Just as every Fortune 1000 company has a business plan, they measure their results via the ultimate yardstick: the financial statement. Every month, the business’ financial results are reviewed via the financial statements. Some small business owners only have financial statements prepared annually—for their tax return—or quarterly, to “save money”. This is a foolish way to cut costs. Even more for a small company than a large one, knowing what is occurring within the business from a cost, margin and sales standpoint is critical. While a large company may be able to easily afford a $10,000 mistake, few small companies can.
Financial statements should be prepared using the accrual method (rather than cash method) of accounting, so that costs are matched with sales.
Optimally, the financial statements will compare actual results against your budget, allowing you to quickly review the variance column. Key ratios, such as Costs of Goods Sold, Payroll and Related Costs, and G&A will also be shown as a percentage of sales and tracked and monitored monthly. Once you get in to the habit of reviewing your financial statements monthly, you will find you can do so in 15 to 20 minutes and glean important information about your business and be able to take corrective action timely, if it is needed.
Mistake #3: Not Scheduling Time to Focus on Business Development
Very often, small business owners can fall in to the trap of doing what is urgent, rather than what is important. In the sign and graphics business, this can cover getting jobs in and getting jobs out, dealing with equipment or employee issues, and getting waylaid by vendor’s sales people. The day speeds by, but no proactive business development activities get addressed. The owners of growing businesses have the same number of hours in a day as everyone else. How do they achieve what they do: they make time for important business development activities. Essentially, they schedule the time. They create the time by planning ahead and scheduling the time, in advance, on their calendar.
I group proactive business development activities into two categories: marketing and selling. Both are important. Marketing methods that work well for sign and graphics businesses include targeted direct mail, leveraging and using social media, search engine optimization of the company’s web site, pay-per-click campaigns, PR, and authoring articles for business publications. Selling activities include prospecting, sales calls, networking, holding an open house (for a group or an individual company), and presenting seminars at networking events.
Mistake #4: Keeping Unproductive or Below Average Employees
Sometimes small business owners feel the need to fill a vacant position quickly; in a five person business, being down one head count is being down 20% of your work force. Rushing to hire someone rather than ensuring you hire the right person for the job can lead to morale problems, poor productivity, or re-producing orders. When you have a poor performer on staff, it lowers the morale of the better performers and can lead to them becoming less productive. I recall hearing the advice “buy low, sell high, collect early and pay late”. I think we should add to that “hire slowly and fire quickly”. No one enjoys terminating a poor performer; once you do, however, the rest of your team will appreciate it. No one likes to carry someone else’s load.
Many small business owners treat their employees as family and are reluctant to terminate a poor performer. Hold yourself accountable to focus on coaching and counseling for improvement. Don’t put off holding the uncomfortable conversation about performance. Include written counseling, written warnings and an improvement plan that needs to be achieved by a certain date. If the performance improvement occurs, you have a better employee; if not, you must terminate in the interest of the business.
Mistake #5: Not Making the Company a Learning Organization
The best organizations—even small companies—have developed a culture of learning. There is ongoing training, cross-training and employee development taking place consistently. When something goes wrong, in addition to fixing it, in the learning organization, conversation and coaching takes place to ensure everyone learned from the mistake so that it is far less likely to occur again.