By Dave Sanders
Small-business owners wear many hats. The demands of day-to-day business activities leave little time for planning or thinking about ways to improve your business. The past few years have been tough on all businesses, but especially on small business. Smaller operations have fewer employees and generally have a good understanding of their costs, especially expenditures on material and labor.
The year 2011 looks to be a continuation of the slow but steady economic recovery. Many economists agree that the key to sustained recovery is job growth, and big companies are starting to hire again. It will be some time before we’ll be certain that the trend continues, but that doesn’t mean business owners shouldn’t be taking action now to improve their operations. Not all businesses will be in a position to hire people right away, but focusing on the 3 Ps of business basics will help keep you in a position to do so when it’s time to expand.
Perhaps you’ve seen growth over the last couple of quarters, and expect more. As the recovery continues, business planning is the most critical of the 3 Ps. The most basic strategy is cash planning, and the easiest way to do that is to look at your cash inflows and outflows week by week. Many expenses are regular, recurring and predictable, but others occur infrequently and require good cash management to cover those annual, quarterly or one-time expenses. The most common tool is a rolling 13-week cash flow forecast. The continuing discipline of knowing your cash needs over the next quarter will allow you to make better decisions in all areas.
Once that 13-week plan is in place, an annual plan is the next step. Planning is more than putting some sales and cost numbers on the page—it’s thinking about how to achieve your business goals. The simplest goals are profitability and growth. Setting goals for the year will help guide your decisions, especially when it comes to investment in people, equipment and sales. Every business needs a revenue and profit target. Setting the target is usually relatively easy, but figuring out what you need to do to achieve it usually proves more difficult. The initiatives and plans you undertake, and the level at which you execute them, is what separates you from your competitors.
Process is the way you do things. There is right and wrong, and there is better and best. Businesses are like living organisms: they’re born, they grow, they mature, and some die. As a business evolves, certain processes change and can become outdated and ineffective. They require review and updating.
A broken process adds costs, takes time away from other critical activities, and can frustrate your employees. Some critical processes that you should review include customer contact—selling, as well as invoicing, production and communication.
Look at activities that can be automated. Automation techniques have become more available to smaller companies through open software and less expensive applications. If you can’t automate, consider outsourcing functions and services that are not core to your business, like payroll or accounts payable. Finally, as part of your review, assess the viability of eliminating activities that are outdated or no longer necessary. For critical functions and activities, make sure that your process keeps up with your product.
Businesses strive to do more with less, and one of the best ways to do that is to leverage others by making them your business partners. There are ways to look like a bigger company without all the costs of actually being bigger. One example is to get the specialized skills you need without having more employees. For lawyers and tax accountants, as a traditional example, you pay only for what you need, when you need it. Today, businesses use fractional CFOs, part-time recruiters and IT specialists on a time and materials basis. Advertising and marketing campaigns, usually reserved for bigger companies, can be used by small- and medium-sized businesses in a “pay as you go” model.
Another leverage point is suppliers and customers. Many of you already collaborate with your major suppliers, and some of those same opportunities exist with customers. By getting closer to your customers, you position yourself to better understand their needs and future plans, and that information can help guide you in making investments in people and equipment. You might be able to work more collaboratively with your bank, your insurance provider, other local businesses or even a competitor. Networking and collaborating with professionals in your industry is easily accomplished with all the electronic communication tools at our disposal today.
Step back for moment and ask yourself: What is my plan for 2011? What is my target for sales, for new customers, for profitability? Look at the cash needs of your business so you’ll know how to afford and achieve those goals. Take a hard look at how you do things. Talk to employees and customers to better understand what your company does well and where you need to improve. And explore the relationships you have built over time and figure out who might help position you for growth and quality improvement.