Month: November 2018

Systems & Procedures

According to the Oxford English Dictionary a system is:

  1. A set of things working together as parts of a mechanism or an interconnecting network; a complex whole.
  2. A set of principles or procedures according to which something is done; an organized scheme or method.

Many people say that they have a system in place for their property business but when you ask questions about their systems and dig down it turns out what they really have are processes and tools that help them carry out things like analysis of an area or a deal, so it becomes a bit of a shock when you tell them that these are not systems. To understand this, here is a simple definition of a process and a system:

  • Taking an egg and converting it to an omelette is a process
  • A system is a series of processes where the output of one process becomes the input of the next process. An example of this is baking a cake, where you have equipment, correct ingredients, following an exact recipe, applying the method, utilisation of the equipment, transformation into a cake, adding value by adding a filling, presentation.

So why do we need systems?

Well if you want to be successful then you need systems and procedures as this will allow you to work on your business and not in your business. Some of you may be thinking that you got out of the corporate world because you were restricted by all of the red tape of systems; after all you are an entrepreneur. However the reality is whether you’re a one man/woman company or employ fifty people plus, you will need systems and procedures to free up your time and make you money.

Some of you may be thinking that you are just starting out and therefore until you get going you will just wing it for the moment. That would be a big mistake, it is in fact far easier to put systems and procedures in place at the start of your journey rather than leave it until later as it will take you a lot longer to do and in the meantime will have lost time, energy and potentially money, so take heed.

From a business point of you what do we mean by systems and procedures? The short version would be a step guide to perform any function within your business. Examples of this may include but is not limited to the following:

  1. What do you do/say when you are contacted by a vendor?
  2. What are the steps do you take when screening a potential tenant?
  3. What are the roles and responsibilities of your team?
  4. How do you get paid?
  5. How do you pay your suppliers?
  6. How do you run the back office? (Administration, Accounts, etc.)
  7. How do you draw up a contract with your suppliers? (Architect, planners, builders, etc.)
  8. What are your “Opening” and “Closed” hours and what happens when “Out of Hours” is required?
  9. What are your policy and procedures for joint ventures?
  10. What is your strategy and how do you communicate this to your team, joint venture partner, Angel investor etc.?
  11. What are your objectives?

As can be seen by the above examples systems and procedures are required to handle these sorts of questions. Do not be deterred by thinking that you need to write a massive manual documenting everything. Keep it simple and easy to follow, use pictures, diagrams, screenshots etc. if this helps to describe your processes. Where there are regulations that needs to be understood within a procedure e.g. HMO requirements, break it down and strip out all of the things that are not necessary and bullet point those that are needed so it is easy to read.

Advantages of Systems & Procedures

The advantages of having systems and procedures in place are as follows:

  1. Productivity will increase as you will not have to re-invent the wheel every time you do something.
  2. It can give you a perspective as now you can have an overview of your business, and the competition so now you can make informed decisions.
  3. There will be consistency in your work as things will be done exactly the same way each time.
  4. Reduced risks as you will have agreements etc. in place that spells out exactly what is expected.
  5. Quality will increase as you will have a framework in place to deal with builders, vendors, tenants etc.
  6. Growth can take place as you can use your systems and procedures to train people.
  7. You will have continuity because if someone is away on holiday, ill, or leaves then you are not reliant on that person as the systems and procedures will kick in.
  8. You will find freedom as now you can work on your business and not in your business, also it will allow you to be away from the business as it will run without you.

Take action now and put systems and procedures in place, once done these will just need to be kept updated as your business evolves.

 

Recommended Reading:

The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It. By Michael E. Gerber

Scaling Up. By Verne Harnish

Right First Time Property Investing. By John A Foster

Business Owners Toolkit – Problem-Solving

Problem-solving should be in every property investors and business owner’s toolkit, invariably things will go wrong, and you need to know how to get to the root cause so that you can put it right, so it does not happen again. However, problem-solving is not just for when things go wrong as it can also be used to look at deals that have gone well and find ways to make improvements so that it is even better next time.
To become proficient at problem-solving a simple nine-step process should be followed. Although it may seem complicated at first glance, with a little bit of practice it will become second nature.

The Process

1. Problem Statement

The first step is defining the problem statement, this is where a lot of people go wrong including professionals who should know better. All too often people want to dive into corrective action and put things right believing that they already know what the problem is, and invariably the problem raises its head again at some point in the future, or the problem has become worse. So you need to be patient and do not pass this first step until the problem is defined.
Guidelines to a good problem statement are as follows:

  • What has been seen?
    This should include factual information, measurements, photographs, what specification is being deviated from, who found the problem, is it a repeat concern? If it is possible, the originator must physically observe the issue and go to the place where it was found or created to gain clarification.

 

  • Where was it found?
    It is important to identify where the problem was discovered, as this is relevant to later stages of the investigation. At this stage, no attempt should be made to predict where the problem was caused.

 

  • When was it found?
    The date and time a problem was discovered, it may be relevant to the investigation.

 

  • How was the problem found?
    Understanding how the problem was found will assist in later stages of the investigation.

 

  • How many?
    It is important to record the details of the scope of the problem at the time of discovery; this will assist in containment action. Specific details should be recorded to prevent duplication and assist later stages of the investigation.

The following are examples of poor and good problem statements:

a) Poor Statement – The bathroom in the HMO is flooded

b) Good Statement – The bathroom in room 10, became flooded at ten last night, the ballcock valve in the toilet cistern was broken. The water has not only flooded number 10 but has also seeped through to the room below at number 5 causing the electrics in that room to short out.

As can be seen, the first statement just tells you that a bathroom has been flooded, it gives no indication of which room or the extent of the damage. So, armed with this information you would be looking at sending a plumber to fix the problem. Whereas with the second statement you know which two rooms have been affected, you know that not only is a plumber required to fix the problem but that you also need an electrician, and because of the water damage you may also require a builder. In the meantime, you also need to try and find an alternative accommodation for your tenants as they now have rooms that they cannot use.

2. Form your Team

The second step is to form your team, this can be one person or a team of people depending on the complexity of the problem. Each problem is assigned a leader and the responsibilities of the leader are:

  • To control the actions.
  • To clarify the problem description (in consultation with the originator).
  • Confirm the need for the Root Cause Analysis (RCA) to be carried out.
  • To track the investigation through all stages to a conclusion and ensure that the RCA process is followed.
  • Determine the problem-solving team considering the nature and complexity of the problem.
  • To escalate any obstacles and blockages through the management hierarchy, which could be just you
  • To report on progress on the RCA activity.
  • Present the RCA for closure upon completion.

3. Containment

Containment action is the next stage it is the initial actions taken to protect the customer from further occurrences of the stated problem.
The scope of the problem should be determined, and appropriate action was taken on all items suspected or found to be non-conforming. For example, leaflets with the wrong contact number are ready for distribution, how many do you have in stock, how many have been delivered to houses. Upon the completion of containment activity, no further defects should reach the customer.
Typical types of containment actions are as follows:

  • Identifying and locating all suspect material through in-house process check.
  • Check material to requirements, quarantine all defect material.
  • Review any material that may have been generated with the same process.
  • Obtain all escaped suspect material, or quarantine and notify customers.
  • Implement temporary fix and take appropriate action to ensure no further defects of the same nature reach the customer.
  • Upon completion of the containment activity, the problem leader must confirm that the problem has been contained via all appropriate actions having been completed and enforced.

4. Root Cause of the Escape

It should be determined at which stage of the process the defect or problem should have been detected, and the reasons why the issue was undetected. This activity may identify more than one process stage where the defect was not detected, and each should be considered.
Review of working practices, procedural documents and instructions should be supplemented by the use of appropriate tools, e.g. brainstorming, 5 whys, Ishikawa diagrams, process mapping, etc.

5. Prevent Further Escapes

Action should be taken to ensure that future occurrences of the problem are detected at the correct process stages. These may be permanent or temporary activities for example:

  • Use of mistake-proofing methods e.g. smoke detectors are designed so they cannot be mounted until a battery is installed.
  • Additional inspection instructions
  • Updates to procedures/work instructions/process plans

6. Root Cause of the Issue

Where possible this analysis should involve individuals with knowledge of the processes and should also involve a review of the process as it occurs in reality Use of the approach of “go, look, see and understand” is recommended.
Appropriate tools should be used to support the analysis and investigation e.g. process mapping and 5 whys, Ishikawa diagrams etc. It may be the case that a number of contributory causes are identified and any that cannot be dismissed need to be included for correction. When defining the root cause the following type should be avoided:

  • Repeating the original problem description.
  • “People error”
  • “Lack of resource”
  • ” Issues beyond physical control”

These are not root causes and show the process has not been applied effectively/ rigorously.

7. Permanent Corrective Action

Actions must be taken to permanently eliminate the cause(s) of the problem. As a general rule, to correct a problem requires a change, for example, process changes, procedural changes. Changes should be implemented following the appropriate change process.
When introducing a change, the following should be considered:

  • The impact of changes on training
  • The impact of changes to work in progress
  • Risks associated with the change
  • Procedural requirements for making a change e.g. is a joint venture approval required?

8. Preventive Action

Preventive actions are those actions taken to prevent a similar problem occurring in other areas of the business. At this stage, it is important to consider if any other areas of the business could benefit from the changes made as a result of the problem resolution. If there are other areas of application, the corrective actions should be applied in those areas too.

9. Verify

Each problem or issue subjected to the root cause analysis process should be subject to final verification activity to ensure that the issue has been satisfactorily resolved. This should be carried out by the problem owners/manager.

Topics to be considered are:

  • Has sufficient containment action been taken?
  • Do the identified root causes relate to the original problem?
  • Are the root causes identified true root causes and not symptoms of a deeper cause?
  • Have all identified corrective actions been implemented?
  • Have corrective actions been effective in eliminating the original problem?
  • Have corrective actions been applied to appropriate processes?
  • Have any temporary containment and protection actions now been removed?
  • Are the preventive actions robust e.g. is mistake proofing used?

Good practice in verification should, as a minimum, involve a “go, look, see” activity where physical inspection of the corrective action etc. takes place.

Exit Strategy – Selling your Business

When starting a business always look at what your end game is and keep this in mind. You may decide that you want to build a legacy, therefore, you will be passing it on to your heirs. But you should still look at setting up the business with a mind to selling it, as you may find that you could make more money by selling and so you can give more money to your heirs, or you may find that your possible heirs may not want the business as they have no interest in it or they are not capable of running it.

Your business must be able to run without you, if your business cannot run without you then it will die with you, therefore before you even think about selling or passing on your business make sure that you have processes, systems, manuals and procedures in place. This must be your number one priority above anything else, if you do not know how to set these up get help, as it is worth paying someone to put these in place for you, remember this adds value to your business so don’t cut corners or skimp on the price for the consultancy, so think of it as a short-term loss for a long-term gain.

When selling your business, it is critical that you understand the processes involved. After all, unlike other business decisions, this will only be made once!

So here are a few questions that might help you in the process.

Why are you selling? Are you selling because the business has reached its full potential, or do you want to get out because you have had enough? It’s important to have a reason for the sale as you will get asked this question from all potential purchasers.

Is your property on a lease? If a buyer is looking at your business, your buyer will want to see a long-term lease in place. Negotiate with your landlord an extension to your lease and make sure that you have a clause in there which allows you to transfer the lease to the new buyer.

When did you last value your assets? This is especially important when it comes to property as prices are constantly changing and you might get a very pleasant surprise.

Do you want to sell just the goodwill and still own the property? Often when selling a business, it is possible to keep the property and lease it to the new buyer. If you do not need the full proceeds it is often wise not to sell the property as long term it will be an appreciating asset. Make sure though that you get a full repair and renewal lease put in place with the buyer.

Are you the one hundred percent owner? If not, what do the other shareholders think about you leaving? One of the easiest ways to get out is to sell your stake to the other shareholders.

Do you want to protect some workers in your business once the sale has gone through? You might have members of the family or close friends who work in the business and they might need some security after you have left. One way to do this is to provide them with decent employment contracts prior to the sale.

Is the timing, right? The best time to sell the business is just after you have had a good year of trading. Even economists disagree about what the future may bring so try not to predict how the trading environment will change but get out when profits are high.

Prime the business for sale. Just as a house will achieve more with a lick of paint and the garden in top condition so a business will need as many loose ends tied up as possible so that it is easier for a new buyer to walk in. Get rid of all the dead stock and dispose of all old and useless machinery and equipment.

Tidy the place up. Make it look as attractive as possible and make sure all the light switches and bulbs work. Make sure the place is as bright as possible by using higher power bulbs than normal.

Get professional help. If you have a small business all you need are the services of a good accountant and solicitor. If the business is more complicated a decent business broker might be required to get the maximum price for your business.

The easier you make it for the buyer to move in and start running the business from day one the higher the price you will achieve for the sale.