“A business that does not plan – plans to fail.” You may have heard this quote or some version of it before. Most small business owners do not make a plan for many reasons. For instance, they are overwhelmed by the concept of owning a business, they don’t know how to run a business, or they have a fear of planning in general. The reality is that executing a plan is an essential part of a business’s success. A written business plan provides an existing document that directs all actions and expenditures required to meet your business objectives. In fact, the document does not need to be more than a few pages and should include: a business vision, a marketing and sales plan, an operating plan, and financial projections. S.E.L. & Associates will help you develop and utilize your business plan for better business management.
The business model explains how your company will make a profit by providing its product or service. In simple terms, it is the average sales value of a transaction and the related variable costs to provide that product or service. The remaining profit is then applied against fixed costs. The ability to “break even” depends upon the number of transactions that must be made each month; however, a higher level of transactions will be needed in order to reach desired profits.
All business owners want to grow in sales; however, to grow in sales, the business owner must set goals in order to use the right sales approach. Identifying the revenue equates to a number of customers needed each day, week, month, or year. For example, a coffee shop may need thousands of customers each month to be successful. Conversely, a home builder may only need a few customers per year to be successful. The number of needed customers will drive what techniques are best to achieve the desired results.
There are only 3 ways to grow profits: increase prices, reduce costs, or add additional profitable sales revenue. These may seem simple, but it is amazing how many owners misunderstand the dynamics of profit growth. Products and services are often under-priced due to fear and unfamiliarity of the concept. The multiplier effect of adding a few percentage points to the sales price or reducing costs by a few percentage points can add substantial profit dollars to the bottom line. Additional sales can also help but the sales must be profitable.
There is a huge difference between profit and positive cash flow. Many businesses may operate cost and sales revenue year-around while others operate cost and revenue seasonally. For instance, the toy industry faces this issue with most of the sales occurring over a few months, but production is made year-round. In addition, if you give payment terms to your customers, you have a timing disconnect with expenses versus revenues. The longer the payment terms, the most cash you will use to meet day to day expenses.
Managing employees effectively is a critical component for any business owner. The ability to manage employees is a learned skill and must be consistently utilized. Setting expectations, providing positive feedback, giving constructive criticism, and delegating are only a few of the important skills the owner must learn to master. These skills will help insure the owner that business objectives are met – even when he or she is not present.
The structure of your business can often be the greatest cause of internal conflict and can also prevent you from meeting your business objectives. Unclear or overlapping responsibilities can create many problems. Make sure your business structure is consistent with how you want your business conducted and that responsibilities are aligned with the appropriate authority.
The development of measurement is needed to make sure that the product or service is meeting the required time frame, level of quality, and cost levels identified in the business model. In addition, there are measurements for other aspects of your business in areas such as marketing and sales. Tracking marketing and sales information will identify your performance levels and in what areas of performance need improvement.
All business owners will exit their business at some point in time. In most cases, the problem occurs when unpredictable circumstances arise. Some cases involve a business having to be sold if the owner perishes or becomes ill, or, in some cases, when business performance is low or market conditions are down. Planning an exit strategy in the very beginning can make the exiting process more favorable to the owner and for his or her family if ever needed.