What are three critical things that small business owners and operators neglect?
The first is not having a strategic and business planwhere they define the ultimate objective of the enterprise. The Late Professor Randy Pausch commented in one of his last lectures "if there is no plan there is nothing to manage".
The second is neglecting the primary reporting systemof the business. I refer here to the accounting system. This is in fact the "sexiest" and most valuable system in a business. I can hear readers cry out - "Only an accountant could say that!!!", read on and you'll discover why.
The accounting system provides the information the manager needs to make informed decisions. Decisions made without current and accurate information have no substance and are at best guesses. Decisions made with the benefit of well prepared, timely and accurate reports have good ground to stand on and are more likely to be good decisions.
Thirdly owner operators neglect operating systemsin general. Activities in a poorly run business are done in an ad hoc fashion, on a needs basis, and are usually not carried out in any consistent fashion.
Why is it important to owner operators to recognise these shortcomings?
Businesses are almost always established with the intention to make money and build an asset. The return on investment and ultimate value of the business depends on these factors and how well they are conducted throughout the life of the business.
Businesses that have the highest returns and residual value are those that were built with the primary thought that the business will ultimately be sold. Businesses which are built this way have a strong planning culture, an efficient and effective reporting (feedback) system and are based on systems that interlock and deliver consistent results.
When small business operators seek professional help these are factors that are frequently low down the list of priorities of the owner/operator.
The operator is, as Michael Gerber so neatly describes in his book "The E-Myth Revisited", so busy doing his work that these very important areas are neglected.
Business planning is seen "as a waste of time and energy because nothing works out like the plan anyway', paraphrasing clients comments I have received over the years. They fail to realise that the business plan of today is a very flexible program that enables the manager to "change horses" if the conditions don't suit the "nag" he's on. The strategic plan will have "other horses in the stable" to bring out to meet the new conditions and enable him to reach the destination he planned at the start of the period.
Many business operators see the accounting system as being there to report income and expenses to taxing authorities and as having little internal value. The reporting system frequently is ignored until the pain from the threat of fines or worse hits the businessman for not meeting statutory obligations. Then it's a mad rush to catch up and management information is so out of date that it is virtually meaningless.
As for systems, these are usually carried in the heads of the various role players in the enterprise. They may be passed on from employee to employee and research has shown that this is not a reliable way to achieve consistent results in a business. Is it any wonder that no two items produced are the same, inconsistency is the order of the day, and that there are inexplicable cost blowouts or volatile expenses incurred to the untrained eye.
If the enterprise had a strategic and business plan in place there would be a clear vision of the expected result for the year; each step of the mission would be measurable and reported and there would be options available to adopt if circumstances changed.
If the accountancy system was operating well, decisions could be made with confidence that they are based on solid foundations. The reporting would show if the heat needed to be turned up or down and by how much.
The systems in place would ensure that every task was conducted the same way irrespective who was doing it. The systems would determine when activities occurred and how different systems interact with each other.
How do these critical factors become part of the enterprise?
This is the simple part.
The business owner makes a decision.
Resources are allocated in terms of
time and people -
to implement a business plan;
to design and build an accounting system that works for the business; and,
to document all the necessary tasks and procedures to be completed in the operations of the enterprise.
Will this happen overnight? No it will take time and commitment because these are the building blocks for a successful and valuable business. In many businesses this process, depending on resources, can take up to two to three years and then it's constant monitoring and updating.
What if these three critical factors become part of the enterprise?
The first thing the owner/operators might notice is the increased productivity and profitability and increased capacity the business has. These steps will unlock hidden capacity as they will also eliminate waste.