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BB165 p20-21 thompson_


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BB165 p20-21 thompson_

  1. 1. Build the machinery for lasting success encourages all staff to perform to their utmost capabilities. It rewards those who excel in proportion to their contributions. Positions, tasks, duties and responsibilities are defined and communicated and performance is routinely measured. Training, job enrichment programmes and incentive plans are designed to encourage each staff member to excel. Successful owners view their staff as their most valuable asset and resource. Operational support Successful owners have developed operational support systems. These may be financial or non-financial, manual or automated. The objective of these systems is to support business activities and improve efficiency. They also relieve management of many day-to-day routine 20 % 0191 461 8000 Better Business No 165 Beating the recession activities, giving owners more time to be strategic thinkers. The information provided by these tracking systems gives critical information on sales, cashflow and other financial performance data so action can be taken whenever change occurs. Red flags appear early, before problems become unmanageable. Strategic business plan Successful businesses operate within a planned framework. A strategic business plan is written for a minimum of three years or two years beyond the current budget year. The plan describes the firm’s mission to serve its customers. It analyses marketing strengths and how they will be exploited. It addresses its weaknesses and how they will be overcome. It identifies Too many businesses fail in their early years. To be sure of success, make sure you have the right systems in place, says Colin Thompson. W hy is it that some small businesses succeed spectacularly, growing beyond their owners’ wildest dreams, yet others fail miserably in their first couple of years? It’s a question that is particularly relevant in the current economic climate, and one that small business owners would do well do examine. One of the most critical issues is one of size. Once a small business has grown to a certain level, management techniques must change or the business will inevitably run into trouble. The owner-manager of a small business must evolve from a manager of things to a manager of people and from a technical expert to a strategic thinker. This is often a difficult task because of ingrained habits, but failure to grow as a manager is perhaps the major reason why a business will fail. Four keys to success So what do successful businesses have that troubled businesses don’t? There are four keys to successful small business management. Owner’s character There are several key character traits displayed by successful owners: ‡ They have a positive attitude, towards their business and life in general; ‡ They are committed to their effort and not afraid of hard work; ‡ They are patient. “Entrepreneurs are simply those who understand that there is little difference between obstacle and opportunity and are able to turn both to their advantage.” Victor Kiam. ‡ They are persistent. “Many of life’s failures are people who did not realise how close they were to success when they gave up.” Thomas Edison Strategic business plan Successful owners have developed a business blueprint called a strategic business plan that clearly describes their business concept, their mission and their philosophy of business. In this document, they have set personal and business goals and set out specific time-lines and strategies to achieve them. Organisational structure Successful owners have developed an organisational structure that functions like a well-oiled machine. This structure, including all its policies and procedures,
  2. 2. its target markets and pricing strategies and it identifies and describes strategic alliances or business partners that may be crucial to success during the planning period. The plan also describes positions on any other issues seen as critical to the long-term viability of the business. With a current and meaningful business plan the venture stands its best chance of continued success and achievement. Without a viable business plan you run the risk described in the old adage: ‘Failing to plan is planning to fail’. Organisational structure The basic building blocks of organisational structure are: ‡ An organisational chart depicting key business functions and reporting relationships between the functions; ‡ Job descriptions and duty lists for staff that detail reporting relationships, job requirements, skills, duties and responsibilities and standards of performance for each function; ‡ A job performance evaluation system that measures performance of all employees and encourages continuous improvement; ‡ Information guidelines including an employee handbook that communicates acceptable boundaries and the preferred methods by which staff are expected to operate; ‡ An incentive system that rewards staff for performing above the standard or budget by sharing a portion of the increased profits. When all these organisational components are in place and being used routinely, the business will have structure and purpose. Staff will feel they know where the firm is going and what their role is in helping it get there. They will know the boundaries of what is expected as acceptable behaviour and they will be aware that outstanding performance will be rewarded. Operational support Usually the most involved system for a small business is the accounting system. This may be a relatively simple system such as QuickBooks, Sage or MYOB. These systems are particularly good for non-manufacturing firms that simply buy and resell items, or service businesses. They manage customers, vendors and accounts well and can generate excellent managerial reports. No matter what the type of business, some type of accounting software package that can capture daily transactions in a real-time environment and be easily operated by in-house staff is Better Business No 165 % 0191 461 8000 21 Beating the recession Infobank Colin Thompson has over 25 years’ experience in business management, including business turnarounds and takeovers. He is also an international speaker and university professor and has written numerous research reports, articles and books, which are available from his website – including Managing for Customer Care, a powerful CD on all the ingredients to keep your customers and increase the bottom line. %0121 244 1802 which can and should be used in pricing strategy and pricing calculations. Requires 15-30 minutes per quarter. ‡ Job or product pricing system. This system automates the calculation of pricing required to meet overheads and budgeted profit goals, or it can report net profit margin before tax on any proposed pricing scheme. Use as needed. ‡ Incentive plan worksheet. This is a system for equitably distributing profit- sharing monies to employees based on loyalty, performance and the extent of responsibilities. Properly constructed, it requires only 10-15 minutes per quarter to input updated information. ‡ Break-even calculator. This system calculates the firm’s break-even sales volume by day, week, month or year. Also provides ‘what-if’ capability to analyse major decisions that could potentially affect the firm’s cost structure before the decision is implemented. Use as needed. ‡ Weekly sales reporter. This is a reporting system that keeps track of sales by product group and salesperson on a weekly, monthly and year-to-date basis. Requires 15-30 minutes per week for updating by the sales manager. If you have none of these developed, the task is not as daunting as it may seem at first. Systems are available from a number of sources at modest cost and include back-up training and support. A business with these critical components in place stands a much higher probability of survival than one without. v SPECIAL OFFER Better Business readers can receive a free copy of Colin Thompson’s e-book Accelerate with Impact by registering on his website to subscribe to his free newsletter – visit needed. In today’s fast-paced business world, relying on an accountant to provide periodic statements of business performance several weeks or even months after the fact is not an acceptable strategy. Immediate information is needed at all times. Other systems Other systems small businesses should have in place include the following. ‡ Cash management. This should be a forecasting system (spreadsheet) that projects accounts receivable and other inflows against accounts payable and other outflows and allows management to anticipate shortages and take action before a crisis occurs. The projection should be for at least six weeks forward. Properly automated, this system should take no more than 15-30 minutes per week to generate a management review. Automated systems save time and money. ‡ Budget. This is critical to management control. To keep costs under strict control, use zero-based budgeting. Traditional incremental budgeting looks only at increases over the previous year’s budget and what has been already spent is automatically sanctioned. By contrast, in zero-based budgeting, every business function is comprehensively reviewed and all expenditure must be approved, not just any increases. The system should be automated to produce monthly budgets that directly relate to whatever sales volume was, in fact, generated. Properly automated, this system should require only a few hours per year of management input. ‡ Variance report. This system is complementary to the budget system. It should be automated to produce a comparison of actual results against budget and should report monthly and year-to-date totals. The report should indicate trouble areas, by exception, for management to take action on. Properly automated, this system should take 10-15 minutes per month. ‡ Key indicator flash report. This report summarises on one page the key weekly changes in cash position, accounts receivable, accounts payable, sales and inventories. Requires 10-15 minutes per week for an administrative person. ‡ Labour burden worksheet. This spreadsheet keeps track of the costs of benefits and other staff-related expenses by employee and department. The full cost per hour or year for each employee is reported,