12th January, 2015
Many successful small businesses get big without even realising they are no longer a small business. The most important thing is to recognise and accept that you are now bigger and can no longer run the business the way you used to. Then, and only then, can you take the necessary actions to manage your growth:
Many small business owners are great at their own trade, service line or profession but just haven’t had any experience in running a bigger business or managing staff or finances. If that’s the case, it’s necessary to face this head-on by seeking help from experts in the areas where you are lacking. This may include a great accountant who is prepared to help beyond tax and accounting, a practical lawyer, employment specialist or a really useful business coach. Yes, this will cost money, but it’s better that than the consequences of getting it wrong or experiencing total business failure.
There are some great short courses in areas like financial awareness, corporate governance, systems and business planning — and some of these are subsidised by the taxpayer. These can be generic or tailored specifically to your needs, so take a few days away from your business and up-skill yourself in those all-too-important disciplines rather than remain in the dark.
It’s no good relying on annual financial statements that are way too late and only show historical performance, such as reports that simply compare your current sales with those from prior years. It’s absolutely vital to know what’s currently going on in your business. For example, is your gross margin holding up? Do you have more customers or fewer? What is the average sale in dollars? How much working capital do you have tied up in the business? How is your labour productivity? Which overheads have increased or decreased? In conjunction with your accountant or business coach, decide what reports to prepare and the Key Performance Indicators to monitor. Your Key Performance Indicators — typically no more than a dozen — should track those things which are critical to business success.
The best place to consider those reports is at formal monthly management meetings attended by all key team members. If sensitive financial information is being discussed, perhaps split the meeting into two. There should be an agenda for each meeting, together with formal minutes and an action plan for getting things done where remedial action is required and the allocation of tasks to specific individuals who are held accountable for achievement at future meetings.
Unfortunately most small business owners spend more time planning for their family holidays than they do in their business. They drift with the tide like flotsam and jetsam, being reactive to circumstances rather than proactive. It’s necessary to be decisive and make things happen the way you want them to. For example, what plant and equipment are you going to need? How many staff? What growth in sales are you looking for, and where will you be operating from, and so on? So, as the first step, hold a planning day with your key team members — and maybe your advisers — and craft a plan for the future.
Getting a clear idea of your financial future is an important part of planning. The first step is to prepare a Profit and Loss budget. Unless you’re a new business, start with the previous year’s figures and adjust accordingly for things like cost increases, growth and planned changes. MYOB software is very handy for budgeting, as at the touch of a button, you can export last year’s actual monthly figures to a spreadsheet. Having finalised your budget, you can move on your cash flow forecast by adding GST to receipts and payments, moving these to the months they’ll be paid, and adjusting for non-cash or cash-only items like depreciation, loan repayments or drawings. Yes, these tasks can be delegated to your accountant, but I find that business owners understand their businesses much better and get a lot more out of the process by staying involved.
So don’t let circumstances and your business dictate events; take control of your business and manage your growth proactively.