Four Reasons Why Small Businesses Succeed (or Fail)
The American system of business management has been admired and emulated around the world. This system is characteristic of two traits in the American psyche: (1) enthusiasm for the future and making things better, and (2) an openness and willingness to change in order to achieve that end.
No society in the world is better or more prolific at creating new businesses than the United States capitalistic system but often we are so busy commercializing ideas and starting new ventures that we don't take the time to learn basic, successful management principles that have been developed by our larger companies.
Many entrepreneurs are technical experts in what they do but start a business without any formal training or experience in management practices and principles. By "management" here we mean the business of successfully managing the non-technical side of the business, the "back room" activities. As a result of inadequate management, many small businesses fail in the early years. They fail not because of a weakness in the product or service concept they have, but because the business was not properly managed in the back office.
Once a business has emerged or grown to a certain level, management techniques must change or the business will run into trouble. For many small businesses this level is $1-3 million in annual sales or 5-15 employees. Sometimes the critical point is smaller and sometimes it is larger, however, when it occurs, the owner or manager of a small business must evolve, morph or otherwise change from a manager of things to a manager of people and from a technical expert to a strategic thinker.
This is often a difficult task because of ingrained habits developed over time but failure to grow as a manager is a major, perhaps the major reason why a business will falter, stagnate or even collapse under its own weight.
But what do successful businesses have that troubled businesses don't? First of all, owners of successful businesses have developed personal characteristics that exhibit themselves in their businesses:
? Invariably they have a positive attitude towards their business and life in general.
"Twenty years from now you will be more disappointed by the things you didn't do than by the ones you did do. So throw off the bowlines. Sail away from the safe harbor. Catch the trade winds in your sails. Explore. Dream. Discover." Mark Twain
? They are committed to their effort.
"The only place you'll find success before work is in the dictionary."May B. Smith
? They are patient.
"Entrepreneurs are simply those who understand that there is little difference between obstacle and opportunity and are able to turn both to their advantage." Victor Kiam
? They are persistent.
"Many of life's failures are people who did not realize how close they were to success when they gave up." Thomas Edison
Secondly, the owners of successful businesses have developed a business blueprint called a Strategic Business Plan that clearly describes their business concept, their mission and their philosophy of business. In this document, they have set personal and corporate goals and set out specific time lines and strategies to achieve them.
Thirdly, the owners of successful businesses have developed an Organizational Structure that functions as a well-oiled machine. This structure, including all its policies and procedures, encourages all associates to perform to their utmost capabilities. It rewards those who excel in proportion to their contributions. It also disciplines those who deviate from acceptable behavior. Positions, tasks, duties and responsibilities are defined and communicated and performance is routinely measured. Training, job enrichment programs and incentive compensation plans are designed to encourage each associate to excel. Successful owners view their associates as their most valuable asset and resource.
Fourth and last, the owners of successful businesses have developed Operational Support Systems. These may be financial or non-financial, manual or automated. The objective of these systems is to support and make efficient all the activities of the organization. Well structured, they also relieve management of many day to day routine activities, giving owners more time to be strategic thinkers. The information provided by these tracking systems provide critical information on sales, cash flow and other financial performance data so that senior management can take timely action as change occurs. Red flags appear early, before problems become unmanageable.
IN SUMMARY, THE FOUR KEYS TO SUCCESSFUL SMALL BUSINESS MANAGEMENT ARE: (1) Owners have developed habits and traits that are Positive, Committed, Patient and Persistent. (2) A living Strategic Business Plan is in place. (3) An Organizational Structure has been developed that encourages people to be their best and helps them do so. (4) Operational Support Systems are used that track performance and relieve senior management of daily detail yet supply them with critical data to manage the business.
Let's go a littler deeper into what is meant by a Strategic Business Plan.
Successful businesses operate within a planned framework. A Strategic Business Plan is written for a minimum of three years or two years beyond the current budget year. The plan describes the company's mission to serve its customers. It analyzes its corporate and marketing strengths and how they will be exploited. It addresses its weaknesses and how they will be overcome. It identifies its target markets and pricing strategies and it identifies and describes strategic alliances or business partners that may be crucial to success during the planning period. The plan describes positions on any other issues seen as critical to the long term health or viability of the business.
With a current and meaningful business plan the company stands its best chance of continued success and achievement. Without a viable business plan the company runs the risk best described in the old adage: "Failing to Plan is Planning to Fail".
Now let's look a little deeper at what we mean by Organizational Structure.
The basic building blocks of organizational structure for a business are:
? An Organizational Chart depicting key functions of company operations and reporting relationships between the functions
? Job Descriptions for managers, supervisors and professionals that detail reporting relationships, physical/mental/special job requirements, skills, duties and responsibilities and standards of performance for each function
? Task and Duty Lists for plant workers, utility personnel and other laborers that detail reporting relationships, physical/mental/special job requirements, skills, duties and responsibilities and standards of performance
? An objective Job Performance Evaluation System that measures performance of all employees and encourages continuous improvement
? Information Guidelines including an Employee Handbook and a Policies & Procedures Manual that communicate acceptable boundaries and the preferred methods by which employees are expected to operate
? An Incentive Compensation System for all employees that rewards employees for performing above the standard or budget and does so by sharing a portion of the increased profits.
When all of these organizational components are in place and being utilized routinely, the organization will have structure and purpose. Employees will feel they know where the company is going and what their role is in helping it get there. They will know the boundaries of what is expected as acceptable behavior and they will be aware that outstanding performance will be rewarded.
Now let's look a little deeper at what we mean by Operating Support Systems.
The simplest type of system is a form, such as employment or credit applications, a product return authorization or a shipping release document. More involved examples of systems include cash forecasting and management, budgeting, variance reporting and incentive distributions. These more involved systems usually include some method of automated assistance such as a Microsoft Excel® worksheet or even more specialized software.
Usually the most involved system for a small business is the Accounting System. This may be a relatively simple system such as QuickBooks® or Peachtree®. These canned systems are particularly good for non-manufacturing businesses that simply buy and resell items. Also, they manage customers, vendors, accounts receivable and accounts payable very well. Finally, they have the capability of generating excellent managerial reports.
For manufacturing or other businesses that modify (add value to) the product after purchasing materials or for larger scale Point of Sale retail businesses, software that is more specific to the industry may be more appropriate. Great care should be taken before purchasing these systems, however, as they (1) often are much more expensive in the long run than simpler systems, (2) provide superior product cost accounting but often inferior general accounting reports and (3) have rigid reporting formats that are difficult to modify or adapt.
No matter what the type of business, some type of accounting software package that can capture daily transactions in a real-time environment and be easily operated by in-house personnel is needed. In today's fast paced business world, relying on an accountant to provide periodic statements of company performance several weeks or even months after the fact is not an acceptable strategy.
Other systems small businesses should have in place:
? Cash Management. This should be a forecasting system (spreadsheet) that projects accounts receivable and other inflows against accounts payable and other outflows and allows management to anticipate shortages and take action before a crisis occurs or to improve the utilization of excess cash during periods of relative abundance. The projection should be for at least six weeks forward. Properly automated, this system should take no more than 15-30 minutes per week for an administrative person to generate for management review.
? Budget. This is the one-year profit plan and critical to management control. This system should relate to the company's historical cost structure but allow for zero-based budgeting (justifying all costs by line item). The system should be automated to produce monthly budgets that directly relate to whatever sales volume was, in fact, generated. Properly automated, this system should require only a few hours per year of management input.
? Variance Report. This system is complementary to the budget system. It should be automated to produce a comparison of actual results against budget and should report monthly and year-to-date totals by line item. The report should indicate trouble areas, by exception, for management to take action upon. Properly automated, this system should take 10-15 minutes per month for an administrative person to generate the report.
? Key Indicator Flash Report. This report summarizes on one page the key weekly changes in cash position, accounts receivable, accounts payable, sales and inventories. Requires 10-15 minutes per week for an administrative person.
? Labor Burden Worksheet. This spreadsheet keeps track of the costs of benefits and other employee related expenses by employee and department. The full cost per hour or year for each employee is reported, which can and should be used in pricing strategy and pricing calculations. A complementary Employee Benefits Sheet repackages the information for communication to the employee as their full-benefits compensation package. Requires 15-30 minutes per quarter for an administrative employee to update information.
? Job or Product Pricing System. This system automates the calculation of pricing required to meet overhead absorption requirements and budgeted profit goals or it can report net profit margin before tax on any proposed pricing scheme. This system is used as needed.
? Incentive Plan Worksheet. This is a system for equitably distributing profit sharing monies to employees based on loyalty, performance and the extent of employee responsibilities. Properly constructed, it requires only 10-15 minutes per quarter to input updated information.
? Break-Even Calculator. This system calculates the company's break-even sales volume by day, week, month or year. Also provides "what-if" capability to analyze major decisions that potentially and significantly affect the company's cost structure before the decision is implemented. This system is used as needed.
? Weekly Sales Reporter. This is a reporting system that keeps track of sales by product group and salesman on a weekly, monthly and year-to-date basis. Requires 15-30 minutes per week for updating by the sales manager or designated subordinate.
If you have none of these developed, the task is not as daunting as it may seem at first. Plug-in systems are available from a number of sources at modest cost and include backup training and support (one such source can be found at profitmanagementinstitute.com).
In summary, the management principles discussed above can be visualized as a stool with four legs. One and two legged stools are totally unstable. Three legged stools are more stable but can tip if too much weight is shifted from one side to another. Four legged stools are the most stable.
The four legs supporting our profitable business stool model are, again:
1. Positive, Committed, Persistent and Patient senior management.
2. A Defined Business Concept and current Strategic Business Plan.
3. A Structured and Functional Organization.
4. Basic, Automated Tracking Systems to support the organization and make it efficient.
A business with these four critical components in place stands a much higher probability of success than businesses that are not so equipped.
© 2004 The Profit Management Institute, Inc. All Rights Reserved
Robert A. Normand is Executive Director of the Profit Management Institute located in Sarasota, Florida. The Institute is dedicated to providing small business management guidance and rehabilitation of businesses exhibiting sub-standard performance. The Institute's website can be viewed at profitmanagementinstitute.com
Bad Regulators Cost Small Businesses
When a regulator finds a target to go after to collect fees to insure next years budget, often it is a small business. In fact the definition of a small business includes what normal people might even think of as a medium sized business. Often a Federal Regulator might be a 26-year old kid fresh out of college being supervised by an older regulator. The younger regulator often wishes to secure his or her case in the name of Justice and wants to change the world being fresh out of college. But they know they must win the case.
Small Business Failure? Nuts!
Pardon my enthusiasm, but a large part of your small business'success is somewhere else. Namely, out among the company's important external audiences.
7 Reasons To Take Control Of Your Small Business? Checking Needs
Business checks are available in many styles and varieties. They offer many benefits to your small business, some you may not have thought of.
Building Marketing Momentum For Your Small Business
The success of your business depends on your ability to build marketing momentum. Without the ability to generate new sources of leads your capacity to sell will slump and the growth of your business will stagnate or shrink.
How To Cut Expenses And Manage Your Business
If you own a small business, you should know that often times it can be the little things, rather than the large expenses, that can eat away at your budget. But many times, small business owners will try and increase their profits by looking around at what larger expenses they can cut.
Image of Your Franchise Automotive Outlet is So Important
Image of your franchise automotive outlet is so important. Some say image is everything, well then if you buy a franchise you should be constantly thinking of image and cleanliness. If you read Ray Kroc's book "Grinding it Out" (McDonalds Visionary) or Tom Monahan's (Founder of Dominos Pizza) book "Franchising for Dummies" or Howard Shultz's book; "Pour Your Heart Into it" (Story of Starbucks) you will see they all built brand on image. Even for those of you who are the extroverted sales type, plenty of examples such as "Customer's For Life" by Carl Sewel and "Exceeding Customer Expectations" by Jack Taylor (founder of Enterprise Rent-A-Car). But as I travel the country and have literally been to every city in the country over 10,000 population in the US;
Small Business Computer Security, the Basics
Anyone in business today realizes both the natural dependency on computers in the workplace, and also the potential dangers associated with storing important data on them. Today's business owners are constantly being reminded that their company's data is at risk by the daily reports on various news stations, or even their favorite business-related website.
Detailing Business Options
So you want to get into the auto detailing business and are not sure what options are right for you? It is a difficult choice indeed and there are so many options. Let me tell you a few having been in the industry some 27-years, we have seen a lot of businesses come and go and we have seen what works.
Comparing Boston Area for a mobile car wash business
The Boston suburbs seem to be rich with possible locations to wash cars and a mobile car wash would be well served in that market. The customers have good jobs, high paying salaries and indeed demand such personal car washing services. They desire these services at home and at work. The economy is strong and many high paying jobs exist there. Housing and growth in the real estate of single family dwellings is still up sharply in the subs:
Work is a Four Letter Word
I love work, I can watch it all day.
Getting Behind in Your Work? You Need a Virtual Assistant!
If you don't know what a Virtual Assistant (or VA) is, don't worry. I only came across the term myself about a year ago. It seemed like a high-tech occupation that I would know little about until I stumbled across some information and found out that I was a Virtual Assistant! Not only that, I realized that small businesses were missing out on the opportunity to improve their efficiency by neglecting the vast talent so easily available online.
A Great Logo Is A Marketing Must-Have. But Is It Affordable For Small Business Owners?
And is having a logo really that important?
Retail Customer Opportunities for Pressure Washing Companies
Pressure washing companies must look for customers in the retail industry to make sure they stay busy. Large Box Stores and Grocery Stores are often you best customers in that regard. Cleaning concrete or doing "flat work" makes sense for a number of reasons, 1.) It is not labor intensive like washing trucks; 2.) Routine scheduled customers make the work extremely easy; 3.) Generally you do not have to worry about not getting paid for work completed, as the corporate offices will pay you, even if they are sometimes a little slow to pay.
Mobile Car and Truck Washing Vehicle Placement
To maximum potential profits and dollars in a mobile washing business it pays to set up in your mind in advance the best and most strategic place to park, before stopping to wash. You will obviously want to park your rig in a location that allows you to do as many cars as possible without moving the vehicle. For instance; let us say that your hose for water is one hundred plus feet but your vacuum hose is only forty feet, so if you have four cars in close proximity and one is a vacuum, park closest to that car. This way you can wash all four cars without moving the truck or rolling up the hoses, thus maximizing efficiency.
Is Your Business Property Safe and Secure?
Security Professionals provide the products and services necessary to create a safe and secure workplace for you and your employees. Products such as lever hardware, panic and exit devices, desk locks and high security key control systems, as well as security boxes and safes, can help you protect your business and property. In addition, electronic access control systems can be designed to restrict access to the building or business complex in order to increase security and control.
Joint Venture Your Way to Extraordinary Sales!
You know what makes me really happy? Drinking a Starbucks latte while doing my grocery shopping at Safeway. Getting my Godiva fix at Barnes & Noble. Cheap thrills, I know!
Is This The Way Its Always Been Done?
Let's face it, we all tend to get stuck in doing things 'the way they've always been done', and creating products, or services, in a similarly conservative mode.
Franchising and Royalty Payments
If you are thinking of turning your current into a franchising company you will need to determine a fair and equitable franchise royalty fee. There are a number of questions you will need to ask yourself in determining this fee such as what services you will provide to your franchisee team and what that will cost. You will also need to take a look at the competition to determine the amount that you can honestly charge without forgoing cost conscious franchise buyers.
Look Like Sizzle, Be The Steak
You've heard marketing and advertising gurus quip, "Sell the sizzle, not the steak." Advertising initiatives best reach their target audience with benefits and the "wow" effect, not the value or features of their product or service. This may work well to get customers in the door. But once they're in, you better have some substance. How can you ensure you uphold the integrity of your business and still maintain the "Wow Effect"? It just takes well executed strategic steps for business AND personal development:
How to Make Your Business Image Stand Out Above The Crowd
Traditional advertising methods are still being used foralmost 90% of businesses today. The number one problem withthis, is that all everyone else seems to be following thesame old methods.
|© Athifea Distribution LLC - 2013|