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ENOUGH MONEY

I’ve been plying my trade as an accountant and business consultant for small businesses for the last 10 years. I rarely get asked what skills are important for success in this world. The more usual statement/question is “My business is not making enough money. What can I get into that makes more? Which types of business are doing well?”

Unfortunately, the answer I give [It all depends on the ability of the owner/manager] never satisfies.

So, what skills are required to run a small business? [A small business, at least in my book, is one that employees between 2 and 20 people. Not a business looking for an AIM listing.]

Well, I can tell you what skills are taken for granted.

As a matter of principal, the owner is assumed to be good at doing whatever the business does; be it product or service. When asked, every business owner claims to be able to do the job in hand slightly better than the competition. Higher quality. But they charge slightly less?

Business owners also assume that they know what their customers want. Marketing is a foreign country.

Finally, as the owner is always very busy, certain tasks have to be delegated. Particularly the accounts function. Apparently, any business can be run by looking at this year’s sales compared to last whilst keeping an eye on the bank balance. The bank computer (nee manager) will soon tell you if you’ve crossed a limit. If the annual accounts show a pathetic profit, it’s the accountant’s fault for not warning the client earlier. If the profit is OK, then there is too much tax to pay and it’s the accountant’s fault again. The infamous “double whammy of disappointment”.

This may seem a slightly jaundiced view of the small business world, but believe me, its no exaggeration.

So, what do successful small businesses do?

As you would expect, they actually devote sufficient time and effort to deciding what they want to achieve and therefore how they are going to get there.

Success means different things to different people. The freedom to make your own mistakes often translates into a fear of doing anything different. This is particularly true if the financial rewards are (just) adequate, even if this has to be achieved by working ridiculously long hours. Some people see success as the ability to take 3 months off at any one time whilst the business ticks along without them. Such success is very rare. It’s usually all about cash/profit.

Apart from generating enough cash to keep the owner interested, the business also has to cover the tax bill and repay any borrowed capital. In reality, this is a lot harder than it sounds and there are plenty of high earning/high spending/high borrowed professionals who never quite manage to pay their tax bills. Such people are usually referred to as “dentists”.

Despite regular government reports about “equity gaps”, banks are the main source of finance and they expect to be repaid. At least at the moment, anyway. Repaying loans in anything less than 15 years out of income taxed at 40% requires a huge amount of discipline and belief that nothing will go wrong.

If the business owner knows how much profit is needed to generate the required level of cash, it's then just a question of understanding how much activity is required to get to this point. This bring into play the real skills gap in small businesses - marketing.

I suggest that marketing is about positioning the business and selling:

The right product/service | To the right customer | For the right price

So that the customer values your product/service above the competition and comes back as often as possible. You therefore need to identify what the “right customer” looks like and how to keep that customer coming back and how to find more like him. Sounds simple. It is, but it’s not usually easy.

Marketing is not about corporate entertaining or expensive CRM systems. It’s about market reputation - another word for brand.

One consulting trick that still works remarkably well is the customer focus panel (or client advisory board in the jargon). A group of customers will always give the owner lots of good ideas and tell him where he’s missing the point. [As long as the meeting is run by a third party.] Curiously, owners frequently find ways of discounting the ideas that emerge from such meetings, desperate to cling to the old ways. One client of ours even claimed he couldn’t hear the recording of the meeting properly. He eventually relented and even put into play the recommendations that came through. The business immediately took off. Listening to customers must be a skill?

Finally, the other hard-to-find skill is in managing people. Government money has again been thrown at the problem and there are plenty of courses explaining what motivates people. However, theory seems to go out of the window when it comes down to it and the various employment law issues get factored into the equation.

Whilst the business owner is committed to the business, there is no way I know of to make all the employees want to work as long and as hard for very little reward. There is an element of leading by example, but shouting louder rarely seems to cut it. There’s always a strong tendency for the owner to try to do everything himself, particularly if the going gets tough, thereby creating lots of stress, particularly for himself.

If the boss can actually explain what the business is going to look like when it’s finished, then everybody has got a chance of joining in. However, if you’ve got the wrong people on the team, then nothing will work until you’ve fixed this. There may be no "perfect employees", but some are a lot less perfect than others.

In my experience, it’s the ability to lead first and manage second that really makes the difference at this end of the spectrum. You can get by with an average product that’s badly marketed, difficult customers and a truculent bank manager as long as everybody believes they are going to win. Anyway, all these other things can be fixed. It’s that simple.

So much for the theory. Why not talk to us about the reality?

Contact Mark Vickress on 

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