Successfully running a business is all about leveraging wins and learning from losses. So, the key to success is to learn proactively and avoid losses. Losses often come from mistakes, and an owner can improve their chances of success by engaging other business owners, consultants and subject matter experts proactively before trouble comes. Mistakes typically occur in three areas: people, finance, and planning.
People
Too often, we assume that team members know what to do in any given situation. Then we are disappointed when we perceive that they have fallen short. This leads to misalignment between the people we depend on and ourselves. Everyone needs clear, frequent and consistent communication. People need to know business objectives and performance, what is expected of them and how they are doing against their own performance measures and goals. But, it’s a two way street and it’s important to listen to our employees too.
Owners should take time to create and share a comprehensive job profile with their employees that clearly defines their responsibilities, goals and performance measures and how they interface with other employees. Additionally, they need well documented processes to clearly understand how to do their job, and to know how they impact their co-workers. Owners should also schedule regular one-on-one sessions and team meetings with their employees to maintain an effective two way flow of information. Staying in touch with your team and encouraging two way communication will go a long way in building a successful business.
Finance
Nothing will get an owner into trouble faster than not paying attention to two key financial reports: Cash Flow Statement and Profit and Loss Statement. Most people have heard the term, “cash is king”, and nothing could be truer. You can have the greatest product, best sales and most cost effective operation possible, but if you don’t have the cash it could all go for naught. Conversely, you could be sitting on a pile of cash, but if you aren’t watching your margins the cash will go down the drain in a hurry.
It is vital that small business owners manage their businesses finances regularly. Owners should develop a habit of regularly monitoring these two statements. A 12 week look forward cash flow should be reviewed on a weekly basis. Check the key components: A/R, A/P, loan payments, recurring costs (ex. rent, salaries, taxes, etc.). Looking out over a 12 week time frame will give the owner more options to address any potential shortfalls. The P&L, like the Cash Flow Statement, is a great indicator or financial health. Owners should ensure they have a conservative budget loaded so they can do variance analysis between planned and actual costs. Use the P&L as a starting point to evaluate price points, direct variable costs (ex. labor or materials) and fixed costs (ex. wages or rent). Ask yourself, is this a realistic budget and/or am I controlling my costs, pricing my products correctly, marketing my company and products effectively, etc.
Planning
Planning is to proactivity as reacting is to flying by the seat of your pants. Ask yourself…where am I on the planning scale? On a scale of 1-10 are you closer to a 1 (highly reactive) or 10 (highly proactive)? The difference in rating is the difference in the amount of time, and the number of solutions you will have to deal with problems.
Owners should schedule time on their calendar for important non-urgent tasks. Avoid allowing yourself to respond to unimportant urgent tasks. These often drain an owner’s available time, while producing little to no value. Important non-urgent tasks include 1-5 year strategic plans, customer and supplier reviews, financial and operating forecasts, organizational planning and capital planning. Again, it’s all about proactivity.
Proactive consideration of people, finance and planning will put an owner on the road to success. It will also mitigate many of the day-to-day headaches that monopolize time with no return to the bottom line.
At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:
