Research Triangle Business Advisors
January 2013 Newsletter
Starting a business is a big achievement for many entrepreneurs, but maintaining
one is a larger challenge. There are many typical challenges that face every
business whether they are large or small. These include things like hiring the
right people, building a brand and more. However, there are some that are unique
to small businesses.
There were about
30 million small businesses in the United States in 2009. Of this total, no less
than 4.3 million closed in 2009-2010 due to a common set of difficult and
disruptive problems aggravated by the economic recession. Research shows that
these are fundamental problems that small businesses must focus and strategize
Before you read
about these problems below, I hope you and your family had a very happy holiday
season and I wish you the best for the New Year.
Biggest Challenges Facing Your Small Business
Large Client Dependence
one or two clients make up more than half of your income, you are more of an
independent contractor than a business owner. Diversifying the client base is
vital to growing a business. The problem is that the client may be using your
company to avoid the risks of adding payroll in an area where the work may dry
up at any time. All of that risk is transferred from the client to you and your
employees. Solve this issue by diversifying your client base to pick up the
slack when any single client stops paying. Having several smaller clients or a
mix of large and small is generally safer than having one or two large clients.
Lack of Management Capability
hear this often: “I can’t get others to do what I need them to do.” If you own
your own business – and have employees – you have to get them focused on the
needs of the business. Whether the “others” are vendors, contractors or
employees, establishing management processes and learning how to manage others
is critical. Some people appear to believe that someone is out there to make
sure that schedules are set, assignments made, and people know what to do – but
this is not true. Management action is the only way to make sure that objectives
are set, communicated and met.
Having enough cash to cover the bills is a must for any business, but it is also
a must for every individual. Whether it is your business or your personal life,
one will likely emerge as a capital drain that puts pressure on the other. In
order to head off this problem, small business owners must either be heavily
capitalized or be able to pick up extra income to shore up cash reserves when
needed. Running out of cash makes growing a business impossible.
Although handling business accounting and taxes may be within the capabilities
of most business owners, professional help is usually a good idea. The
complexity of a business' books goes up with each client and employee, so
getting an assist on the bookkeeping is a prerequisite to expansion.
you get hit by a truck, will your business still be producing income the next
day? A business that can't operate without its founder is a business with a
deadline (as in deathline). Many businesses suffer from founder dependence, and
this dependence is often caused by the founder being unable to let go of certain
decisions and responsibilities as the business grows. Meeting this challenge is
easy in theory – a business owner merely has to give over more control to
employees or partners. In practice, however, this is a big stumbling block for
founders because it usually involves compromising (at least initially) on the
quality of work being done until the person doing the work builds skills and
learns the founder’s requirements (doing it the founder’s way).
hours, the work and the constant pressure to perform wears down even the most
capable and zealous individuals. Many business owners, even successful ones, get
stuck working much longer hours than their employees – 60, 80 or even a 100
hours per week. Moreover, they fear that their business will stall in their
absence, so they avoid taking any long breaks away from work to revitalize. When
fatigue sets in, the weariness with the hours, time away from family and the
results can lead to rash decisions about the business, including the desire to
abandon it completely. Finding a pace that keeps the business humming without
grinding down the owner is a challenge that comes early and continues in the
evolution of a small business. Get help – delegate.
Unclear Business Definition (lack of business focus)
symptom is everyone is busy, but nothing is getting done. People are productive,
but not always on the tasks or activities that are profitable for the business.
Is everyone “overworked” but clients not satisfied? For most companies, clearly
defining the business and then clearly defining the outcomes of the business,
leads to the right tasks and activities getting done on time, more effectively
and this leads to growth.
Balancing Quality and Growth
Even when a business is not founder dependent, there comes a time when the
issues from growth seem to match or even outweigh the benefits. Whether it’s a
service or a product company, at some point a business must sacrifice in order
to scale – this may mean not being able to personally manage every client
relationship or not inspecting every widget. Unfortunately, it is usually that
level of personal engagement and that attention to detail that makes a business
successful. Therefore, many small business owners often find themselves tied to
these habits to the detriment of the company's growth. There is a big gap
between shoddy work and an obsession with quality, so it is up to the business
owner to lead the company's processes towards a compromise that allows the
company to scale without hurting the brand.
While revenues and net income look good on paper, cash flow from operations may
be dismal – or worse, unknown. It is up to the business owner to know where
money is coming from in the short and mid-term; whether this is from cash
revenues, accounts receivable collections, factoring, credit card company
remittances, loans, or from the re-sale of other assets. In many companies there
is no management of cash flow and in most cases, entrepreneurs are caught at
least once within the last six months where they had a cash flow strain that
they “didn’t see coming.” But when investigated further, they knew it was
coming, but were “so caught up in the day to day” to do anything about it.
Managing your cash flow is about knowing the timing of your inflows and
outflows of money, and making sure there is more inflow than outflow, regardless
of the source and time period.
Good Supplier Relations
Trade deals and
agreements such as concessional prices, volume discounts, and technical support
subsidies usually come in high volume transactions with large companies. Small
businesses are seldom privileged to get the same liberal trade terms because of
the limited size of their requirement does not justify generous supply chain
concessions. Necessarily, in many instances, small businesses fail to enjoy
economies of scale and purchasing benefits that support good profit margins in
larger companies. However, some concessions are often available, but never asked
for. Negotiate for better terms no matter what the “standard” terms might be.
No Internal Controls – Guidelines, Manuals, Lack of Reports, Poor Financial
Recently, I was with a client that had very specific process steps required to
ensure that information was retained and that client information was properly
recorded. And yet they didn’t have any documentation on the process. And they
wondered why many new employees quit within their first few months with the
company. How many times can a person be reprimanded for doing something “wrong”
when there is no reference tool, document, or notes that suggests how to do it
right, before they give up? Successful growth demands documented processes that
are followed, and accurate. Complete financial reporting, so that the company is
managed by the financials, is also critical for successful growth.
These are challenges, but not death sentences. One of the worst things a
would-be-business owner can do is to go into a small business without
considering the challenges ahead.
It is therefore
good management practice and sound business judgment for small business owners
to, first and foremost, fortify the internal strength of their organization so
that they can best take advantage of opportunities, improve on weaknesses, and
minimize threats to business survival.
Cary | Raleigh | Research Triangle Park |
Greensboro | North Carolina
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( RTBA ) 2012, All rights reserved.