Conduct a Comprehensive Assessment to Evaluate the Efficiency of Your Business Operations

While delving into financial and legal standings is crucial when necessary, the onset of a new year presents an opportune moment to initiate an operational review. This examination serves as a reality check, assessing whether your company is smoothly executing day-to-day operations and is fully equipped to achieve its strategic objectives. In a landscape characterized by disruptors and rapid technological change, falling behind is a risk not worth taking. Rudler, PSC encourages business owners to convene their leadership teams and pose big-picture questions related to IT systems, production capabilities, and staffing levels. By adopting the same approach used in mergers and acquisitions, focusing on production/operations, selling, general & administrative expenses, and human resources, business owners can identify performance gaps, optimize costs, and enhance productivity. Ultimately, the goal is to objectively evaluate your business's efficiency and make informed decisions for the future.

Why to do it
An operational review is essentially a reality check into whether, from the standpoint of day-to-day operations, your company is running smoothly and fully capable of accomplishing its strategic objectives.

For example, let’s say a business relies on superior transportation logistics as a competitive advantage. Such a company would need to continuously ensure that it has the right people, vehicles and technology in place to remain a major player. The point is, you don’t want to fall behind the times, which can happen all too easily in today’s environment of disruptors and rapid technological change.

Before getting into specifics, gather your leadership team and ask yourselves some big-picture questions such as:

Are our IT systems up to date and secure, or will they soon need substantial upgrades to keep our data safe and our business competitive?
Are our production facilities capable of handling the output we intend to work toward in the coming year?
Are staffing levels across our various departments appropriate, or will we likely need to expand, contract or reallocate our workforce this year?

By listening to members of your leadership team, and perhaps even some key employees on the front line, you can gain a sense of your staff’s operational confidence. If they have concerns, better to address them sooner rather than later.

What to look at
Getting back to M&A, when business buyers perform operational due diligence, they tend to evaluate at least three primary areas of a target company. As mentioned, you can do the same. The areas are:

1. Production/operations. Buyers scrutinize mission-critical functions such as technological obsolescence, supply chain operations, procurement processes, customer response times, and product or service distribution speed. They may even visit production facilities and interview certain employees. Their goal, and yours, is to spot performance gaps, identify cost-cutting opportunities and determine ways to improve productivity.

2. Selling, general & administrative (SG&A). This is a financial term that summarizes a company’s sales-related expenses (including sales staff compensation and advertising costs) along with its administrative costs (such as executive compensation and certain other general expenses). A SG&A analysis is a way for business buyers — or you, the business owner — to assess whether the company’s operational expenses are too high or too low.

3. Human resources (HR). Buyers typically review a target business’s organizational charts, staffing levels, compensation and benefits, and employee bonus or incentive plans. They also look at the tone, quality and substance of communications between HR and staff. Their goal — and yours too — is to determine the reasonability and sustainability of each of these things.

A funny question
Would you buy your company if you didn’t already own it? It may seem like a funny question, but an operational review can tell you, objectively, just how efficiently and impressively your business is running. If you're considering such an operational review, our team is here to assist you in gathering and analyzing pertinent information. Feel free to contact your Rudler, PSC advisor at 859-331-1717 with any questions.