Small Businesses: Thrive in 2012

The champagne has popped and a new year has begun, but funding is tight, government regulations are more restrictive, and consumers still aren’t spending. This is the toughest economic environment in decades. It’s possible to have a profitable, growing business in this economy, but you need to make changes you want to see in the future.  Follow these steps for a breakout 2012:

  • Adventure is just bad planning – What do you want to achieve in 2012?  It seems like such a simple question, but many business people go year after year without ever deciding exactly what they want to achieve.  These business owners are often surprised when results are disappointing.  What are your revenue goals?  What profit percentages do you want and need to make?  Do you want to expand operations or launch a new product line?  Commit your specific goals to writing. Develop a plan to achieve your objectives.  Map out clear action items, completion dates and the name of the one person responsible for each step.  When more than one person is responsible, no one is accountable.  Don’t assign more than one person to any single action step. Execute your plan and review progress periodically. Make the reviews a priority or the urgent will overtake the important.  Don’t fall into this trap.
  • Start with good people– Business people can struggle with difficult employee issues including underperformance, poor attitudes and mismatched skills.  It is especially difficult when a loyal employee can no longer perform well because the job has outgrown his/her abilities.  Owners are reluctant to remove or layer the employee who is no longer suited to a position.  The situation is bad for all concerned.In 2012, review your goals and action steps.  Imagine the roles, skills, behaviors and cognitive capabilities your organization needs to achieve its goals. Finally, take a hard look at the individuals on your team.  Do your employees have, or could reasonably acquire the skills and other attributes necessary to complete your plan?  If not, you have some difficult decisions.Don’t delay.  We have never heard anyone say, “I think I let Mary go too soon.  She deserved more chances.”  However, we have often heard business people lament that they wasted time and opportunity by giving employees chance after chance.  You need good people.  Help your folks develop the skills they need or hire folks that already have them.
Can steps be performed in parallel?  Can you eliminate unnecessary steps? Can you automate pieces of the operation?
  1. Avoid the insanity trap–Are you doing the same thing expecting different results?  Poor processes breed poor results.  To do things faster, at a lower cost, and with better quality in 2012 develop better processes. First, document your existing processes.  It’s not sexy, but this is the only way to ensure consistency across the organization. You can’t improve processes until you agree on how things are currently done.Next, look for ways to streamline the operation.  Remove wait time.  Answer these questions to identify faster, lower cost processes.Finally, when a problem appears, fix it.  The customer is the priority.  However, the work isn’t done until you fix the underlying cause. Ask, “What will ensure that this never happens again?”  Fixing the root cause will improve quality in the future.
  • Measure more than once – For better management decision-making, financials should generally be prepared on an accrual basis rather than on a cash basis.  Accrual accounting does a better job of matching expenses with revenue. Second, P&Ls that show revenue, several cost categories and a bottom line profit are less useful than they could be.  Instead, separate the cost of delivering a product or service from overhead.  Third, separate expenses and/or revenue by manager or area of responsibility.  This allows clear accountability.  Finally, produce financial statements within two weeks of the close of the month.  Delays mean problems go unnoticed.

When a business reaches the size that the owner can no longer be involved in every transaction, additional metrics, beyond financial statements, will be required.  When the owner isn’t involved in every transaction, they can’t possibly know everything that is going on in the business.  By the time problems turn up in the financial statements, it can be too late.  Consider a business that ships products to customers.  If shipments start to go out late, this will eventually show up in the financials in the form of lower revenue because customers have become frustrated and taken their business elsewhere. Unfortunately, the damage is done.  The customers are gone.  What’s needed is a metric that alerts the owner to late shipments while there is still time to correct the problem.

2012 is going to be a year for small business, entrepreneurs and corporations alike to thrive, with a few fundamental principles applied. Happy New Year!