Tag: analysis

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

Risk Managing your Business

Introduction

So you have built up your business and things are going well when all of a sudden you are hit with something unexpected that has an impact on your business could you deal with it? Most entrepreneurs will fail at this point and maybe have to rethink their strategy and lose time and money implementing the changes. Most problems can be managed if you take the time to consider the risks to your business and have processes and procedures in place that kick in when there is a problem. As property investors or entrepreneurs we are considered risk takers or chancers by people that will not take the same risk as us. Let’s consider that for a moment, did we just take a risk without thinking things through and hoped for the best or did we do our due diligence and analysed things first? Although there are some people out there who did things on a wing and prayer, the majority of people analysed things first, so it is a risk, based on thought and data. By doing our due diligence we can decide what is an acceptable risk before taking the plunge. Therefore the perception of being risk takers and chancers is wrong, what we have become is informed business people. People associate risk with negativity, this, however, is incorrect as we can also use risk in a positive way because we have identified what it is and where possible we eliminate it.

Tools for Risk

There are a number of ways that we can look at risks to see if they are acceptable depending on the type of investment we want to undertake, these can range from a simple SWOT (Strength, Weakness, Opportunity, Threat) analysis to a more sophisticated PESTLE (Political, Economic, Social, Technological, Legal, Environmental) analysis. There are also a number of other tools that can be used in conjunction with the above analysis tools such as Pareto analysis, FMEA (Failure Modes and Effect Analysis), Fault Tree Analysis, Is – Is Not, etc. The main thing is that the tools are there to be used and failure to do so could result in you making the wrong decision which in turn could lead to losing money on your investment. However if you have taken your time to consider and manage the risk then if a problem arises it will not catch you out as you will have been prepared and a plan to mitigate the risk will then come into play.

If you are looking at property then you need to analyse the area for comparable properties in price, to see what the is the maximum done up value is for the property. You would also look at what the maximum rent you could charge, as both price and rent have a ceiling. You would also use one of the above tools to analyse the area to see if there are some plans or issues that could affect the price and rental of the property.

Conclusion

Due diligence should be the norm for an entrepreneur or property investor, and analysing the risk should become second nature. Failure to do so will eventually catch you out as there are only so many roles of the dice where you will be lucky. Failing to plan is planning to fail, therefore get acquainted with the tools that can help you understand, manage and mitigate risks, do not be afraid to ask questions and get into the detail of your planned investment, and get it right first time.

Recommended Reading

Identifying and Managing Project Risk: Essential Tools for Failure- Proofing Your Project