Build the machinery forlasting success

encourages all staff to perform to theirutmost capabilities. It rewards those whoexcel in proportion to their contributions.Positions, tasks, duties and responsibilitiesare defined and communicated andperformance is routinely measured.Training, job enrichment programmesand incentive plans are designed toencourage each staff member to excel.Successful owners view their staff as theirmost valuable asset and resource.Operational supportSuccessful owners have developedoperational support systems. These maybe financial or non-financial, manual orautomated. The objective of thesesystems is to support business activitiesand improve efficiency. They also relievemanagement of many day-to-day routine

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� Beating the recession

activities, giving owners more time to bestrategic thinkers. The informationprovided by these tracking systems givescritical information on sales, cashflow andother financial performance data soaction can be taken whenever changeoccurs. Red flags appear early, beforeproblems become unmanageable.

Strategic business planSuccessful businesses operate within aplanned framework. A strategic businessplan is written for a minimum of threeyears or two years beyond the currentbudget year. The plan describes the firm’smission to serve its customers. It analysesmarketing strengths and how they will beexploited. It addresses its weaknesses andhow they will be overcome. It identifies

Too many businesses fail in their early years. Tobe sure of success, make sure you have the rightsystems in place, says Colin Thompson.

Why is it that some smallbusinesses succeedspectacularly, growing

beyond their owners’ wildestdreams, yet others fail miserablyin their first couple of years?

It’s a question that is particularlyrelevant in the current economic climate,and one that small business owners woulddo well do examine.

One of the most critical issues is oneof size. Once a small business has grownto a certain level, management techniquesmust change or the business will inevitablyrun into trouble.

The owner-manager of a small businessmust evolve from a manager of things to amanager of people and from a technicalexpert to a strategic thinker.

This is often a difficult task because ofingrained habits, but failure to grow as amanager is perhaps the major reason whya business will fail.

Four keys to successSo what do successful businesses havethat troubled businesses don’t? There arefour keys to successful small businessmanagement. Owner’s characterThere are several key character traitsdisplayed 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 islittle difference between obstacle andopportunity and are able to turn both totheir advantage.” Victor Kiam.

‡ They are persistent. “Many of life’sfailures are people who did not realisehow close they were to success when theygave up.” Thomas Edison

Strategic business planSuccessful owners have developed abusiness blueprint called a strategicbusiness plan that clearly describes theirbusiness concept, their mission and theirphilosophy of business. In this document,they have set personal and business goalsand set out specific time-lines andstrategies to achieve them.Organisational structureSuccessful owners have developed anorganisational structure that functions likea well-oiled machine. This structure,including all its policies and procedures,

its target markets and pricing strategiesand it identifies and describes strategicalliances or business partners that may becrucial to success during the planningperiod. The plan also describes positionson any other issues seen as critical to thelong-term viability of the business.

With a current and meaningfulbusiness plan the venture stands its bestchance of continued success andachievement. Without a viable businessplan you run the risk described in the oldadage: ‘Failing to plan is planning to fail’.

Organisational structureThe basic building blocks of organisationalstructure are:‡ An organisational chart depicting key

business functions and reportingrelationships between the functions;

‡ Job descriptions and duty lists for staffthat detail reporting relationships, jobrequirements, skills, duties andresponsibilities and standards ofperformance for each function;

‡ A job performance evaluation systemthat measures performance of allemployees and encourages continuousimprovement;

‡ Information guidelines including anemployee handbook thatcommunicates acceptable boundariesand the preferred methods by whichstaff are expected to operate;

‡ An incentive system that rewards stafffor performing above the standard orbudget by sharing a portion of theincreased profits.

When all these organisationalcomponents are in place and being usedroutinely, the business will have structureand purpose.

Staff will feel they know where thefirm is going and what their role is inhelping it get there. They will know theboundaries of what is expected asacceptable behaviour and they will beaware that outstanding performance willbe rewarded.

Operational supportUsually the most involved system for asmall business is the accounting system.This may be a relatively simple systemsuch as QuickBooks, Sage or MYOB.

These systems are particularly goodfor non-manufacturing firms that simplybuy and resell items, or servicebusinesses. They manage customers,vendors and accounts well and cangenerate excellent managerial reports.

No matter what the type of business,some type of accounting softwarepackage that can capture dailytransactions in a real-time environmentand be easily operated by in-house staff is

Better Business No 165 % 0191 461 8000 www.better-business.co.uk 21

�Beating the recession

InfobankColin Thompson has over 25 years’experience in business management,including business turnarounds and

takeovers. He is also an internationalspeaker and university professor and

has written numerous researchreports, articles and books, which areavailable from his website – including

Managing for Customer Care, apowerful CD on all the ingredients to

keep your customers and increase the bottom line.

%0121 244 1802 info@cavendish-mr.org

www.cmtr.co.uk

which can and should be used inpricing strategy and pricingcalculations. Requires 15-30 minutesper quarter.

‡ Job or product pricing system. Thissystem automates the calculation ofpricing required to meet overheadsand budgeted profit goals, or it canreport net profit margin before tax onany proposed pricing scheme. Use asneeded.

‡ Incentive plan worksheet. This is asystem for equitably distributing profit-sharing monies to employees based onloyalty, performance and the extent ofresponsibilities. Properly constructed,it requires only 10-15 minutes perquarter to input updated information.

‡ Break-even calculator. This systemcalculates the firm’s break-even salesvolume by day, week, month or year.Also provides ‘what-if ’ capability toanalyse major decisions that couldpotentially affect the firm’s coststructure before the decision isimplemented. Use as needed.

‡ Weekly sales reporter. This is areporting system that keeps track ofsales by product group andsalesperson on a weekly, monthly andyear-to-date basis. Requires 15-30minutes per week for updating by thesales manager.

If you have none of these developed, thetask is not as daunting as it may seem atfirst. Systems are available from a numberof sources at modest cost and includeback-up training and support. A businesswith these critical components in placestands a much higher probability ofsurvival than one without. v

SPECIAL OFFERBetter 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 www.cmtr.co.uk.

needed. In today’s fast-paced businessworld, relying on an accountant toprovide periodic statements of businessperformance several weeks or evenmonths after the fact is not an acceptablestrategy. Immediate information is neededat all times.

Other systemsOther systems small businesses shouldhave in place include the following.‡ Cash management. This should be a

forecasting system (spreadsheet) thatprojects accounts receivable and otherinflows against accounts payable andother outflows and allowsmanagement to anticipate shortagesand take action before a crisis occurs.The projection should be for at leastsix weeks forward. Properlyautomated, this system should take nomore than 15-30 minutes per week togenerate a management review.Automated systems save time andmoney.

‡ Budget. This is critical to managementcontrol. To keep costs under strictcontrol, use zero-based budgeting.Traditional incremental budgetinglooks only at increases over theprevious year’s budget and what hasbeen already spent is automaticallysanctioned. By contrast, in zero-basedbudgeting, every business function iscomprehensively reviewed and allexpenditure must be approved, notjust any increases. The system shouldbe automated to produce monthlybudgets that directly relate towhatever sales volume was, in fact,generated. Properly automated, thissystem should require only a fewhours per year of management input.

‡ Variance report. This system iscomplementary to the budget system.It should be automated to produce acomparison of actual results againstbudget and should report monthly andyear-to-date totals. The report shouldindicate trouble areas, by exception,for management to take action on.Properly automated, this systemshould take 10-15 minutes per month.

‡ Key indicator flash report. This reportsummarises on one page the keyweekly changes in cash position,accounts receivable, accounts payable,sales and inventories. Requires 10-15minutes per week for anadministrative person.

‡ Labour burden worksheet. Thisspreadsheet keeps track of the costsof benefits and other staff-relatedexpenses by employee anddepartment. The full cost per hour oryear for each employee is reported,