During the course of our study during the past 8 months, we have observed many of the mistakes small business owners make. Let us recap and talk briefly on the most important of them. I have termed them as the Ten Commandments because they guide you to keep out of problems and effect continuous growth.
Commandment 1: Use financial statements to manage your business
Do not believe just because you can look at the bottom line of the Profit and Loss statement (P&L) and locate the net income and profit figure, you know everything you need to know about your financial situation. You may overlook such tools as the balance sheet, cash flow statements, cash flow projections, and budgets, along with other valuable percentages and ratios that evolve from all those financial statements.
To fully understand your business (and, in turn, successfully manage it), you must know how to compile, read, and understand those financial statements. That is why in our previous instalments we encouraged you to have the services of a good financial accountant (unless you are a professional accountant yourself.)
Commandment 2: Prepare an annual budget
Certainly, the budgeting process is a detail-oriented and laborious discipline. It’s fraught with assumptions, but the benefits you reap from developing an annual budget make the process eminently worthwhile. Some of the assumptions are easy to make, while others are more difficult. The only way to come up with the right assumptions is to plan for them. Accurate planning is a prerequisite for accurate budgeting.
A business that doesn’t budget sets itself up for a host of financial problems down the road. Conversely, a business that develops short- and long-term business objectives by creating a detailed business plan can create a road map for financial success and opportunities to expand.
Commandment 3: Seek financial advice from an accountant
One of the downsides of a small-business career is that owners try to steer their businesses alone, as opposed to their bigger counterparts, who have their boards of directors and layers of management staffers to help them make decisions.
But you don’t have to go at it alone. At least one person in your working environment has the background and knowledge to assist you in directing your business; that person is your Accountant, or whoever prepares your accounts, budgets planning and execution and handles your business’s tax issues.
No one can provide conclusive advice on how to run a business without first understanding and applying the information generated by financial statements than your accountant. If you think you cannot afford a full-time accountant, you can get an experienced and qualified one on a part-time basis but give him a full-time accounts assistant. But a full-time accountant is best and any money spent on him is worthwhile for the kind of advice a good accountant can give you.
Commandment 4: Understand how marketing applies to your business
Every small-business owner confronts a number of marketing myths over the course of his career. For example, Marketing is not all about advertising and promotion. Marketing’s other elements include market research, product development, pricing, labels and packaging (where applicable), distribution, and customer service.
A sale is not a stand-alone function. The “sales” activity is but one of the nine functions of marketing. Granted, it may be the most visible of those functions, but it’s no more important than any of the others, especially customer service.
Marketing is one of the most important parts of your overall business plan. After all, as every small-business owner will eventually find out, the world is full of great products and services, but those products and services won’t make a bit of difference if customers aren’t motivated to purchase them. Marketing is what drives customers to make that purchasing decision.
Commandment 5: Do not recruit your employees too quickly
To understand just how important recruitment is, try attaching a cost to its failure. If you recruit a non-performing employee, the cost will equal the expense of the mistakes that are sure to follow, plus the cost of the departed employee’s wasted training time, plus the time and energy required to start the hiring process all over again.
Always place recruitment at the top of your to-do list, and leave it there until you have successfully accomplished it. Recruit slowly and methodically.
Commandment 6: Do not take long to terminate non-performing employees
Within 30 days after hiring an employee, most small-business owners can determine whether or not they’ve made a mistake. Yet, they wait another six months, or maybe five years, to do something about it. The underlying reason is that small-business owners prefer to spend their time doing the things that they enjoy and are proficient at doing, so they procrastinate doing unpleasant tasks.
Understandably, terminating isn’t an enjoyable activity for most business owners and most people aren’t proficient at it, but it’s as important to the success of a business as any of the other three team-building functions - hiring, training, and motivating.
Businesses that don’t get rid of the bad workers are at greater risk for losing their high-performing employees to businesses that better recognize and reward the best and dismiss the worst. You may recruit employees on the basis of 3-month probation with an option for termination.
Commandment 7: Do not assume employees are motivated by the same things you are
Most elderly small- business owners say that a vast majority of their workplace frustrations evolve from an inability to understand why his employees do what they do and act the way they act. In short, employees drive small-business owners’ nuts and vice versa.
The primary reason for this owner/employee disconnects is simple: Employees aren’t motivated by the same things that small-business owners are. (This difference is usually for the best.) While the typical entrepreneur is motivated by such things as growth, creativity, and independence, the typical employee is motivated by such things as being part of a team, having problems solved, and feeling secure. The two lists are entirely different.
To be a successful small-business owner, you have to understand how your employees are wired and why they do things the way they do. Then you have to make the necessary adjustments in your management techniques to cope with those differences. Like it or not, the burden for change is always on you, the small-business owner, not your employees.
Commandment 8: Consider training an investment and not an expense
Imagine that you own a small business and your revenues are growing at a rate of 25 percent a year. For most people, that kind of growth would be a positive and exciting trend, yet it can mask a number of dangers (such as expenses that grow too rapidly or too many slow-paying customers) to the unwary small-business owner.
To avoid those dangers, you and your key employees must be growing at a similar, or faster, rate as your business. If you aren’t, your team is in danger of being outgrown by your business, a situation that happens far too frequently with rapidly growing small businesses.
Enter the element of training. In truth, the money you spend on relevant and effective training isn’t an expense; they’re an investment. Although they may appear under the expense category on the profit and loss statement, those dollars could just as well be capitalized (on the balance sheet) and then written off over a period of time.
Commandment 9: Take advantage of available resources
Numerous potential resources are available to help you maintain and grow your business. Those resources include professionals, including management accountants, attorneys, bankers, local business organizations, consultants, mentors and coaches, universities, and industry trade organizations etc.
Given this wide range of resources, why are so many small-business owners reluctant to take advantage of them? Unfortunately, independence is a major factor. While the desire for independence plays a significant role in many of the decisions you make to start a business, it can work against you, too. If you embrace independence too tightly, you may be reluctant to ask for help - even when you really need it.
Get out of the office, on and off and mix with your peers, seek help from outsiders, and keep your eyes open for educational and training opportunities.
Commandment 10: Maintain an up-to-date organization chart
Every business, large or small, requires a defined chain of command. After all, an organization’s chain of command is what determines who is managing the team and judging the performance of its members, who are promoting team members as a function of their performance, and who should be encouraging and empowering team members to perform and succeed. Sometimes that organization chain is official and published; other times it exists only in the minds of those concerned. In both cases, however, you should be able to identify the different layers of employees within the organization.
A properly constructed organization chart provides an orderly way to solve problems, to make decisions, to get jobs done.
Add new comment