Thorny Business Problems: The Top 10
Richard G. Ensman Jr.
February 2006Frustration! Maybe it’s a cash flow problem. Or a disorganized filing system. Or a problem with personnel management.
You might be encountering one of the top 10 thorny business problems of the 1980s and 1990s—and you’re not alone. Every manager is susceptible to these ornery problems.
But with careful thought and study, almost any manager can meet "the top 10’’ head-on. Here’s how:
Thorny Business Problem #1: Lack of Cash. Cash flow problems may well be today’s most common small- and mid-sized business problem, particularly during company growth spurts. If you find your sales—and your receivables—rising fast, brace yourself for a cash crunch. Couple soaring receivables with heavy loans and upcoming credit obligations and you could be in trouble.
To combat cash flow problems, arrange a long-term line of credit with your banker or consider increasing outside equity in your business once you reach a certain level of growth. Or, aim for control led growth: attempt to match increased sales with your ability to finance those sales out of current revenue. Finally, plot a month-by-month cash flow budget to aid you in year- round cash planning.
Thorny Business Problem #2: Lack of Information. One-person business operations rarely have information problems. But take on one other person—or two, three, four or 20—and suddenly you must monitor what’s going in every facet of your business. Things like inventory level, end-of-month profit and loss figures, sales statistics and new orders can easily escape you when other people are managing on your behalf.
To meet your information problems, require monthly reports from key employees. Be specific about the kind of statistics you need. Bring in a computer programmer or a systems analyst to evaluate the data you’re getting from your information systems. And don’t hesitate to set up new recordkeeping systems to monitor key business activity, even if these systems consume valuable staff time. If the information is important, you’ll more than justify the expenditure in the long run.
Thorny Business Problem #3: No Variable Budget. Most firms have a "fixed” budget, covering overhead and an allowance for production costs. As production falls or rises, however, so should the production budget covering variable costs. Fai1ure to separate the re1atively stable overhead budget from the variable budget can lead to unplanned expenditures, waste and inefficient production planning.
Here is a relatively simple solution: Develop both a fixed budget for overhead and a variable budget for production well before the start of each fiscal year. Set up a monitoring system to review production figures each month and make adjustments in your variable spending accordingly. If you have never developed a variable budget, ask your accountant for help; it is much simpler than you might think.
Thorny Business Problem #4: People. Employees and contractors may keep your books, produce your goods and handle just about every business chore you can imagine. They’ll provide the impetus for business growth. But if they’re not managed well, other people will plague you with problems, ranging from excessive absenteeism to poor product quality. Poor selection procedures and inadequate training and supervision will, most assuredly, create morale problems, inefficiency and waste every step of the way.
Look for employees who can complement your own skills and strengths. Interview carefully and be sure you check references on every prospective employee. Train your people well and provide opportunities for job growth. Be fair but firm—and hold your people accountable for specific, measurable on-the-job performance. If you must take disciplinary action against an employee or terminate an employee, be sure you document the reasons for doing so in advance. This simple practice can save you legal and arbitration costs later on.
Thorny Business Problem #5: Lack of Strategic Marketing. Most small business founders produce or distribute a product they believe will entice buyers on its strengths alone. These enthusiastic, product-oriented founders, however, sometimes fail to study the harsh realities of the marketplace—and don’t know how to position a product before the buying public or the trade. Lack of marketing savvy in product positioning can result in lower-than-anticipated growth or even potential failure after a product launch.
Bring in a marketing or promotional consultant before you launch a new line—or expand into new territory. Develop a complete marketing plan before you begin to promote your product—and follow it, step by step. Write promotional materials, and be ready to place ads, before the first product is even ready for distribution. Finally, focus on those segments of the market most likely to buy your product. You’ll likely get more bang from your marketing dollars this way, and success with this lower-risk market segment may give you the track record you need for expansion.
The same theories apply to the services you offer. If you plan to add acoustical ceiling work to your drywall business, research the likelihood that the new venture will be successful and that you will have clients who are interested in what you have to offer.
Thorny Business Problem #6: Poor Policies and Procedures. "Policies” are the general rules and conditions under which your business operates. "Procedures,” on the other hand, prescribe the way things are done each day. Policies and procedures dictate the volume discounts you give on sales, the number of vacation days your employees are entitled to, even the appearance of your memoranda and business forms.
If you fail to standardize routine business practices, you’ll end up reinventing the wheel every time you encounter a routine problem or the need for a decision.
To meet this potential problem, systematically develop a policy and procedure manual, if you don’t already have one. Every time you encounter a simple problem or must make a routine decision, write a simple and concise policy or procedure dealing with the issue at hand—and file it in your growing manual. This minor investment in time will save you and your employees many hours of aggravation later on.
Thorny Business Problem #7: Regulations. Let’s face it: Almost every business faces some type of governmental regulation today. Whether you like it or not, you likely must deal with the IRS, the County Clerk and various licensing bodies. You may need to conform to environmental regulations, truth-in-advertising laws, fair employment guidelines, laws governing consumer credit, and more. If you are not familiar with the laws and regulations that affect your firm, you could one day find yourself in unexpected trouble—and be forced to pay heavy fines or penalties for unintentional noncompliance.
See if your county or state government has a one-stop "shopping center” for business owners and entrepreneurs. This one-stop center will provide you with all the rules, regulations and laws that might affect you—and, perhaps, they may even help you file the appropriate forms. Alternatively, sit down with your attorney every year or two for a legal audit; the knowledge you gain will give you peace of mind.
Thorny Business Problem #8: Poor Time Management. The term "time management” is really a misnomer. "Managing time” means "managing yourself .” If you go through a typical day and never have time left over, or if you constantly find yourself putting out brush fires, you may well have a time management problem.
So take a course in time management or personal organization. Or even spend a few hours immersed in a time management book. More simply, however, identify the tasks and issues you face each day in priority order. Tackle the most important items first. Delegate the less important items. And give yourself "quiet time” to work on important projects; the payoff in personal productivity is usually great.
Thorny Business Problem #9: Lack of Long-Range Planning. Do you know where your business firm is going in the years ahead? Can you detail, in step-by-step fashion, expected growth in your sales, profits and customer base for each of the next five years? And can you spell out the strategy you believe will make your growth possible? If you can’t, you may be like the harried, proverbial traveler who doesn’t know how to reach his destination—because he doesn’t know where he wants to go.
Chart your dreams out year by year for the next five years. Be as specific as possible about your goals. And then ask yourself what you must do to reach them. If you feel uncomfortable about long-range planning, or you’re not sure where to begin, ask a small business consultant or your accountant for help in getting started.
Thorny Business Problem #10: You. Few owners or managers are so versatile and knowledgeable that they know everything there is to know about running a business. Face it: Business is becoming much more complex with each passing year. If you try to base important decisions strictly on your own hunches or even your own knowledge, you may be heading for trouble.
Bring in a partner, an employee, a consultant or even a wise friend to balance out your weaknesses, aptitudes and experience. If you’re strong on finance, for instance, make sure you get sufficient production advice. If you’re not a "people person,’’ find someone who can help you with workforce issues. If you really enjoy putting your product together but hate to sell, find someone who can help you with marketing. Recognize both your strengths and your weaknesses, find ways to balance them, and your business should begin to grow.
About the Author
Richard G. Ensman Jr. is a syndicated free-lance writer in Rochester, N.Y.