As an owner, I feel like I’m always looking over my shoulder, wondering what will get in the way. Hoping you could provide some advice on things to look out for, and what to do about them.
Thoughts of the Day: Small business challenges and major issues can get in the way of success. Be smart about how you grow your company.
Small business challenges
We don’t have the right people. Counsel employees about the importance of keeping up with change. Regularly review skills company-wide. Post jobs to assess talent availability. Build individualized training plans. Look for gaps requiring new hires.
Make it a privilege to work for your company – one that is earned. Give your workforce the opportunity to grow and show what they’re capable of. Promote people who demonstrate values of ambition, drive, teamwork, honesty, commitment to the company’s future.
The market has moved on. Engage every department is looking for new markets and new ways to serve existing clients. Ask customers what else they need. Get vendor updates on what’s new. Attend trade shows for new ideas. Commit funds for marketing. Expand profits by selling new products to old customers and old products to new customers. Look 5-10 years down the road.
Be prepared for unforeseen roadblocks
The cost to produce has changed and the company’s pricing hasn’t kept up. Do annual cost reviews. Put someone in charge of negotiating for discounts with vendors. Get more efficient. Remember that cost-cutting only goes so far. Eventually, you’ll have to increase prices and pass along price increases. It’s better to do little price increases each year versus one big increase every few years. If customers balk, beef up marketing to look for new opportunities.
Keep an eye on what competitors are doing. Stay away from price wars – nobody wins. Define a niche, a specialty, an add-on, something that makes your product or service more appealing. Don’t have a good handle on the finances of the business. Small business challenges. Learn how to read both balance sheets and income statements. Build KPIs (Key Performance Indicators). Teach everyone in the company to use reports to quickly spot problems.
Use budgeting tools. Forecast income by product. Estimate costs that vary as sales volume go up or down. Know how much you need to cover overhead, R&D. Forecast peaks, and valleys. Know when you’ll need cash. The build-in margin for taxes, loan principal, shareholders and employees, reserves. Tie salary increases and bonuses to company profits, not revenue.
Long hours and stressful situations
Theft, loss, and waste. We all like to think that we have good people we can trust. And for the most part, we do. As things get busy it’s easy for stuff to slip by. Use tools and rules to help keep good people from doing stupid things. Let people know you want what’s best for everyone. Wasted hours, lost materials and accidents mean fewer profits to share. When there is a problem address it swiftly. Line up the facts. Get employees involved in resolving problems. Don’t let things slide.
Not enough of the right sales. Some clients are your company’s future, some are its past. Look for customers that are forward-thinking, well run, well-funded, concerned about the health of their vendor partners. Give them top priority. Let poor quality customers know you’re concerned. Look for late payers and low-margin accounts who demand a lot and don’t want to pay for the privilege. Replace them.
Not enough capital. Every business needs reserves. 3 months of overhead is good. 6 months is better. We call it the ‘sleep at night’ fund. Don’t try to pay down credit lines quickly at the expense of cash on hand. Put $1 toward each. Build up current assets as you reduce current liabilities.
Ask your banker to explain the ratios they look at to assess the health of your business. Set goals to improve those ratios. Build up hard assets, such as owning a building, that can back-stop your lending needs.
Looking for a good book? The Facts of Life, What Every Successful Business Owner Knows that You Don’t, by Bill McBean
