More top tips for small business success
Last month we identified the 10 steps to small business success and examined the first two steps, a profitable business model and clarity of business income stream. This month we will take a look at four more steps; business vision, planning, knowledge of metrics and cash flow/financial management.
Key partners to promote small business success are the co-existence of a business vision and planning. Business vision is the clear establishment of the businesses direction of travel or destination. It is a truism for both an individual and even more so for a small business that if you don’t know where you’re going, any road will get you there. The direction may be altered once the business has gathered momentum but before setting out on the journey it is imperative to know in what direction the business wants to go.
A clear knowledge of where a business wants to go will enable the application of the business planning process. The planning process is the breaking down of the destination into stages and establishing milestones for benchmarking the business on its route. This will allow the owners to monitor and review their progress and take any necessary action to stay on track or revise their route. It is no different from us leaving SE London heading to an unknown destination in NE London without a map.
A key factor that contributes to the lack of small business success is the owners’ oblivious nature to metrics or indicators. A reluctance or inability to measure or assess and respond to the metrics is a recipe for disaster. Metrics are not just about the traditional financial items such as the mark-up, margins, profit or break-even levels. Today many small businesses are hooked on websites but how many measure their traffic? The hits per hour or day is fine but what is the stickiness of the pages or website for visitors? For every £100 of advertising revenue what is the number of enquiries or sales.
These are all key metrics to inform the small business owner. Furthermore what is done with the metrics information is key. The metrics measurement and evaluation is all part of the business planning and development process to enable small business owners realise their dream.
Cash flow and financial management are key factors in the success of small businesses. Cash is the oxygen of any business small or large, therefore it is imperative that owners get to grips with their cash flow and stay on top of their cash flow. One main area of concern for small business owners is the so-called credit game. Small business owners should not feel that the granting of credit is a right they must grant to each and every customer. The granting of credit does not guarantee more sales. In truth, credit facilities can be more harmful in the long run, especially if there is not a full credit management system in place.
The key features of an effective credit management system include a standard pre-credit vetting process, clear credit terms with terms of business, a penalty clause for late payment and the pursuance of creditors as soon as the payment date is missed. Overall cash flow management is all about knowing when the cash will be flowing into and out of the business. Despite the modern day obsession with profit the following still holds true, sales is vanity, profit sanity but cash is king. We will conclude our 10 steps to small business success next month.
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David Frederick FCCA
Principal Marcus Bishop Associates
Chartered Certified Accountants