BASIC BUSINESS PRINCIPLES and the RANDOLPH-SHEPPARD ENTERPRISE

Transcription

1 BASIC BUSINESS PRINCIPLES and the RANDOLPH-SHEPPARD ENTERPRISE Purpose: To provide basic information about business principles that are applicable to Randolph-Sheppard vending facility operations so that the Business Consultant can better assist the blind entrepreneurs in maximizing profits. Learning Objectives: 1. The Business Consultant will become acquainted with the concept of leadership versus management and understand how to apply the concepts to their blind entrepreneurs. 2. The Business Consultant will learn the 5 Key Business Principles that can be used to help their blind entrepreneurs become more profitable. 3. The Business Consultant will learn how to assist the blind entrepreneurs develop plans for their businesses. 4. The Business Consultant will learn basic business formulas to be used by blind entrepreneurs. Introduction In this module, you will learn about basic business principles that are essential to the successful operation of any business. We have relied on two nationally recognized sources for much of what we will present in this module the National Restaurant Association and True Perceptions, Inc. We will also rely on best practices and experiences with state business enterprises programs across the country. Some of what we will cover is theory but we will also try to focus on practical applications that can help enhance your blind entrepreneurs operations. In many ways, this may be the most important module because you were hired as a business consultant. Yes, there is much that goes into that role as we have discussed in prior modules, but at the end of the day, it is about making money for your blind entrepreneurs and knowing how to apply basic business principles is a key component in being able to achieve that expectation. We will look at: 1. Leadership vs. Management What is the difference? Which role does the blind entrepreneur have? 2. 5 Key Business Principles Vision Perception Leadership

2 Reputation Consistency 3. Business Basics Planning Time Management Ethics Professionalism 4. Marketing and Product Mix 5. Basic Business Formulas Sales Gross Profit Gross Profit Percent Net Profit Net Profit Percent Desired Mark-up Average Mark-up Verify Average Mark-up Cost of Goods Sold Leadership vs. Management In many industries, technology is the key to a successful business model and we have discussed the role of technology in Randolph-Sheppard in a separate module. Technology can be a valuable asset to your blind entrepreneurs. However, in the food service industry, more than perhaps any other industry in today s economy, the human component is vital to success. Food service requires people to not only prepare the food but to serve and interact with the customers. Therefore a blind entrepreneur must possess both leadership and management skills to operate successfully in the food service industry. So, what is the difference between leadership and management? At first glance, you may not think there is really much of a difference. But pick the dictionary of your choice and look up the definitions of the two terms and the difference becomes apparent. The dictionary will tell you that a leader is someone who leads, guides, or directs. A manager is defined as someone who is in charge of a business or department. In other words, a leader looks at the whole picture of the business and a manager takes care of the day-to-day operations. The National Restaurant Association, in its book Hospitality and Restaurant Management, has this chart showing the differences between leaders and managers:

3 Component Leaders Managers Goal Inspire people Run the operation Main focus Lead people Manage work Planning responsibility Develop strategic vision and long-range plans Develop tactical objectives and one-year plans Decision making Facilitate decision making Make decisions Problem solving Create challenges Solve problems Employee Emphasis Inspire employees Manage the employees Influence on organization Develop the organization Maintain the organization Impact on present situation Challenge the situation Accept the situation What application does this have for Randolph-Sheppard entrepreneurs? After reviewing the chart, do you think blind entrepreneurs need to be leaders or managers? Many state business enterprises programs refer to their entrepreneurs as BE Managers. Does that mean blind entrepreneurs are more of a manager than a leader? In reality, blind entrepreneurs do not have the luxury of being one versus the other. Large corporations such as McDonald s have a complex corporate structure. The CEO and his leadership team provide the vision for the company and make important decisions. However, they rely on managers to handle the day-to-day operations. Since blind entrepreneurs are not operating with the benefit of a large corporate structure, blind entrepreneurs need to be both leaders and managers. They need to be able to look at both the big picture as well as manage the daily operations of the facility. They must create the vision for their business and make strategic operational decisions. They must inspire and lead people plus manage performance. They must create challenges and solve problems. They must challenge the status quo to make improvements and enhance profits while accepting the situation in which they find themselves. A blind entrepreneur who sees himself as a manager and not a leader will limit his/her potential. Conversely, a blind entrepreneur who sees himself as a leader and not a manager will face operational difficulties that could impact the viability of the business. Your job as a Business Consultant is to help your entrepreneurs develop the skills to be both a leader and manager. Before leaving this topic, we recognize that there are always exceptions. In the Randolph-Sheppard arena, such an exception could be a blind entrepreneur who has responsibility for a large federal contract such as a military troop-dining contract. These entrepreneurs often employ hundreds of people including managers of different departments. In these cases, the blind entrepreneur may be more of a leader than manager. In those cases, it is still incumbent upon the Business Consultant to help the blind entrepreneur understand his/her role and develop the skills to be successful.

4 5 Key Business Principles There are many important components of a successful business and literally thousands of books have been written on the subject. But what are the key principles by which blind entrepreneurs can live to improve the chances of success? True Perceptions, Inc. lists the following as the 5 key business principles: 1. Vision 2. Perception 3. Leadership 4. Reputation 5. Consistency We will discuss each of these briefly and relate them back to your blind entrepreneurs. 1. Vision is how you see the business in the future. Where do you see the business in one year or five years? Without vision, you tend to become complacent and stuck in your business habits. You keep the same products; merchandise the products the same old way; and use the same suppliers that you have always had. Depending upon how long you have been a Business Consultant, you may have gone into one of your vending facilities and realized that there has been absolutely no change in the operation in the last 5 years, or maybe 10 or even 15 years. The same candy bars are on the same shelves. Display racks are right where they were 5 years ago. Greasy burgers are the staple of the menu. Finding a salad or another healthy option is impossible. This can lead to loss of customers, higher employee turnover, and lost profits. Change is difficult for a lot of people and our blind entrepreneurs are no exception. However, our entrepreneurs need to be sure they do not get stuck in their ways. Food service trends are always changing and entrepreneurs need to be aware of the new trends and offer new products to their customers. As their Business Consultant, you also need to be aware of new products, new equipment, and trends in the industry. In your role as a coach, you must help your entrepreneurs to not fear change and to be innovative. This change starts with a vision. Deep down inside, the vision most blind entrepreneurs have for their business is not to be the same tired rundown vending facility operating the way vending facilities were operated 20 or 30 years ago. Most want to be creative. They want to stand out as a quality food service provider. But they ve been taught one way, and you as the Business Consultant have to help them crystalize their vision and work toward that vision. We will talk more later in this module about creating a vision. 2. Perception is how others see the business. Your entrepreneur may see their business one way while others may see it quite differently. Your entrepreneur may perceive the quality of his food and customer service to be better than the

5 competition. They may believe their customers love the food and are more than satisfied with the menu selection. You poll the building tenants and they paint a much different picture. They say there is no variety, service is lacking, and the place is neither clean nor attractive. They may tell you they only eat there when they have no other choice. Who is right? You ve heard all your life that perception is reality. Truer words were never spoken than in food service. The customer s perception is his/her reality. What can you do to help the blind entrepreneur change this perception? Blind entrepreneurs often find themselves in the same place doing the same thing day in and day out. They understandably get comfortable and may not notice areas that need improvement. As the Business Consultant, you can easily fall into the same trap. You accept the status quo and it is easier to do that than try to influence unwanted change. Then again, perhaps you don t even realize that changes need to be made. You are in that facility on a regular basis but you may not always look closely at things. Each time you go in the facility, you should look at the facility as if you are a customer seeing it for the first time. Would you eat there, or buy from the machines, if you had other options? If not, why? What needs improvement? It is your job as the Business Consultant to point out to the blind entrepreneur areas that would improve customer experiences thus improving perceptions. It is also your job to tell them what they are doing well. 3. Leadership was discussed previously in great detail so we won t go into as much here. However, it must be noted that leadership also includes accountability for all aspects of the business. Entrepreneurs are responsible for every area of their business: cleanliness and attractiveness, product quality and freshness, customer service, employees, purchasing, paperwork, etc. It is your job as the Business Consultant to be sure your blind entrepreneurs accept that responsibility and assure that their facilities are operated at their best and meeting the expectations of the customers. This doesn t mean you are to police the operation. It doesn t mean you are to discipline entrepreneurs. In the module where we discuss the role of the Business Consultant, we stressed your role as a coach and teacher. These are opportunities to put those skills to work. 4. A good reputation is built on integrity, trust, and honesty. Blind entrepreneurs need to understand that reputations good and bad are earned. Once lost, it is hard to regain. Bad reputations are created when customers tell others of their experiences. Bad news travels fast and others will form their opinion based on stories they hear. Have you ever asked someone about a restaurant and get the response I haven t eaten there but I hear the food is not good and service is slow? That opinion may be totally unfair and based on one experience but that is how reputations are established. It s been said that it takes more than a dozen positive experiences to make up for one bad one.

6 In food service, reputation is not just about food. It is also about the service and management of the facility. It s about cleanliness and being treated with respect. Customers want to know they will be treated fairly. They want to know that if there is a problem, the blind entrepreneur will handle it with integrity. This is true for suppliers, property management, and any others with whom the entrepreneur may do business. 5. Consistency is one of the things that will bring customers back. If they know every time they come to the vending facility they are going to get good, reasonably priced food and quality service in a clean environment, they will be back. Repeat business is the key to the success of most businesses. The repeat customers also tell their coworkers about their experiences, which can bring in more business. The number of restaurant franchises in this country has boomed in recent years. Why? One answer is consistency. Customers know that if they go to a Cracker Barrel Old Time Country Store in Tucson, Arizona that the experience will be almost identical to the one in Lansing, Michigan and the one in Lansing will be the same as the one in Nashville, Tennessee. People go because of the consistency. They know exactly what they are going to get. Discuss the above basic business principles with your blind entrepreneurs. Help them evaluate their businesses against the principles and help them make improvements when the opportunity presents itself. General Business Basics Planning Planning is extremely important to every business. This is a time to set goals for the facility. It should be done at least once a year and more frequently if needed. The blind entrepreneur should start the planning process by developing a vision statement. A vision statement tells where the business wants to be and why it exists. It should represent the values of the operation. Some examples of vision or mission statements are: Zaxby s Consistently create encore experiences that enrich lives one person at a time Cheddar s Cheddar s is a great restaurant that serves quality food fresh from the kitchen in a friendly, comfortable atmosphere at a fair price. Wal-Mart Saving people money so they can live better McDonald s To be the best quick service restaurant experience Are you getting the idea? A vision statement is just one sentence or phrase that packs a powerful message. Blind entrepreneurs should have a vision for their businesses and should go to the trouble of developing a statement that communicates that vision. What

7 would be an example of a vision statement for a Randolph-Sheppard entrepreneur? Here are two for your consideration: Blind Entrepreneur #1 To be the food service provider of choice for customers housed in my buildings Blind Entrepreneur #2 To provide the highest quality food and customer service to every customer every time What do these two vision statements have in common? They send a message to the reader that the two blind entrepreneurs are totally committed to their customers. The message is the customers always come first. Once the vision statement is developed, you can help your blind entrepreneur identify goals. One of the best ways to identify goal areas is by using a SWOT analysis. A SWOT analysis looks at four areas of the business Strengths, Weaknesses, Opportunities, and Threats. By analyzing each of these areas, the blind entrepreneur can better determine what goals should be established to help achieve the vision of the business. They can develop goals that build on strengths and help overcome the weaknesses. They can develop goals that take advantages of opportunities and minimize the threats. In conjunction with the SWOT analysis, the blind entrepreneur should look at all aspects of the business. These are not limited to just those that tie directly to the vision. After all, they are running a business and the purpose of a business is to make money. The plan should evaluate areas that affect profitability. These would include reviewing gross and net profit percentages, labor costs, expenses, etc. Let s look at some of these areas that impact profits and that should be evaluated in any planning process. The blind entrepreneur may want to consider goals in each of these areas. Gross and Net Profit Percentages If your agency does not have gross and net profit standards for the business enterprises facilities, your entrepreneur should set his/her own goals. This goal should be reasonable and based on factors such as the type of facility being operated, location, etc. By monitoring gross and net profit percentages, the entrepreneur can tell many things about a business and zero in on those negatively impacting the operation either in terms of service or the bottom line. Although some fluctuation is normal, drastic fluctuations can signal a problem with the operation. For instance, fluctuations in gross profit (net sales purchases) could be a sign of theft, over purchasing, or increase in cost of goods without a corresponding increase in selling price.

8 The most common mistake many entrepreneurs make is failing to mark-up their products properly. If the entrepreneur s goal is to make a 55% gross profit, (s)he must mark the products up accordingly. If a product costs $.45 and the entrepreneur expects to make a 55% gross profit, the selling price must be $1.00. The formula is Desired Margin divided by (1 minus the desired percentage). In the example above, that would be.45 which was the cost divided by.45 which was 1 minus.55 which equals $1.00. Reviewing pricing needs to be done on an ongoing basis to ensure proper mark-up. Any change in gross profit will obviously affect the net profit. However, if gross profit stays consistent and there is a fluctuation in net profit (gross profit expenses), it would mean there are issues with the expenses such as increase in labor costs, supplies, etc. As a Business Consultant, you should monitor both the gross and net profit percentages for your facilities so you can quickly identify any major fluctuations. You can then discuss these fluctuations with your entrepreneur and help develop a plan to make improvements. The reason you monitor is not to find fault and result in a negative interaction between the Business Consultant and blind entrepreneur. It should be a constructive process that helps increase profits. Labor Costs Many times, blind entrepreneurs operate with acceptable gross profit percentages and the figures might suggest a profitable business. However, the net profit percentage is low and the business simply is not generating the kind of profit that sales suggest. The most common culprit is the amount the blind entrepreneur is spending on labor. If the blind entrepreneur requires employees in the business, this is an area that needs to be reviewed. Here are some questions you and the blind entrepreneur might ask: Does the entrepreneur have the correct number of employees? Are the wages being paid appropriate for the market? Are the employees properly trained to perform their jobs? Are the hours being worked by the employees appropriate for the sales generated by the business? Are adjustments needed? Are the employees performing at an acceptable level? Once the questions are answered, the blind entrepreneur can explore ways to reduce labor costs. There may be a fear of this but you, as the Business Consultant, can coach them through that process. Other Expenses The cost of product and the cost of labor impact profit percentages more than anything else. But the blind entrepreneur cannot ignore other miscellaneous expenses. These may include bookkeeping/accounting services, pest control, liability insurance, supplies, bank/credit card fees, equipment lease fees and repair costs in some cases, etc. All of these should be examined to ensure that the amounts being paid are appropriate and there is no room for cost reduction in order to improve net profits.

9 Third Party Arrangements Many blind entrepreneurs utilize third parties to provide some vending facility services. The most common is utilizing third parties to provide vending machine services. There are two scenarios when this most frequently occurs. In the first, the blind entrepreneur decides to third party out the vending. In the second, the Agency requires that the blind entrepreneur third party out the vending or the Agency itself arranges for a third party to provide vending with the commission going to the blind entrepreneur. It is understood that some states simply do not have the financial resources to provide vending machines to every blind entrepreneur. This may be the case in your state and, if so, your hands are tied. Ideally, however, these decisions should be business decisions in terms of what best meets the needs of the vending facility. Two questions need to be asked: How can services best be provided to maximize the customer s experience? What is more profitable for the blind entrepreneur third partying or servicing the machines himself? Many blind entrepreneurs choose to third party for the wrong reasons. They may accept a 25% commission from a third party vendor rather than service the machines themselves where the profit might be as high as 55%. In some cases, this could mean hundreds of dollars in a blind entrepreneur s pocket each month. Profit should be the predominant factor in making such decisions. When doing a plan that is geared toward increasing profit, third party arrangements must be reviewed. Other Factors We have addressed some of the major factors that impact profit. We haven t intended to ignore two other areas that obviously impact sales and profit. We are talking about customer service and cleanliness of the facility. This module isn t going to address these but they are things that need to be considered when a blind entrepreneur is developing a plan to improve his/her business. The Plan By examining all of the above, you can help your entrepreneur develop goals. Goals should be developed using the SMART method. SMART is an acronym that means SPECIFIC, MEASUREABLE, ACHIEVABLE, RELEVANT, and TIME BOUND: Specific state exactly what is expected Measurable must be able to compare goal to actual results Achievable must be realistic Relevant must relate to the focus statement Time Bound must have a date the goal is to be achieved Would this goal be a SMART goal? GOAL: To increase gross profit.

10 The answer is no. The goal is not specific; it is measurable and is probably achievable and relevant; but it is not time bound. A better goal would be: GOAL: To increase gross profit by 2% in the next 6 months. It is now time to help your entrepreneur develop a business plan. According to The National Restaurant Association in its book Hospitality and Restaurant Management, a business plan is a statement of goals and activities to be addressed in the next 12 months to move the operation toward its mission. Their four steps to reaching goals are: Step 1: Develop the plan Select the most critical SMART goals Identify specific activities for each goal Establish dates for completion of specific steps and follow-up Communicate to employees and gain their commitment Step 2: Implement the plan Monitor and chart progress Review goals to ensure the plan stays on target Follow up on any issues that arise Revise and update as needed Step 3: Evaluate the plan Compare SMART goals to actual results Recap what went right and how things may have been done differently Recognize good work Step 4: Apply the results Ensure employees know about any changes Provide feedback Another great resource for blind entrepreneurs who want to learn how to write an effective business plan is the Hadley School for the Blind. Hadley is an online training school that offers both academic and continuing education courses free of charge to blind individuals. The Forsythe Institute is part of the Hadley School for the Blind and it offers a series of business courses including courses on writing business plans. There is no doubt that some of your blind entrepreneurs will feel that taking all this time to plan is wasteful. They have too much to do every day to go through all of this. However, planning is extremely important to the success of any business. As the old adage goes, People don t plan to fail; they fail to plan. Nonetheless many blind entrepreneurs will not go through such a formal process as outlined here. The formal planning can be very beneficial; however, the important thing is that the blind entrepreneur is engaged and has a vision for his/her business. They are constantly analyzing the numbers. They make plans and set goals even if they don t have a written plan.

11 Other Key Business Principles Time Management Poor time management can destroy a business. Conversely, effective time management by a blind entrepreneur can be the difference between success and failure. Some blind entrepreneurs are better at time management than others. Time management is planning to increase a person s productivity. Two key factors are setting priorities and focusing on one activity at a time. Some ways to do this are by: Work and plan when most productive Make use of even small amounts of time Delegate work when possible Develop a daily plan or schedule Put systems in place to make sure things get done and are done correctly Make lists and prioritize Avoid distractions and time wasting activities All entrepreneurs need to develop ways to manage their time effectively. Otherwise the stress of the daily activities will become overwhelming. As a Business Consultant, you can help your entrepreneur determine ways to manage their activities to get everything completed as needed. Business Ethics Merriam-Webster defines ethics as rules of behavior based on ideas about what is morally good and bad. Here is a list of basic ethical principles that should be followed by all employees in a business from the entrepreneur on down. Honesty Integrity Fairness Trustworthiness Accountability Commitment to Excellence Respect The businesses operated by any blind entrepreneur should be above reproach. Ethics should be part of any state s entry level and upward mobility training. Tennessee Business Enterprises actually developed a Code of Ethics that each entrepreneur and staff member is required to sign. To give an example of one BEP s view on ethics, below is the Tennessee Code of Ethics:

12 CODE OF ETHICS Tennessee Business Enterprises Entrepreneurs, staff, and partners are committed to the highest standards of ethical conduct in the performance of their obligations to customers, suppliers, property management, and others with whom they have contact. As a member of the TBE team, I understand my obligation to conduct all aspects of my responsibilities with honesty and integrity and to always present a positive image of TBE. I AGREE TO: Deal honestly with all customers, employees, suppliers, property management officials, and anyone else with whom I have contact in my capacity with TBE; Treat with dignity and respect customers, employees, suppliers, property management officials, and others with whom I have contact in my capacity with TBE; Take no action to bring the reputation or image of TBE into disrepute; Comply with all federal, state, and local laws that have application to TBE; At all times comply with governmental rules and regulations that relate to TBE operations; Adhere to all requirements contained in the TBE Operations Manual; Ensure that my focus will be on TBE providing quality products and excellent customer service; Commit to ensuring that TBE facilities are safe food handling environments and that they meet the highest standards of cleanliness; Use sound accounting and bookkeeping practices and report accurately operational activities as required. Signature DATE Such a Code of Ethics is not intended to be used against a blind entrepreneur for disciplinary purposes. Instead, it is intended to be a constant reminder of the importance of strong ethics and the impact it can have on an individual business and a program as a whole. Each blind entrepreneur should also have an ethics statement in his/her employee handbook that should be signed by his or her employees.

13 Professionalism The National Restaurant Association in its book Hospitality and Restaurant Management, lists the following characteristics of professional foodservice entrepreneurs: Have a positive attitude and pride in themselves and the important work they do. Possess the knowledge and skills required to be an expert in their profession. Are alert to the need for ongoing education, training, and professional development. Contribute 110 percent to help their team meet its goals. Are genuinely interested in serving customers. Know and consistently attain (or exceed!) their organization s quality and quantity standards. Are effective communicators. Respect others in the organization. Help their employees find pride and joy in their work. Follow high ethical standards. Admit mistakes and learn from them. Follow appropriate personal hygiene and dress standards. Have a sense of humor. Entrepreneurs should maintain a professional relationship with their property managers, suppliers, agency staff, etc. This is integral to their success. Even though Business Enterprise Programs across the country are in locations protected by priority, we are still being compared and are in competition with all other vending and food service providers. As such we, both staff and entrepreneurs, need to show a high degree of professionalism. Marketing Marketing is defined by Merriam-Webster as The activities that are involved in making people aware of a company s products, making sure that the products are available to be bought, etc.; the process or technique of promoting, selling, and distributing a product or service. Are your entrepreneurs marketing their products well? In many locations, marketing can be difficult. Property management may have restrictions on what marketing can be done in the building. However, the entrepreneur needs to take advantage of things they can do. Some suggestions might be: Professional looking signage outside the facility or on bulletin boards that promote new products or weekly menus Menu lines that customers can call to get the daily menu Websites

14 Social media Buy 10 get next free cards (could be for coffee, fountain drinks, or meals) Small professional signage on vending machines (don t cover products) to highlight new products Combo meals (i.e. burger, fries & drink for special price) Taste tests of new products Customer Appreciation Day (offer something free) Clean environment Pleasing product presentation There are many ways to market the facility. You and your blind entrepreneur can work on ways to market that will be allowed in their locations. Keeping the facility and its available products in front of the customers is vital to continued success. Product mix is also important in the overall success of the facility. Product mix can refer to two things. First it refers to the overall variety of products offered for sale. In your food service operations, your entrepreneurs need to have enough variety to give the customer choices. However, they have to be sure they don t offer too much variety. Too much variety can cause lower profit levels due to higher inventory costs and possible product loss if all items do not sell. Rotating products in and out can help with this. The second thing product mix refers to is the mix of high profit and low profit items being sold to give the optimum profit level for the entrepreneur. Part of your job as consultant is to be sure your entrepreneurs are watching the costs of their products and their selling prices to be sure they are optimizing profit. Also, be sure the entrepreneur isn t offering mainly low profit items or mainly high profit items for sale. Selling mostly low profit items will result in lower income for the entrepreneur unless he/she is able to sell a very large quantity. Offering mostly high profit items, while it could make the entrepreneur more money, may make the customers decide to go elsewhere. A good mix in variety and in high and low profit items will make the customers happy as they will feel they have good choices at reasonable prices. It will also make the entrepreneur happy as this mix will make him/her the most money. This in turn, is best for the agency as well.

15 Basic Business Formulas The following are some basic business formulas that may help the Business Consultant in his work with the blind entrepreneurs. Net Sales (if tax $ amount is known) = Gross sales Sales Tax Net Sales (if only tax % is known) = Gross Sales (1+Tax Rate %) Gross Profit = Net Sales Purchases Gross Profit Percent = Gross Profit Net Sales Net Profit = Gross Profit Expenses Net Profit Percent = Net Profit Net Sales Desired Mark-up = Cost (1-Desired Mark-up %) Average Mark-up = 1.00 (Total Cost Total Retail) Verify Average Mark-up = (Net Sales Purchases) Net Sales Cost of Goods Sold = Beginning Inventory + Purchases Ending Inventory Resources True Perceptions, Inc., What Are Your Business Principles? December 31, National Restaurant Association Manage First Program, Hospitality and Restaurant Management. Pearson, 2013.