10 Questions a Small Business Owner Should Ask
by Margaret Catalfamo
Published on this site: April 28th, 2006 - See
more articles from this month
We are at the close of the first quarter of 2006. How many
small business owners started the new year with a review of
their business plan? Sadly, not many! Most small business
owners, unless they are looking for outside financing, don't
have a business plan. Many new clients tell me: "I don't
need to do a business plan or strategic planning. I don't
need financing and I'm just a small business." If you
are one of those small business owners who don't need a plan,
ask yourself the following questions:
Budgeting and Cash Flow
- Do I have a budget for the current year?
- Do I know how much and where my company spent money last
year?
- Do I know what my cash flow looks like for the next six
months, next year?
As a small business you may not think you need a budget.
Without some idea of your overhead and expenses you will have
no idea how to price your products or services so that you
generate a profit, or at least break even. Creating a budget
is not complicated. You don't need expensive software programs.
Microsoft Excel comes with a budget template; if you don't
have a computer, you can even use paper and pencil.
By creating a budget and reviewing it at least weekly you
are able to track your expenses and manage them. Taking it
to the next step, reviewing last years budget and looking
closely at where you spent your money allows you to make better
decisions on this year's budget items. It is also important
for you to know what your cash flow looks like, remember cash
flow and profit are two different animals. You can price your
products so that you have a 35% profit, but your accounts
receivable may be lagging behind your accounts payable. You
need to pay close attention to when your customers pay you.
If you know your biggest customer always takes 45 days to
pay your invoices, without careful planning you may miss a
payroll or pay your vendors late.
Business Development
- Do I have specific plans for generating new business?
- Do I know where my business came from last year?
- Do I know who my customers are and why they buy from
me and not my competition?
- Do my clients regularly refer business to me?
Sometimes, we begin to take business for granted. It is easy
to become complacent; we are able to pay the bills, even put
some money back into the business. We stop looking for new
business, because we are comfortable. When this happens, it
is just a matter of time before the business is in trouble.
You need to have a defined plan for generating new business
and you need to work your plan consistently. By evaluating
your existing customers and discovering why they buy from
you, you can devise a marketing plan to generate additional
business. Your existing customers can be your most cost efficient
generator for new business. Ask for referrals and provide
incentives. By rewarding your existing customers for referring
new business to your company you are getting twice the value
- satisfied existing customers and new customers who have
already been sold on your products and services. As a caveat
- if most of your business comes from just a few of your customers
you should make it a point to broaden your customer base.
If one customer provides 50% of your revenue and they go out
of business or choose to buy from a competitor your business
will be struggling until you can replace that revenue.
Policies and Procedures
- Do my employees know what is expected of them?
- Do I have written procedures and policies?
As your business grows you may find the need to hire additional
associates. The best way to get the most out of your investment
in human capital is to make sure your employees know what
is expected of them. By developing clear and detailed policies
and procedures and providing them to your employees you create
an environment for success. Providing your employees with
written policies and procedures makes it easier for them to do their jobs efficiently.
Expectations are clear and when there are questions, it is
an easy matter to refer to the policy or procedure. Written policies and procedures give clarity and
direction to your managers and supervisors on how to handle
specific employment issues fairly and consistently. The relatively
small investment of time initially will save you
much time in the future.
Measuring Success
- Do I receive regular reports on sales, quality, budget
variances, profit, customer satisfaction and employee performance?
You must set specific and measurable standards and goals
for your business. You can't measure success if you don't
know what it looks like. As you were preparing your budget
for the year, you should have set sales goals, established
quality standards for your products and services, and performance
goals for your employees. At a minimum, you should review
your sales, budget variances, accounts payable and receivable,
and P&L monthly. By constantly reviewing your results and holding yourself and employees accountable
you can and will achieve your business goals.
Margaret Catalfamo is a small business consultant who
provides practical, comprehensive advice and support in the
areas of Business Start-Up, Strategic Planning, and Human
Resource Services. For more information or a free consultation
contact her at [email protected]
or visit her website: www.resourcealternativesconsulting.com
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