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Although anyone with a small amount of capital and little or no experience can start a business, this does not mean that success will follow. Globally, small businesses and SMEs fail miserably. To counteract the staggering failure rates, a small business or SME owner needs abundant knowledge to be successful over the long term.
While knowing all aspects of small business operations is essential, some are more critical to success than others, such as:
Managing Cash – Cash is more than simply making a profit in business. Managing cash involves managing:
• Inventory – having the correct inventory on hand and in sufficient quantities (not too much or too little)
• Collections – having credit policies that are not too tight or too lenient with priorities placed on collecting receivables before they become delinquent
• Purchases – having discipline over all types of purchases (purchasing only necessary items) and securing the best terms possible with vendors
• Debt servicing – having available cash to service debt on due dates to avoid default and additional interest
• Cash budget – preparing a cash flow budget that accurately forecasts the number of cash inflows and outflows of the business every month
Understanding Data – There is a multitude of data in any business that can be reviewed and analyzed to assist with making future business decisions. Tracking data and key performance indicators helps a business understand its customers better and their buying habits. Making decisions based on factual data is a more prudent way to operate rather than making decisions simply based on the owner’s assumptions.
Planning Ahead – Small businesses and SMEs must plan just as large businesses must. This includes financial planning (budgets, sales forecasts, expansion plans, etc.) and operational planning (marketing, growth, improvements, etc.). Plans are important to business success, but all plans must be periodically reviewed, measured, and changes made when warranted.
Reviewing Profit Margins – Knowing profit margins on various products and/or services can significantly increase a business’s net profit. On the other hand, not having this knowledge of profit margins can decrease a business’s overall potential net profit. Since all income-producing items in a business do not produce the same gross profit, businesses should concentrate on products and services that produce the highest profit margins.
Retaining Employees – Hiring employees is only the beginning of this critical business area. Hiring the right employee and retention is what is important. Constant employee turnover has a negative effect on a business (productivity, employee morale, and customer relations). To retain top-notch employees, a business must concentrate on training, providing adequate benefits, and developing a culture where employees enjoy working.
Listening – Owners are excited about their businesses and want to talk as much as possible about their products and services and why their business is better than the competition. Owners, however, must practice listening to customers, employees, and social media sites to see what others are saying. Listening and taking appropriate action can contribute to growth for a small business or SME.
Knowing the Competition – It’s easy for owners to know everything about their own businesses (and they should, of course) but more difficult and equally important to know the competition. Businesses cannot beat the competition in a competitive marketplace without knowing what they are up against, such as products and services, pricing, marketing, and customer service. Knowing about the competition includes not only direct competitors but businesses selling substitute products and services (indirect competitors).
More Than Technical Knowledge
Improving operation efficiency and maximizing profit in a small business or SME is much more than simply knowing the technical aspects of the business. Having a wide diversification of knowledge in all the core functions of a business leads to ultimate success. The above elements are a start in progressing beyond the technical aspects to achieving all-around business knowledge.
