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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 on.

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.

Bob De Contreras

919-280-1307

Bob@rt-ba.com

www.rt-ba.com

 

10 Biggest Challenges Facing Your Small Business

Large Client Dependence

If 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

I 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.

Money Management

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.

 Founder Dependence

If 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).

Fatigue

The 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)

The 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.

 Poor Cash Management

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.

 Maintaining 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 Information

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.

Bottom Line

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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