace for business advice where participants will then be able to find a qualified adviser at www.enterprisenation.com/marketplace

The new marketplace is funded by private sector firms:  technology specialist Toshiba, co-working expert Regus, cloud-based collaboration and data sharing software provider Citrix, telecoms brand Vodafone, cloud-based accounts, payroll software provider Sage One, email marketing campaign brand Constant Contact and EDF Energy which are showing their support for small businesses by backing the initiative.

It is also supported by professional bodies including the CIMA, ACCA, ICAEW, BCS, CIPD, CMI and the CIM.

 

The scheme will be running until March 2015, so apply today!

Strategic clarity on the back of an envelope

A few days ago, I met a friend of mine over a coffee.  When I commented on the deep ‘worry’ lines on her forehead, she shook her head and said, “I just don’t know what to focus on.  I have this long list of priorities – and no time to give to all of them, so every day I scrape the surface.  My staff all have different opinions about what our priorities should be.  And the complicated thing is that they are all correct:  the things they bring up ARE priorities.  But I am so overwhelmed, I feel I will never get to the top of the pile.”

 

After some more coffee and a medicinal chocolate muffin, I had brought out the oldest tool of all – the back of a large envelope which was lurking at the bottom of my bag (did you know many great ideas started that way?  Southwest Airlines in the US were conceived on a café napkin).  I had asked my friend what her ultimate business goal was.  I then asked her to identify the key drivers that would make that goal improve.  The key was to establish a clear cause-and-effect relationship.  As my friend was a senior manager at a higher education institution, our initial drawing looked like this:

Pic1

 

Luckily, in higher education there is a measure for everything, so it was quite easy to establish both the current position and the desired position for each of the outcomes.  What this showed was the gap – and hence the distance required to travel in order to get to the desired position.  In my friend’s case, the quality of research was very good, but both student satisfaction and student employability were poor.  This gave a clear focus for where time should be invested.  But how could these outcomes be improved?

 

What we did next was to break the initial drivers even further, to understand what had the most direct impact on the outcomes shown in green.  Taking one of these as an example, here’s what we drew next:

Pic2

 

As in the previous step, the gap between the measures of the current vs desired position had shown where the effort had to be directed.  Before we saw the bottom of our coffee cups, my friend had e-mailed her staff requesting that they establish consistent visiting hours for students and respond to student e-mails the same day.

 

This exercise is brilliant in that it can bring clarity to what is otherwise a chaotic to-do list.  It can also help to formulate strategy for improved outcomes in business development, problem solving, etc.  Unfortunately I cannot take credit for it – this is a well-known technique used in outcome mapping (originally designed by the International Development Research Centre), and is similar to the Product Breakdown Structure (PBS) in project management.

 

Do this with your management team, or even with your staff (if you are brave), so they own the output and understand the causal relationships – and get someone who is a good facilitator to help you.