Although there appears to be no shortage of great business books and even free business advice, small businesses are continuing to struggle with below average profits leading to cash flow difficulties. They are not bad businesses and they will not necessarily fail, but the sad truth is too many will. During economic prosperity they claw themselves from month to month just making enough profit to pay their way but seldom being able to stash away surplus profit or reduce an overdraft which has become hard-core borrowing. It only needs one poor month to cause everything to come crashing around their ears.
Whatever industry you are in, there will almost certainly be competitors who are making fantastic profits and those who will fail. Most will be somewhere in the middle. But why aren’t you making as much money are your most successful competitor? Generally the reason given will be financial. “He is bigger and has economies of scale”. “He owns all of his own plant or vehicles so doesn’t have the cost”. “She owns her own show room so doesn’t have the high rent to pay that I do”. “He spends more on advertising then I do”. “He has been established longer than me and can afford to charge more”.
No matter what the industry, the reasons are always the same and are finished off with “but my business is different”. Every human body is different but the illnesses are generally the same. Some occur as a result of how you treat your body and others are down to having reached a certain age. Bodies and businesses are very similar.
If your business is not fit then seek the advice of a business doctor before it is beyond repair. But what does a business doctor do? It’s all about balance. If you concentrate on just one area of your business it cannot possibly run as smoothly as it could if all the critical areas were given the same amount of attention. So what are the critical areas?
Some business gurus say that there are only 3 key skills needed to run a small business:
- The ability to sell the product or service.
- The ability to produce or deliver the product or service.
- The ability to collect the money and realise the profit.
Most people who start up a business can only do number 2 (or part of number 2). They have a technical skill learned while working for someone else and believe that this is all they need to know to run a successful business. At the very least they only know a third of what they need to know but in reality they probably know less than 10% of what it takes to run a successful business. We, in fact, have identified 13 major areas that need to be balanced and the only way for a small business owner to cope is to either learn incredibly quickly or to use the experience and knowledge of outsiders.
There is little space in this article to explain these areas in detail but probably the most important area is leadership. How would you lead a team to the North Pole without planning and what about a map to show you where to go and to help you identify the likely problems you will face on the way? Less than 3% of small businesses have a written plan of where they are going and how they are going to get there. They do not have defined targets, they do not know what their Key Performance Indicators (KPIs) are and they have little idea what their breakeven position is. There is an old saying which states that “what gets measures, improves”.
So you must plan, record, compare and therefore control what happens to your business rather than just drifting along and keep your fingers crossed that things will be ok. This is very much the role we have with some of our clients where we are actually journeying alongside them throughout the year rather than turning up after the year end to prepare a rather meaningless historical summary. By then it could be too late.