When it comes to running a business, too much infrastructure is a waste; so is too little. In either case, it’s tough to maintain stability in uncertain times and grow when the time is right without the right supports in place.
What do we mean when we talk about business infrastructure? The term is generally used to describe the physical necessities required to run a business, such as adequate facilities and equipment. However, it’s also common for business infrastructure to encompass staff, processes, and services (such as contracting with outside financial and IT experts). Essentially, a business infrastructure is the totality of the practical concerns necessary to run a business.
Proper infrastructure doesn’t just help you run your business; it’s an expectation of customers and employees who want to make sure they have made the right decision buying what you sell or choosing to work with you. It’s also important to investors, who want to know their money is being properly managed and increasing. If you want a loan, your business infrastructure will be part of the decision-making process. Even your insurance agent wants you to have the right infrastructure to prevent problems that would force you to collect on your policy or worse, default on payments.
How to evaluate your business infrastructure
For something as important as your company’s infrastructure, how can you tell if you have it right? What should you do if it’s not?
If you don’t have adequate infrastructure, that fact will make itself known to you; by the time it does, it may be too late. That’s why it’s crucial to be proactive in evaluating whether your company’s infrastructure needs are being met appropriately.
The most effective infrastructure evaluation is a combination of a financial audit and a SWOT Analysis. Here’s how:
Start by defining infrastructure correctly. Every business has both fiscal infrastructure and people infrastructure (employees, allies, vendors, investors, and the community in which the business operates). Both rely on policies, processes, and procedures to be the most effective.
Now, look at your expenses and arrive at your true total cost for infrastructure. This may vary by season or month but there is a “must have” amount. The biggest mistake you can make in this step is to leave something out or have it in the wrong account so that you don’t include it in your calculations.
How are you doing? This is where a SWOT Analysis of your business strengths, weaknesses, and ability to take advantage of opportunities and deal with threats is the critical next step.
What should you measure in your evaluation?
Taxes are certainly a key measure of good infrastructure. Can you pay them? Are you paying the right ones and keeping up with the changes and proposed changes?
Are your chart of accounts reflecting how you do business? Are you up to date? Are you following good accounting principles?
Is your turnover high? Are you and your employees carrying too heavy a workload?
Do you see a lot of time and money going into redoing work? Are there more unhappy customers who show their discontent through returns or requests for discounts? Are there more good prospects who have stopped communicating or won’t sign a contract? Examine your sales tracking system for changes, and talk to your salespeople and to customers to get a full picture.
How is your reputation as a company when it comes to the quality of your goods and services? Too good for what you charge? Too poor?
What’s the state of your vendor agreements? Ally agreements? Is everyone following the rules or do you have slackers?
How are you staying active in the community where you are located (not just the business community or your industry)? You need to build these relationships so these contacts can help you and be on your side when things happen— because they will.
What should you do if your infrastructure evaluation isn’t good?
Go back to the other critical part of infrastructure: your policies, processes, and procedures. Every business—for-profit or nonprofit, one-person operations or those with millions of employees— has decided on its own internal governance rules and how things are to be done and to what level.
If you haven’t yet, write them down so you can review them. Change them if necessary. Sunset them if they are no longer relevant or are a hindrance to the rest of your infrastructure. Watch out for unwritten but accepted policies; these are a huge drain on good infrastructure.
If you need some more resources to help you in this process, Stephen B. Page, “the father of best practices in policies and procedures,” has several books you’ll want to add to your library: 7 Steps to Better Written Policies and Procedures and Establishing a System of Policies and Procedures.
Look before you leap. Before you change things, look for relationships between the six different functions of the business: sales, marketing, operations, books and record-keeping, finance, and administration. What you change will affect more than one function. Carefully consider the actions you are taking. Talk to other stakeholders. If you do decide to go ahead with changes to your infrastructure, make sure you get all the parts changed and then communicate those changes with your team as soon as possible.
Here’s to your success in 2019!