Some anonymous statistician working for Uncle Sam recently divined that a new small business is started every 10 seconds. And, what's more, few live to their first birthday. Why do some businesses succeed while others falter? One reason is that the successful business owner is able to make adjustments if things don't work out exactly as planned. In effect, the successful business owner is able to right a sinking ship, while the unsuccessful owner just goes down with the ship.
To achieve success is one thing; to sustain it is another. Identifying potential problems in your business is a daily task. Often, once identified, some problems defy resolution and must be managed as conditions to be endured rather than situations to be solved.
At whatever level or stage your business is in (infancy, survival, nominal success), vigilance in the following areas will improve your chance of continued success: cash flow clogs can be problematic if the cash isn't flowing in fast enough; accounting enigmas and their paperwork can sometimes tie you up in knots: marketing snafus in sales and advertising might be giving you the blahs; employment issues can certainly give you headaches; outgrowing facilities can introduce a new set of problems.
Eliminate cash flow clogs
A lack of sufficient capital is the most common dilemma for a new business. Working capital is the source from which all cash blessings flow; it's the blood of your business.
Cash flow is king. Even if profitability has eluded you, survival can be attained if cash flow is maintained. Planning around cash flow is essential.
When cash starts getting tight, sit down and determine what sources of cash are available, and to what uses cash has been put. Prepare a cash flow budget worksheet to identify sources and uses, help you diagnose where the problem is, and guide you to its remedy.
Do you have excessive uncollected receivables? Perhaps you're overstocked on some inventory? Can you make do with fewer employees? Improving your cash flow should be an ongoing effort on your part.
Work smart
If you find yourself in a severe cash crunch, don't hide it from your banker or your creditors. Since you owe them money, they are your partners and have a vested interest in your success. Communicate with them often, so they're confident the problem has your full attention.
Unravel accounting enigmas
Managing your business finances is one of your most critical tasks. Are you getting your financial statements regularly? Are they complete, timely, and accurate? Neglecting good accounting habits can be dangerous to your financial health.
Or, do you have the statements but haven't studied them or acted upon them yet? Yes, we know it's boring detail work but it's necessary boring detail work. You can't fix what you don't know about. Ignorance is definitely not bliss!
Analyzing your financial statements is another critical task. How reliable is your cost accounting? Take a long, hard look at the cost-of-goods-sold figures.
The study of business ratios and cost/profit analysis is essential to your success. If you have a budget, how does it compare to the results you've seen so far? You may need to adjust your expectations and your business plan accordingly.
Suppose your biggest customer doesn't pay you on time (or at all). This problem won't be fatal if you've established a relationship with a reliable credit bureau or collections attorney and you communicate with them so they can do their job if the need arises. Do you have a current list of aged accounts receivable balances? It's important to know which customers are using you as their bank loan officer and which ones can be relied upon to pay promptly. Scanning the 30-60-90 day account balances will give you an ongoing feel for this important data. Scrupulous attention to slow payers will help your cash flow as well as alert you to a potentially serious collection problem early on.
Accounting is truly the "language of business." If you faithfully keep your books and read your financial statements, they will tell you the whole story of where your business has been, where it is now, and where it's likely to be down the road. This knowledge will give you better control over the destiny of your firm, both short- and long-term.
Prevent marketing snafus
Many of the initial marketing problems experienced by new businesses involve miscalculations in one or more of the basics. Ask yourself these questions:
Are your advertising and promotion dynamic and persistent? Effective advertising can be accomplished on a shoe-string budget, but it has to be an ongoing effort to really pay off. When business is slow is NOT the time to cut back on promotion.
- Do you really know your target buyer?
- Did you choose the correct market category segment?
- How did you differentiate your business and position your product?
- Is your product packaged correctly? Is your pricing structure appropriate for the market?
- Did you do sufficient market research?
- Do your distribution methods need reevaluating?
- Is your business plan off the mark and needs rethinking? Sometimes it's easy to mistake an idea for an opportunity. If you've targeted the wrong niche or misjudged the market, a new plan will help to clarify a new direction for you.
Confront employment issues
Suppose your only employee decides to charge you with sexual harassment. The employee you should have hired, but didn't, sues you for age discrimination. Do you have formal hiring policies to protect you from unfounded claims, should they arise?
If your decorative palm falls on your secretary, your insurance will cover her grievous injuries, but it won't pay for a replacement when she takes a week off to recover. If you comply with basic safety standards for your workplace you won't have to deal with this kind of problem.
Doing a background check on candidates for employment is tricky, but necessary. You can avoid a lot of pitfalls by following through with this process.
Employee discipline is a minefield of perils. Set your rules for your workers and apply them even-handedly.
Firing an employee is an art as well as a science. Take advantage of our downloadable tools to guide you on the legal and prudent path for termination of an employee.
Don't get tangled up with your payroll tax obligations. The state and federal governments grant no leeway for timely deposits of these funds.
As your business grows, employee turnover can be a costly problem. Try to minimize this by thoroughly screening candidates before you hire them.
Family employees — There's an old saying that "family business is to business what military music is to music." The family business is the original oxymoron. Hiring family members to work in your business can be both a blessing and a curse. The benefits of working with family members will be obvious to you, but the detriments of nepotism may surface down the road and you'll need to be prepared to deal with them. Unfortunately, there's no solution to these problems once they arise. You must develop coping strategies to manage the periodic flare-ups of jealousy and insubordination. A local networking group of other family business members might be helpful just to let you know you're not unique.
Plan for outgrowing facilities
Location, location, location is important, important, important. And so are the qualities of your facility. Even if you still haven't grown out of your home office, the suitability of the physical environment of your business should be re-evaluated periodically in terms of image, overhead costs, and efficiency.
Outgrowing a facility is a pitfall that's easily remedied with some careful planning. And it's kind of a nice problem to have. Apart from the traditional relocation options, here is a couple you may wish to investigate:
If you're a non-retail small business in search of a new home, consider an "incubator." Small business incubator centers are sponsored nationwide by universities and economic development agencies. These centers rent space at very reasonable rates to emerging companies. Support services are shared by all tenants in a center, yielding significant savings. The success rate for incubated businesses is an astounding 80 percent in the first five years.
Tip — You can locate a center near you by accessing the web home page of the National Business Incubation Association, or by calling them at 740-593-4331 for a copy of their directory.
Not surprisingly, there are commercial alternatives to incubators that provide office space and facilities to those who don't need them on a regular basis. If this type of arrangement is suitable for you, consider both incubators and office space providers.
Many growing service businesses do well in an executive office center. These privately-operated centers rent office space and provide a pool of clerical personnel to use on an as-needed basis at a much lower cost than you could obtain on your own. You usually get conference room privileges and answering services as well.
Look for ways to work smarter
Here are a series of suggestions for working smarter:
Pick the right business form. Suppose your partners decide to sue you. If you selected the correct business structure to limit your potential liability and define your relationships with, and responsibilities to, partners or investors, this will not be fatal. If you own less than 51 percent, you'd really better pay attention to structure. Misunderstandings can and will crop up as you grow, so it's important to have a well-drafted structure with all the rules, roles, and responsibilities defined up front.
Don't over-engineer. You had a great idea and developed a nice prototype of your product....but it's just not quite ready, you say? Tweak and dabble all you like, but over-engineering has killed more than one small business in its infancy.
Be very careful not to rely on one supplier, one customer, or even one bank for your business survival. Loss of any one of these could sink the ship. Don't give anyone this kind of control over your future.
Learn to distinguish necessary expenses from "perks." Self-discipline is not just a virtue, it's mandated by the IRS. The temptation to start out with "first-class" facilities and equipment should be overcome by better judgment. There will be time for that when you're farther down the road to true success.
Don't ignore the details. One of the most vulnerable aspects of a small business is the tendency for its owner to concentrate all energies on sales, promotion, and production while neglecting the back-of-the-house detail work. The more rapidly the company grows, the more severe this problem becomes.
Entrepreneurs generally dislike detail work, but that doesn't relieve them from the necessity to deal with everything that's piling up in the office. Keep track of your paperwork — every small business owner should have a file cabinet of some sort. What it looks like doesn't matter — it can be an electronic file cabinet if you're fortunate enough not to deal in printed pages. What is important is how it's organized.
If you want to organize your files by customer or client name, that's fine, but you should also have a series of general files that will allow you to file away every piece of paper that comes across your desk that's worth keeping. Get in the habit, early on, of doing the detailed chores every day. A little effort daily will go a long way to reducing the problems later on. When things become so hectic that your sales or production work starts to suffer, retain some competent help.
Give some thought to an exit strategy. This is not planning for failure, it's planning to succeed at a later date in a different way.
Protect your income stream if possible. Although it may be hard to do while your business is very new, consider getting disability insurance on yourself in the event of an illness or accident that prevents you from running your business, which is your main income provider. As your business grows, key man insurance can help your business replace your services should you be unable to actively participate in management.
Manage your time effectively
Manage your time effectively. Plan some "toes-up" time for yourself every week. The time demands of owning your own business will always be greater than you ever dreamed possible. If you fall into the trap of working seven days a week and 20 hours a day, both you and your business will meet an early grave. Plan your time well and include time for rest and recreation.
When you work for someone else, your work life and personal life are usually fairly compartmentalized. Your workday might begin at 8 a.m. and end at 5 p.m. The work week ends on Friday. Your personal life begins in the evenings and on weekends. For most people, of course, there are times when you work late or on weekends, but the schedule is still fairly rigid.
When you work for yourself, however, there is usually no schedule as such. Being a small business owner is an around-the-clock job that will consume all of your energies and almost all of your time. You'll probably find that even when you're not working on your business, you're thinking about it.
But small business owners are people too, and they have the same need for personal time and space as everyone else. So being able to manage your time effectively is an important skill to develop. In fact, effective time management can be the difference between success and failure.
Here are some suggestions for managing your time more effectively:
Set priorities: Your priorities should be determined by the goals you set for yourself (for a review of that process, see setting your goals).
Example — Suppose you are a human resource consultant with several clients. One of your goals is to add three new clients within the first six months after you start your business.
Suppose you feel bogged down because there are so many demands on your time. One solution would be to give priority to those tasks that help you achieve your goals. Therefore, you might give priority to sales calls on potential clients for three uninterrupted hours each week until your goal is met.
Take control of how meetings are scheduled: Try not to meet with anyone who doesn't have an appointment. Of course, this is often easier to follow in theory than in practice. If an important client drops by unexpectedly, you're probably not going to tell that client to go away. But you can politely ask him or her to schedule a meeting next time. For example, you could say, "I'm concerned that you might drop by and I won't be here. I don't want you to waste your time, so could you please call ahead to make sure I'm in?" It won't always work, but it's worth a try.
Take control of how meetings are run: Meetings have a way of spinning on needlessly. Two big time wasters are "the tangent" and the "post-meeting chit-chat." The tangent is a conversation that begins on point but then veers off to some topic that may be more interesting than the one you began with but isn't relevant to the business at hand. For example, if a conversation with one of your suppliers about the delivery of some product reminds the two of you of something that happened on television, and you launch into a discussion of your favorite character on the show, you're on a tangent. You need to recognize when that happens and firmly but politely get back to the subject at hand. The post-meeting chit-chat is the polite social discussion that begins once the meeting is over. If you let it, it can last longer than the actual meeting. That's especially true for home-based businesses where meetings often have more of the feel of a social call than a business meeting. If you're to control your time better, you have to cut it off. Don't be afraid to be firm but polite in ending the conversation.
Example — To keep meetings on track, always develop an agenda and send it ahead of time to all participants. Put a start time and an end time for the meeting at the top of the agenda. If you don't want the meeting to last more than 30 minutes, don't be afraid to put, for example, 2:30 p.m. to 3:00 p.m. on your agenda. Stick to the items on the agenda and you'll be surprised how often you will meet your time targets. Be sure to establish what the next steps are going to be; do this before the meeting concludes so everyone will have a clear understanding of what they are to do.
Take control of phone conversations: The same general rules about keeping meetings on track also apply to phone conversations. The better you are able to stick to the business at hand, the better you will be able to manage your time effectively. Most of us are taught that cutting someone off on the phone is rude. We also don't want to hurt a person's feelings by appearing not to want to listen to what he or she has to say. Those rules are good and we do want to honor our social obligations to others. But if you're a small business owner, you also have an obligation to your business and to yourself. The person at the other end of the line may not realize it, but he or she may be costing you money. Again, be firm but polite in keeping the conversation on track.
Keep track of your time: Every small business owner should also have a schedule organizer of some type. Some prefer the desk-top printed versions, while others prefer the hand-held electronic organizers. There are also numerous software schedule organizers, many available for little or no cost. It matters only that you have one. As a small business owner, you will have responsibilities for every facet of your business so it's essential that you keep track of what you're doing. Also, try keeping a daily to-do list.
Keep current with technology
Most of us fall into one of two categories: either we love technology and desperately want every new gadget, or we loathe it and want it to leave us alone. Both types of people often have trouble managing their technology needs. But the business owner who can handle basic technology will have the productive capacity of approximately five people, thus achieving significant savings on employees or outside service costs.
The first rule of thumb to follow is that you should define your business needs and then look for technology that satisfies those needs. Those who love technology tend to do this in reverse. They buy the technology (if it's on the market, it must have a use, right?) and then try to figure out a need for it. Those who hate technology tend to avoid the problem altogether because they're not aware that technologically easier ways of doing things exist (how come no one sells carbon paper anymore?). In either case, you'll be much better off if you start with a list of your needs first.
The second rule of thumb is that there is no Holy Grail in technology. Unless you have very limited technology needs, no one combination of software and hardware, for example, will do everything you want. But you can buy pieces that can be fit together to do what you want to be done.
Example — Advances in wireless communication have allowed many business owners to become completely mobile, yet retain a high level of performance from the technological tools being used. It's a great tool for those who are outselling their goods or services and want to keep in touch with those who are minding the store in their absence.
Software. A good place to start in evaluating your technology needs is with software. Here's a list of software that will be essential for most small business owners:
- Word processing software.
- Spreadsheet.
- Fax program that lets you send faxes from your personal computer and/or scanner.
- Accounting program.
- Small database software that lets you keep a record of your assets. In addition, you may need other software based on the type of business you run. For example, some retail establishments use integrated packages that monitor activity at the point of sale and feeds that information to inventory management.
Hardware. Most small business owners will need the following hardware or at least access to the following hardware:
- A personal computer, with enough hard disk space to hold all your files and business programs and enough processing power to perform the tasks you need performing.
- A high-speed modem or router (most PCs have wireless modems built-in).
- A printer.
- Phones incorporating whatever features would be helpful to the business.
Tip— If your technology requirements are limited to the occasional use, for example, of a fax machine or a printer, consider going to FedEx Office or to a similar business for those needs rather than buying the equipment yourself.
Combining tasks. If you frequently find yourself wishing you had more time to get everything done, you should consider using technology to help you perform more than one task at a time. Try to think of ways that you can combine tasks. Many of these tasks don't have to be "high tech" at all. For example, lots of small business owners read their email while they eat breakfast, or make business calls on their cellular phone while on the go.