Businesses around the globe admire and emulate the American system of entrepreneurship and business management. This system reflects two key traits of the American society in general: belief in making the future better and the willingness to adapt to new environments.
Once a small business has established itself and grown to a certain level, the organization must change management techniques or take the risk of failing. Generally, this level occurs when the organization moves past 15 employees or $3 million in annual revenue. At this point, the owner must change or evolve from a promoter of goods and services to a manager and leader of people. In addition, the owner must change from a technical authority to a strategic planner.
Small businesses that fail to adapt will ultimately stagnate, falter or collapse. However, some of these enterprises succeed and grow into larger, sustainable generators of revenue. These companies consistently follow three key principles: develop and implement a strategic business plan, restructure the organization, and apply operational and performance support systems.
A successful business plan details the core concept, mission, vision and philosophy of the organization. The document records the corporate goals over a specific period of time and the strategies to accomplish them.
Along with executing a strategic plan, the owners of successful ventures will restructure the organization as it grows. Restructuring accomplishes several goals. It trains the staff across several platforms. It rewards employees who perform at a high level, and it reveals those employees who do not perform to expectations. Positions, duties, responsibilities and tasks are redefined, and operations are regularly revised to optimize productivity.
Job enrichment programs, training, and incentives encourage staff to excel. Successful owners see their employees as a valuable resource and asset.
Because a small business can operate without all the operational support that a large company needs, the owner may delay implementing operational systems. However, the information provided by operational systems relieves management of redundant routines and allows them to focus on strategy. These systems provide crucial data on cash flow, sale and other financial performance markers so that the owner or management team can take action. Red flags signal opportunities for change before they become unmanageable problems.
The simplest form of an operational system is a manual form, such as a credit application, a return to vendor authorization, or a shipping release log. Examples that are more complex include cash management, variance reporting, budgeting and incentive distributions. At the very minimum, a small company looking to expand should invest in an accounting program that can handle vendors, clients, accounts payable and accounts receivable.
Other operational support programs a small business should employ include:
- Cash management.
A cash management program forecasts the incoming revenue against the outgoing expenses. This allows management to anticipate cash shortages and prevent a crisis before it occurs. In addition, the program prompts management to optimize excess cash.
A one-year profit and loss plan is crucial to operational control. A budget program relates the organization’s historical costs while allowing for zero based forward planning. An automatic system will produce monthly budgets in addition to profit and loss statements.
- Variance report.
A variance report complements the budget program, and it will compare actual results versus the budget. Also known as an exceptions report, the variance statement will reveal areas of trouble by exception for management to investigate.
- Break-even calculator.
This program calculates the revenue necessary for the organization to maintain operations at a break-even point. It also provides the capability to analyze key decisions prior to implementation to determine the impact on profitability.
- Key indicator flash report.
This report details succinctly the weekly changes in accounts payable, accounts receivables, cash on hand, and sales and inventory levels.
Starting from scratch, a small business can implement many of these systems with a modest budget. Many providers include staff training with the installation. A timely investment while the company is small will ensure smooth success as business takes off.
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Robert Cordray is a former business consultant and entrepreneur with over 20 years of experience and a wide variety of knowledge in multiple areas of the industry. He currently resides in the Southern California area and spends his time helping consumers and business owners alike try to be successful. When he’s not reading or writing, he’s most likely with his beautiful wife and three children.