An Advantage Over Big Business

 An advantage over big business

In working to achieve results, the small business owner-manager has an advantage over big business.

 You can be fast and flexible while many large firms must await committee action before a decision is made. You do not have to get permission to act. And equally important, bottlenecks to implementing new practices can receive your personal attention.

 One of the secrets is in deciding what items to control. Even in a small company, the  owner-manager should not try to be all things to everyone. You should keep close control on people, products, money, and any other resources that you consider significant to keeping your operation pointed toward profit.

 Manage Your People. Most businesses find that their largest expense is labor. Yet because of the close contact with employees, some owner-manager of small businesses do not pay enough attention to direct and indirect labor costs. They tend to think of these costs in terms of individuals rather than relate them to profit in terms of dollars and cents.

Control Your Business

Control Your Business

To be effective, the owner-manager must be able to motivate key people to get the results planned for within the cost and time limits allowed. Only you can control your business.

Predict Your Future

Don’t use a crystal ball to make forecasts of your business. By carefully analyzing the historic trends of your business, as shown in your records for the past five years, you can forecast for the year ahead. Your record of sales, your experience with the markets in which you sell and your general knowledge of the economy should enable you to forecast a sales figure for the next year.

 When you have a sales forecast figure, make up a budget showing your costs as a percentage of that figure. In the next year, you can compare actual P&L figures to your budgeted figures. Thus, your budget is an important tool for determining the health of your business.

 

Make Timely Decisions

Without action, forecasts and decisions about the future are not worth the paper they are written on. A decision that does not result in action is a poor one. The pace of business demands timely as well as informed decision making. If the owner-manager is to stay ahead of competition, you must move to control your destiny.

 Effective decision making in the small business requires several things.

 The owner-manager must have as much accurate information as possible.

  • With these facts, you should determine the consequences of all feasible courses of action and the time requirements.
  • When you have made the judgment, you have set up your business so that the decisions you make can be transmitted into action.

 

 

Garbage-In, Garbage-Out

Managing Your Business – Garbage-In, Garbage-Out

An owner-manager should not fudge the records. The acronym GIGO that the computer industry uses is true with manually kept records as well as with machine-processed ones. If an owner-manager allows “garbage” to go into the records, the reports will contain “garbage.” Reports need not be extensive but they must be accurate – No Garbage-In, Garbage-Out.

 

Look For Trends.

Do not look at a single month’s sales or profit picture by itself. The figures on your operating statements are meaningful only when you put the picture in the right frame – that is, look at your figures in the context of what has happened and what is likely to happen. In that manner, you catch a downward trend before it gets out of hand.

 

You should also concern yourself with the figures behind the dollars – for example, the number of units sold or the number of orders. Insist on cost-per-unit statistics. The fluctuation of the cost-per-unit can be much more meaningful than just looking at the dollar figures alone. Another idea is to display these comparative figures on graphs so that significant trends can be seen easily.

Know Your Costs

Know Your Costs.

If you want to have a profitable business you must know your costs.

An owner-manager should know costs in detail. Then, you can compare your cost figures as a percentage of sales (operating ratio). Be certain that your costs are itemized so that you can put your fingers on those that seem to be rising or falling according to your experience and the cost figures of your industry. When costs are itemized, you can spot the culprit when the overall figure is higher than what you had budgeted. Take advertising costs for example. You can catch the offender if you break out your advertising expenditures by product lines and by media. In addition, a thorough check of inquiry returns from advertising will help to avoid unproductive publications.

 

In knowing your costs, keep in mind that the formula for profit is: Profit equals Sales minus Costs.

 

A Few Words on Determining Costs

Many businesses fail or have poor results because they don’t take into account all the costs associated with producing their product or service.

 

In most businesses, costs can be broken down into two categories:

 

1. Fixed costs: These are overhead costs that don’t change, regardless of production levels. They are sometimes referred to as overhead costs or indirect costs.

 

2. Variable costs: These are direct labor and material costs that increase or decrease in direct proportion to the amount of goods or services produced. They are sometimes referred to as direct costs.

 

Determining the total costs of producing your product or service, and deciding which costs are variable and which are fixed, will have important implications for your overall financial planning and decision making. This will have implications for the price you charge and the volume of product or service you produce.

 

 Sometimes it’s difficult to determine if a certain cost is fixed or variable. For example, in most small businesses some employee costs are fixed and others are variable. Direct labor costs associated with the actual production of your product or service are considered variable costs. On the other hand, the wages paid to staff who work in areas such as administration or sales are usually considered fixed overhead costs.

 

Your accountant or bookkeeper can help you identify which of your costs are fixed and which are variable.

 

Sometimes your total fixed and variable costs do not add up to the true costs of producing your goods and services. This is because intangible costs, such as machine set-up time, idle time, and time for estimating and bidding on jobs, cannot always be calculated. If you cannot accurately calculate these factors, a miscellaneous expense element must be added to your cost calculations.

 

Know Your Product Markup.

Be certain that the pricing of your products provides a markup adequate for the kind of profit you expect to achieve. You must keep constantly informed on pricing because you have to adjust for rising costs and at the same time keep prices competitive. Knowledge about your markup also helps you to run close outs with your eyes open. Continuing to make a product that only a few customers want is an effective merchandising tool only when you use it on purpose – for example, to hold or attract buyers for other high markup products. Don’t hesitate to drop a loser from your line.

Setting Goals

Good management is the key to success and good management starts with setting goals. Set goals for yourself for the accomplishment of the many tasks necessary in starting and managing your business successfully. Be specific. Write down the goals in measurable terms of performance. Break major goals down into sub-goals, showing what you expect to achieve in the next two to three months, the next six months, the next year, and the next five years. Beside each goal and sub-goal place a specific date showing when it is to be achieved.

 

Plan the action you must take to attain the goals. While the effort required to reach each sub-goal should be great enough to challenge you, it should not be so great or unreasonable as to discourage you. Do not plan to reach too many goals all at one time. Establish priorities.

 

Plan in advance how to measure results so you can know exactly how well you are doing. This is what is meant by “measurable” goals. If you cant keep score as you go along you are likely to lose motivation. Re-work your plan of action to allow for obstacles which may stand in your way. Try to foresee obstacles and plan ways to avert or minimize them.

Managing Your Business

You are not ready to start your own business until you have given some thought to managing it. A business is an ongoing activity that doesn’t run itself. As the manager you will have to set goals, determine how to reach those goals and make all the necessary decisions. You will have to purchase or make your product, price it, advertise it and sell it. You will have to keep records, and determine costs. You will have to control inventory, make the right buying decisions and keep costs down. You will have to hire, train and motivate employees now or as you grow.

Making the Decision to Start Your Own Business

Making the Decision to Start Your Own Business

The time is now to be Making the Decision to Start Your Own Business. You’ve analyzed yourself, your life style, your opinions, and your attitudes. You’ve read and studied and discussed the pros and cons of starting a business of your own with your business advisor and then attorneys and accountants, other business owners and bankers. You’ve picked a lot of brains, and given your own a workout. Now it is time for you to make the one all-encompassing decision which, if it is in the affirmative and you decide to start a small business of your own, will require one decision after another to implement.

 

You’ve done your cash planning and explored your cash requirements in consultation with your lawyer, banker, accountant or any combination of the three. Can you swing it financially? Make a decision.

 

You’ve pondered the advisability of sharing ownership with others as compared with the independence of going it alone. Which will it be? Another decision required.

 

Some of you have faced the alternative of buying an existing business. After carefully weighing the advantages of such a transaction against the disadvantages, what decision will you make on this question?

 

Others among you who are reading these pages have given the possibility of investing in a franchised business serious consideration. Do the safeguards the quick-start advantages offered by operating within the shelter of a national franchise make up for the lack of freedom under which you may be forced to operate? What will your decision be?

 

Now answer the following questions.

 

What are my immediate goals?

 My long range goals?

 

If you have given long and careful consideration to all the requirements, regulations, financial obligations and hazards implicit in setting up a small business, and you regard them as challenges you can meet.

 

If you would gladly give up your safe job working for someone else for the independence, the excitement, the sheer joy of being your own boss.

 

If you are aware of the responsibility, the hard work and the long hours it will take before your goal as an entrepreneur can be realized, and you are not deterred….

 

Than small business ownership may indeed be for you!