Rodney:  Your priorities emerge out of your evaluation of what you’re likely to do from a performance perspective over the next year, and what that means from a financial perspective. So priorities are, at the end of the day, give and take and a cause and effect. And so as an organization in setting priorities, you have to determine what is the potential impact of neglecting something or putting something ahead of something else in terms of what we choose to focus on in a world of limited resources.

HOW DO WE KNOW WE NEED TO LOOK AT PRIORITIES?

Rodney: Unexplainable gross or profit margins – where you’re looking at your profit margin and you intuitively know it should be better. That often is a sign that something within the execution of steps that lead you to profit is not executing the way it should. You know that if you’re in this particular industry, a good margin is 10%, or in that industry a good margin is 30%. If you’re operating below those numbers, you have to ask yourself where are you putting your focus? And likewise, if you’re too far above those numbers, it could be a sign that you’re sitting on a house of cards that’s waiting to break. So success is an interesting barometer.

TOO BUSY TO PRIORITIZE? WHY IT MATTERS.

Rodney:  When you don’t have time to focus on priorities, you are going to realize that it costs more in the long run when you don’t evaluate your priorities. The message I typically tell entrepreneurs who say,  “I don’t have time for that” is that you don’t have time to not to stop and plan and establish your priorities. When you’re just doing things either in a sequential order or as they come up, they may not be the most important thing for you to focus on. And you may miss something that really matters. Or you may not allocate enough time to address something that really matters. And that could be costly.

If you are assessing priorities and determining where to lay your resources or how much of your resources to give to a particular task, you want to know what it costs and what the benefit of doing it. The purpose of a business is to maximize returns for shareholders. And so it’s hard to get away from financial contributions to major decisions.

THE  BUDGETING PROCESS: AN EXERCISE IN PRIORITY SETTING.

Rodney: We definitely use a framework for establishing a budgeting process. So we have a framework that forces them to think about the main things that drive their business. It starts with understanding the drivers for the business. Is it the number of customers you have? Is it the amount of money you get out of each customer? Is it the diversity of your products? How do you compare what the competitors are doing? Is it the markets that you choose to sell it? So in developing a framework for planning and budgeting, you create an environment whereby the organization is examining each of the things that drive their business success. That’s what we use to help our clients. Many times they’ve never done budgeting, so we  speak outside of financial language to successfully assist small businesses in getting through a budgeting process.

HOW DO WE KNOW IT’S WORKING?

Rodney: The best way is to look at the trend. You look at the historical performance versus the current performance. If you’re able to isolate what were you doing last year and what were you doing this year, you can get an understanding of the impact of doing or not doing certain things. It’s not enough just to look at the financial results. You have to understand what’s continued and what’s discontinued over that period. When you approach it in the right way, you can actually isolate the impact of the choices that they made.

LEADERSHIP: USING ADVISORS IN THE PROCESS.

Rodney: Good leaders are not insecure or are afraid to say, “ I don’t know enough about this.” But when you’re not sure if you know enough about it, it doesn’t hurt to ask somebody who knows more about it. So  you can make that decision. If I’m a business owner, I’m going to speak to somebody who may know more about something than I am. And that’s going to determine whether or not I go forward with an outsider. 

The sign of a good leader is that they are always aware what they’re doing and how the business environment is affecting the people who work in their space. If you are that type of a leader, you can look around and realize, I’ve got a prioritization issue. I’ve got to step back, set some priorities. For me and for my team members. And then let everybody start roaring in the same direction.