How to Operate Your Small Business for Maximum Efficiency and Profitability

As far as I am concerned, one of the primary reasons the washout rate for small business owners is so high is because too many investors fail to place enough emphasis on getting the maximum return on every dollar and hour that they put into their small business. Instead, they seem to be more concerned about frivolous stuff like the color of their business cards. In any small business endeavor, a lack of focus, coupled with the inability to prioritize tasks, is a recipe for failure.

So, too, is the type of complacency that breeds an “if it ain’t broke, don’t fix it” mentality, which usually results in a stagnant business that’s barely able to keep its head above water. That’s why to my way of thinking, the catch-phrase “easier, faster, and cheaper” should be the mantra of every real estate investor in America. I say this because I’ve learned the hard way that for me to consistently achieve the highest possible rate of return on the money and time that I invest in my business, I must continually analyze, refine, and tweak every aspect of my operation, to make it easier, faster, and cheaper to run. Nowadays, I think of my business as a high performance automobile engine, which must be finely turned and calibrated to run at its optimum speed and maximum efficiency.

It takes a combination of personal and financial discipline to operate a small business at maximum efficiency and profitability. First, you need to have the initiative and self-discipline that’s required to be successfully self-employed. You must work smart, so you don’t waste your valuable time doing grunt-type tasks that can be hired out. In other words, don’t spend your time cleaning up trash around your office when you should be out searching for customers.

Four Reasons Why Small Business Fail To Plan and Why They Need To Think Again

It is so widely acknowledged that a robust business plan is one of the key ingredients in small business success, it seems remarkable that anyone serious about their business could considerable it optional. For example, Business Link say, “It is essential to have a realistic, working business plan when you’re starting up a business”. A recent survey showed that small businesses were twice as likely to be successful with a written business plan as compared with those without one. The Times in their annual round up of 100 up and coming UK businesses suggest that “poor business planning” is a key reason for failure. Indeed, it’s almost impossible to find an authority that would advocate the opposite idea, a clear signal that this idea is accepted wisdom. Despite this, a recent survey shows that two thirds of small business owners run their businesses on gut instinct alone.

I had a very interesting discussion about this a couple of days ago with a good friend of mine who has run several successful small businesses in which he posited the idea of a “planning gene”. He felt that the only possible explanation for the lack of proper planning in small business was genetic.

According to his theory, the majority of people are born without the “planning gene” and this explains why so many people don’t have any written business plan, despite the overwhelming evidence of a high correlation between a robust and vigorously implemented business plan and business success. The majority of us are simply not biologically and genetically wired to plan.

This is certainly one explanation, although I have to say I have a few reservations as to the validity of his theory. I talk with small business owners about planning every day. I’m part of a small business myself. I’ve owned several small businesses over the last ten years each with varying degrees of success. In all those conversations and all that experience, this was the first (semi) serious discussion I’d had about the planning gene.

If I was to aggregate the results of the conversations I have had with actual and prospective customers on this topic, four distinctive strands emerge explaining why small business owners fail to plan. Whilst I have heard a few other explanations for the lack of effective small business planning, I am treating these as outliers and focusing on the most significant.

I’m Too Busy To Plan – More often than not, the small business owners we talk to tell us that proper planning is a luxury that only big business can afford. For them, business planning, if done at all, was a one-time event that produced a document for a bank manager or investor which is now gathering dust in the furthest recesses of some rarely opened filing cabinet. There just aren’t enough hours in the day and if forced to choose, they would do the real, physical work and leave the mental work undone, which seems to be the poor relation at best, if it is even dignified with the status of work at all.

Traditional Planning Doesn’t Work – The “I’m too busy to plan” excuse is often supplemented with this one. I’ve heard the stories of the most legendary construction overrun of all time, The Sydney Opera House, originally estimated to be completed in 1963 for $7 million, and finally completed in 1973 for $102 million, more times than I can remember. Sometimes, this idea is backed up with some actual research, such as the fascinating study by several eminent psychologists of what has been called the “planning fallacy”. It seems that some small business owners genuinely believe that mental work and planning is a bit of a con with no traction on physical reality.

My Business Is Doing Fine Without Detailed Planning – A minority of small business owners we speak to are in the privileged position of being able to say they’ve done pretty well without a plan. Why should they invest time and resources into something they don’t appear to have missed?

Planning Is Futile In A Chaotic World – Every once in a while, we hear how deluded we are to believe that the world can be shaped by our hopes and actions. This philosophical objection to planning is perhaps my favourite. It takes ammunition from a serious debate about the fundamental nature of the universe and uses it to defend what almost always is either uncertainty about how to plan effectively or simple pessimism. This is different from the idea that planning doesn’t work as these business owners have never even tried to form a coherent plan, but have just decided to do the best they can and hope that they get lucky as they are knocked hither and thither like a steel ball in the pinball machine of life.

I’m Too Busy Not To Plan – Time is the scarcest resource we have and it is natural that we would want to spend it doing those things that we believe will have the greatest impact. Of course, we want to spend most of our time producing, but we should also invest at least some time into developing our productive capacity. As Stephen Covey pointed out in his seminal work, “The Seven Habits of Highly Effective People”, we should never be too busy sawing to sharpen a blunted saw. Planning is one of the highest leverage activities we can engage in, as when done effectively it enhances the productive capacity of small businesses, enabling them to do more with less. Nothing could be a bigger waste of precious time than to find out too late that we have been using blunt tools in pursuit of our business goals.

In short, small business owners are extremely busy and their time is precious. So much so that to waste it doing the wrong things with the wrong tools would be tragic. Small business owners that cannot afford the luxury of making expensive mistakes simply must regularly sharpen the saw through continuous business planning.

Hot Tips for Starting A Small Business

There are thousands of new small businesses created each year in the United States; some are successful, some are not. There is one element that greatly influences whether a new small business will have a successful outcome. The factor is a solid business plan.

The business plan should cover the business basics from goals to management, from marketing to operations. A business plan is a map for success, so don’t go lightly on the details. A good business plan should include the executive summary, a definition of operations, an outline of the marketing strategy, and how the small business will be financially managed.

The Executive Summary

The executive summary should give a overview of the business and should include the following areas:

* A detailed description of the business and its goals

* Identification of the business ownership and the legal structure.

* Discussion of skills and experience the potential owner and partners (if applicable) bring to the business.

* Identification of advantages the business will have over its competitors.

The Business Operation

The business operation section should cover the daily happenings of the potential small business and should include:

* An explanation of how the business will be managed on a day-to-day basis.

* Discussion of hiring and personnel procedures.

* Discussion of insurance, lease or rent agreements, and issues pertinent to the business.

* What equipment will be necessary to produce the products or services.

* An Outline of the production and delivery of products and services.

The Marketing Plan

The correct marketing strategy is important for any small business. Getting the word out and building a customer base is necessary and essential. Therefore, the marketing plan should include:

* A description of the product or service of the business specializes in.

* Identification of the customer demand for products or services.

* Identification of the market, including its size, location and demographics.

* An explanation of how the product or service will be advertised and marketed.

* An explanation of the pricing strategy.

Financial Management

Effective financial management will also help determine how successful a potential small business will be. Therefore, important elements of this to include in the business plan are:

*Explanation of the source and amount of initial equity capital.

* Estimated start-up costs.

* Projected operating expenses.

* Development of a monthly operating budget for the first year.

* Development of an expected return on investment and monthly cash flow for the first year.

* Projected income statements and balance sheets for a two-year period.

* Discussion of a break-even point.

* Explanation the business owner’s personal balance sheet and method of compensation.

* Discussion of who will maintain the accounting records and how the records will be kept.

* A provision of a “what if” statements that address alternative approaches to problems that may develop.

In addition to all of the essential elements of a business plan as outlined above, other important areas to consider when starting a small business are legal requirements as well as registration and accounting requirements.

Legal Requirements

All small businesses must comply with federal, state and local laws and regulations. Small business owners need to know the legal requirements affecting their business. Talking with an attorney can also be very helpful.

Registration Requirements

One can’t just start a business without approval from their state; in other words, practicing without a license can result in all kinds of legal problems and can leave one vulnerable to law suits. It is always important to obtain a license or work certificate, a sales tax number, and to open a separate business account. Once the business grows to the point where employees are needed, then the small business owner is responsible for withholding income and social security taxes as well with complying with state laws covering employee health, safety, and minimum wage.

The U.S. Business Advisor has a site that assists small business owners in meeting the necessary requirements for their particular state.

Lastly, don’t forget about zoning! Be aware of local towns and cities zoning requirements. If they are not followed, a small business can easily be shut down.

Careful planning by way of a business plan and ensuring that all legal requirements are met are important processes for any potential new small business owner. If done correctly, these essential elements can greatly impact the success of a new small business.