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December 15th, 2011 posted by David Finkel (Taxloopholes.com Advisor)

Today I wanted to remind you of the five core ingredients from which to build your Level Three business.

Building Block #1: The Business Owner’s Mindset

It all starts with you the business owner. You’ve got to make the mental shift from running your business as a self-employed job to building a business you can one day sell, scale, or own passively.

This means consistently reminding yourself that you are just a temporary producer, and that your business must eventually replace you from its day-to-day operations.

Building Block #2: Systems

Systems are the reliable processes and procedures that empower your business to consistently produce an excellent result for your clients.

They’re documented best practices that increase your company’s efficiency and reduce costly mistakes; the checklists your shipping clerks follow to ensure that all orders are shipped correctly; the orientation process for all new clients when you begin working together; and the standardized contracts you use with all your new hires and vendors.

You’ve got to get your whole team to buy into the belief and discipline of creating, using, and editing your systems over the long haul.

Building Block #3: Team

Every business needs talented people to help make it successful. My insistence that your business’s success be independent of any one person does not mean your team is unimportant. On the contrary, the only way to build a Level Three business is to have great team members who consistently perform for your company.

It’s critical, however, to ensure that it doesn’t rely on the presence of any one individual. Instead, capture critical knowhow in your systems. You need great team members, and you need them to document the core processes by which you operate your business successfully.

Building Block #4: Intelligent Business Controls

Controls are the intelligent processes, procedures, and safeguards that protect your company from uninformed or inappropriate decisions or actions by any team member. They also are your business’s way of making sure that key work is getting down on time and the right way.

There are three main types of business controls: Checklists/Visual Process Controls; Scorecards/Metrics; and “Embedded Controls”.

Visual controls include tools like checklists that let you SEE that the right action was taken by the right person at the right time. They also include scorecards and metrics which give you a quantifiable way to make sure that any specific area or system is operating well, and if not, it gives you a timely warning light to go and fix it.

Process controls are the safeguards you build into your “way you do things” that keep people from making costly errors (or worse). These include your financial controls like having two or more unrelated party in the flow of any money cycle. And having levels of spending authority.

Embedded controls are those systems that work beneath the surface to automatically protect your business. They include things like standardized contracts, and mandatory fields in your database. The control is built into the fabric of the system and cannot not be used.

Building Block #5: Scalable Solutions

Have you ever watched the television show This Old House? Imagine you’re on it, working on a 75-year-old house with its original electrical wiring and plumbing. What would happen if you plugged in a full complement of modern electrical appliances? You’d blow your fuses, not to mention create the potential for an electrical fire to break out.

And what would happen to your plumbing if you went from a well-water system to tapping into the higher pressure of city water? (Can you say rain gear?!)

Likewise, too much growth that makes increasing demands on old, outdated systems is what causes most growing businesses to fail. The systems that worked for a $500,000-a-year business are no longer sufficient to cope with a $5 million business, and not even close to being adequate for a $50 million business. At first, the additional sales will cause a few “leaks,” but before long, your business will have burst pipes and water everywhere! That’s why the final building block of a Level Three business is scalable solutions.

Scaling your business requires building it in such a way that your business model and systems can be rolled out and replicated on a much bigger playing field. This also means when you’re solving a business challenge, you look for solutions that can be scaled.

In essence, building with scalable solutions mean that the systems, controls, and team solutions you choose are ones that can handle multiples more volume. For example, this could be outsourcing your shipping to a third party fulfillment company. Or this could mean choosing your database solution based on your future needs and not just on today’s costs. Or it could mean tweaking your business model so that your service is more scalable and not so dependent on one or two key people.