Essentials That Every Small Business Owner Should Know
May 24, 2016
Although anyone with a small amount of capital and little or no experience can start a business, this does not mean that success will follow. Statistics show that 70% of new businesses started will still be operating in two years and only 50% of startups will still be in business in five years. To counteract these failure rates, a small business owner needs an abundance of knowledge to be successful over the long-term.
While knowing all aspects of small business operations is essential, some are more critical to success than others when starting out such as:
Cash is more than simply making a profit in business. In fact, cash is not the same as profit. Managing cash involves managing:
• Inventory – having the correct inventory on hand and in sufficient quantities (not too much or too little)
• Collections – having credit policies that are not too tight or too lenient with priorities put on collecting receivables before they become delinquent
• Purchases – having discipline over all types of purchases (purchasing only necessary items) and securing the best terms possible with vendors
• Debt servicing – having available cash to service debt on due dates to avoid default and additional interest
• Cash budget – preparing a cash budget that accurately forecasts the amount of cash inflows and outflows of the business on a monthly basis
There is a multitude of data (also known as big data) in any business that can be reviewed and analyzed to assist with making future business decisions. Tracking data and key performance indicators (KPIs) helps a business understand its customers better and their buying habits. Making decisions based on factual data is a more prudent way to operate rather than making decisions simply based on the owner's "gut" assumptions.
Small business must plan just as large businesses must plan. This includes financial planning (budgets, sales forecasts, expansion plans, etc.) as well as operational planning (marketing, growth, improvements, etc.). Plans are an important aspect of business success, but all plans must be periodically reviewed, performance measured, and changes made when warranted.
Review Profit Margins
Knowing profit margins on various products, services, or departments can add significantly to bottom line profit. Conversely, not knowing various profit margins can decrease potential net profit in a business. Not all income producing items in a business (products, services, departments, etc.) produce the same amount of gross profit (dollars and percentage); therefore, businesses should concentrate on those areas that produce the highest profit margins.
Employees are the most valuable assets in any business. Without employees (assuming the owner cannot run the business himself), a business cannot grow and succeed. Hiring employees is only the beginning in this crucial area of a business, but "hiring smart" is what is really important meaning the "right" individual must be hired for the job and retained. Constant employee turnover has a negative effect on a business (productivity, employee morale, and customer relations). In an effort to retain top-notch employees, a business must concentrate on training, providing adequate benefits, and develop a culture where employees enjoy working. Of course, along with employee retention, employees must be terminated when necessary and replaced with someone who can develop into a top performer.
Listening is important in business but practiced less than it should be. Owners are excited about their businesses and want to talk as much as possible about their products and services and why they're better than the competition. Owners, however, must practice listening to customers, employees, and social media sites to see what others are saying about their businesses. Signing up for Google Alerts can be a great way to find out what appears on the Internet about a business. It is a detection and notification service offered by Google that sends an email to the subscriber when new items appear that match certain search terms. Listening and then taking any appropriate action is another growth factor for a small business.
Know The Competition
It's easy for owners to know the "inside and out" of their own businesses but more difficult and equally important to know the competition. In a competitive marketplace, businesses cannot "beat" the competition without knowing what they are up against, for example...products and services, pricing, marketing, and customer service. Knowing the competition is not only knowing a business' direct competition but must include knowing about indirect competitors, as well. Businesses that compete for the same dollar with substitute products and services are all competitors.
Summary - More Than Technical
Improving operation efficiency and maximizing profit is much more than simply knowing the technical aspects of ones business. It is having a wide diversification of knowledge in all the core functions of a business that leads to its ultimate success. The above seven elements are a start in progressing beyond the technical aspects in achieving all-around business knowledge.