Our first colum of the year has traditionally been titled, Survival Pack for the Emerging Business. We are pleased to share the perceptive observations and questions based upon the independent research offered by Jeff Pert working with a major retail bank in the UK. As always, other viewers' commentaries and questions on this column as well as any other columns are encouraged.
To: Thomas A. Faulhaber email@example.com
From: Jeff Pert, Business Banking Manager UK and independent researcher.
Re: Survival Pack for Emerging Business
I was extremely interested to read your article on the tools you suggest to improve the chances of survival and profitability, which touches on a number of areas I have been considering. Over the last 3/4 years, I have become more and more involved in the problems of the micro business, initially from a banking standpoint (my background has been in dealing with businesses in trouble and training managers how to appraise overdraft and loan requests from businesses), but latterly on a more general level, to the extent that I am now looking to undertake research on how small businesses monitor their performance and how this can be improved.
Although I agree with some your views, I do disagree with others and would welcome your comments on my thoughts.
I have two concerns on this point, the focus on short term, rather than long term and the irratic nature of small businesses.
The lumpy nature of the small business means the goals will invariably be missed some days or weeks and then doubled in others, making the monitoring much harder. I totally agree that the units of measure should be as simple as possible and should be physical units rather than monetary units, but would suggest they are monitored on a slightly longer term, such as monthly or even rolling averages. This, however, will be different for every single business.
Focusing on the VST goals can also mean following a path that takes you further and further away from your very long term goals. If you are driving in an unfamiliar and congested city, making sure you do not hit the car in front may mean you miss your turning and end up on the wrong side of town. On the other hand, looking only for the turn off signs may mean you end up in the back of someone else!
I am in agreement with your comments as you set out the problem. However I am not clear as to your suggested answer. The use of forecasting is, I believe, extremely important, but only for the major areas and not for the minutiae. If you are travelling across country to a particular destination, you need to have a route map, setting out where you expect to be at certain times, so that you can check on your progress and adjust your course accordingly. However, you do not need to know exactly where you will be every single minute. What these major areas are will again vary from business to business.
Wow! This is one that could really be opened up. Bring in the Human Resource brigade. Again, I totally agree with the view but how does the business owner identify a competent person? As in all walks of life, we all have different competencies and skills. As you state in Microenterprise -- Part One, with the smaller business almost every employee will be performing more than one task. How does the small business owner identify the multitude of competencies that will be required for the multitude of jobs that the employee will need to undertake, let alone identify a potential employee with those same competencies? But the employees are the most important ingredient in all businesses. A conundrum!
Test the Strategy:
Fully sympathetic here, where the frequent re-evaluation of both the objectives and the strategy are imperative and becoming more so as the market place changes with ever more speed. Valid feedback from present and future customers is always available but very often overlooked, the passing comment or remark that is not followed up, the concentration on getting the job done, rather than taking a bit more time to fully understand what the customer wants. However, how do you determine where you are vis-à-vis your competitors and customers, except I suppose by asking!
The re-evaluation of strategy can only be done by monitoring your performance, to see how well you are doing against your expectations. How far down that road have you travelled? What is the view like from here? Do you still want to go to the original destination or is there somewhere better?
This is the part that is interesting me more and more and is so often missed in the text books. It is assumed that all businesses will produce sophisticated management accounts and can therefore track exactly where they are at any given moment. What a load of kybosh! Very few micro businesses produce management accounts and those small businesses that do, produce them purely for outside professionals, such as their bank, accountant, tax man. Management accounts have been designed by accountants, not by business owners. The business owner is not likely to have the background to understand the information produced.
So how does the business owner monitor how well (or badly) they are doing? Whatever system is used it should be simple so that it can be understood without the need for an Accountancy qualification and/or a Computer degree. It should be quick, as business owners do not have the time to get to grips with detailed figures. In any case they will see the minutiae as it happens. It should be systematic so that it can be compared with historic information. It need not be accurate to the last penny (or dime). Figures to the nearest thousand £/$ are quite adequate as this restricts the recording of information to that which is important and has a significant effect on the business and means the business owner is focused onto these areas. Finally, the monitoring of the information should be on a regular frequency. If it is quick and simple to do and easily understood, then this will encourage the business owner to monitor on a regular basis, rather than just when the bank asks for some figures.
So what should be monitored?
The normal accounting major areas are of course useful: sales, gross margin, overheads, net profit, debtors [receivables], creditors [payables], stock [inventories] and bank [credit and cash balances], but these are historic measures. They show what happened last month when we are now almost into next month. Are they really of much value? You cannot change results; they are history.
So what should be measured, that can be influenced?
The measure should be as early as possible in the process, be it the number of orders in hand, the number of quotes given, the number of enquiries received, or the number of mailshots sent out. The crucial question is; "what level of sales does that achieve?". How many do I need to do to break even? The sooner you know you are not going to reach your break even level in any one period the sooner you can put extra effort into that area and so increase your chances of survival. By the time you receive your management accounts showing your level of sales, you are too late to change the outcome and then have the problem of persuading the bank to increase your limit!
This is interesting and having a sounding board for ideas as well as another set of eyes and ears in the market place will always be welcome, if for no other reason than it is very lonely when working for yourself. However, where do these counsellors come from. The bankers and accountants that I know do not have the in depth knowledge, the understanding of business or the time to be of anything other than superficial value. Local Government backed agencies may be of some help, retired businessmen, other business owners. But will these really be dedicated to the success of the business? This is the Indian scout who knows the territory and can make you aware of the swamps, ravines, rivers etc. Someone to act in a President or Chairman capacity whilst the owner takes on the CEO role. A very useful guide to have but where do they come from and how much do they cost?
You have certainly given me some food for thought. I hope this response is of interest to you and look forward to your comments.
To correspond with Jeff directly, he may be contacted at:
Two Mile Ash,
Milton Keynes. MK8 8ES
Telephone (UK): 01908 565172
Your comments and suggestions for these pages are most welcomed!
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