Your Annual Business Tune-Up

A thorough review of existing systems, vendors, customers, and employees could help keep your business safe and make 2007 a banner year

Most business owners accumulate long "to-do" lists that live perpetually in the back of a drawer. Need to update your filing system? Address a long-neglected employee problem? Modernize your embarrassingly outmoded Web site? Before 2007 gets into full swing, we'll offer some guidelines for plowing through that to-do list and, in our next column, address some "what-not-to-do" items that we hope will help you avoid mistakes in the new year. First: Leave your 2006 business problems behind and start off 2007 with a clean slate. Entrepreneurial expert Ty Freyvogel, founder of, recently gave Smart Answers columnist Karen E. Klein some tips on how to do that. Edited excerpts of their conversation follow:

As busy as small-business owners are, do they really need to undergo an annual business tune-up, as you suggest?

Yes, because it's the little things that entrepreneurs forget about that get them. I've been an entrepreneur for 40 years and I've made every mistake in the book. Chalk it up to naiveté, or lack of experience, but most entrepreneurs are so busy trying to grow their customer base that they don't take time to think about what they already have. So you see them spending fortunes to put up new Web sites but their business cards don't have their Web site or e-mail addresses or 800 numbers on them.

The first tip you have for entrepreneurs is that they should review all their existing business systems. Why?

We all start out our businesses with some kind of system; usually it's on the back of an envelope. Then we gather data and information and eventually we need to put all that into a more formal business system. Once a year, it helps to carefully examine what is working and what isn't. You might be able to fix the problems you find by yourself, or you might need outside guidance—perhaps a computer expert to help you use your technology more efficiently, or maybe a financial expert to improve the way you do your books.

Whatever you do, don't assume that just because you have had a certain system in place from day one that it is adding value to your business or your customers. Business owners are often surprised to find that their businesses have fallen into habits that are hindering their success.

Your next tip is to review all your vendor contracts.

A lot of entrepreneurs just let their vendors' contracts roll over from year to year. I think it's important to reexamine them annually. Take a look at how much business you are doing with each vendor. Are you getting optimum pricing based on how much you are working together? Is the relationship mutually beneficial for you and for them? If not, don't be afraid to make a change.

If you're happy with your vendors, take the time to tell them so. Let them know you want to be their favorite customer. If you treat your vendors well, and maintain personal relationships with them, when you hit a bump in the road and have cash flow problems they're much more likely to help you out by extending your payments 30 or 60 days.

Another group of people you recommend touching base with is customers.

Right, but first I suggest you determine who your best customers are, using a profitability lens. A lot of business owners are surprised to find out that their best customers aren't who they think they are. Just because you always seem to be doing something for certain customers doesn't mean they're your most profitable. During my own end-of-year review, I often find that my needy customers and my most profitable customers are two different groups.

When you find out who your very best customers are, tell them you appreciate them. Ask them what you can do to serve them better. Ask how you can add value to their business in the coming year. Giving them the VIP treatment builds their loyalty to you. When someone else comes by—and they will—with something cheaper, faster, and better than your product, they'll

stick by your company because they have a relationship with you (see, Winter, 2006, "True Believers").

As entrepreneurs are doing all this reaching out, they certainly can't forget their employees, right?

Definitely not! Even though small-business owners typically see all their employees every day, they still need to sit down and touch base with them one-on-one at least once a year, perhaps in conjunction with an annual performance review. Discuss what they can do to help the company run more smoothly and take the opportunity to find out what they feel most passionate about in their work. Ask if there is another part of the business in which they'd like to play a larger role.

Performance reviews are a great time to ask my employees, "What can I do for you?" Their responses always surprise me. Sometimes they want something as simple as getting their chair fixed, and sometimes they request something that I simply can't do. Regardless, I'm honest with them and they appreciate that I'm taking the time to listen to their concerns personally.

Another thing I find is that my employees are the best people to help me solve problems, particularly those involving customers. Hold an annual retreat or day-long employee forum designed to get them to share their business ideas. Listening to and implementing your employees' suggestions is a great way to make them feel like valued business partners.

You also recommend end-of-the-year action items such as updating your Web site and business cards and cleaning up your office. What about upgrading your technology in general?

Sure, if you need new computers or a new phone system to help things run more smoothly, the end of the year is a great time to make those upgrades. Just make sure that your employees get the proper training on the new technology so they'll spend less time on things like computer crashes or lost voicemails and not more.

What are some final things to think about on the to-do list?

There are some important business documents that we tend to file away and forget about, sometimes with disastrous consequences. But if we just touch those papers every year, and reevaluate them, they'll keep us safe. So, reevaluate your insurance policies to make sure you're still adequately covered. If you're operating as a corporation, update your minute books. If you don't hold annual corporate meetings and record them in your annual minutes, you may be liable if your business is the target of a lawsuit.

The end of the year is also the perfect time to meet with your accountant to plan your taxes. Ask what you should do with excess cash and take a look at anything you can write off.