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Operating a successful business in today's economic times is difficult, even for a well-managed company. Now, add the complexity of the worst recession since the Great Depression. It is no surprise that commercial bankruptcies, among the nation's more than 25 million small businesses, have increased by approximately 44% from the third quarter of 2008 to the third quarter of 2009, according to Equifax Inc. So what is a business owner to do? Avoid these SEVEN DEADLY SINS!
1.Cash Flow. "Cash flow projections are too complicated to prepare and even more complicated to understand. I don't have the time or the money to have one generated periodically." If I had to pick THE DEADLIEST SIN, this would be it. Too many business owners become so focused on generating sales or cutting costs, they lose sight of their cash. Before they know what happened, they find they can't make payroll or pay their suppliers. The business comes to a grinding halt until this problem is resolved, or it eventually becomes another bankruptcy statistic if the cash flow problem is not resolved.
2.Banking Relationships. Banking relationships are critical in both good times and in bad. Your banker needs to be treated as a Partner and not an adversary to your business. When times are good, everyone will be knocking on your door offering banking services. When you need them the most, it's critical that your banker not only understands your business, but understands you as a manager and a person. Part of this relationship is to be sure that there is a suitable line of credit in place to support your current and projected cash needs. As indicated above, you are never in a position to go to your banker when your business is about to crash. Nobody will invest in a sinking ship.
3.Employees. The greatest asset of any business is not even reflected on the financial statements. The employees are always the MVP of any organization. Treated properly and given financial incentives, a good employee will give you the best return on investment (ROI) of any other asset you may have purchased. They can increase sales, increase productivity, reduce expenses, promote and help market the company. In contrast, a bad employee can bring a company to its knees quickly.
4.Controls and Processes. Establish sufficient internal controls and procedures to protect the assets (particularly cash controls) of your business. Many small and mid-size business owners are so focused on the development and expansion of their company that they lose sight of protecting what they already have. While trusting your employees is a must, don't lose sight that there will always be a hidden worm in the apple. According to a 2008 study by the Association of Certified Fraud Examiners (ACFE), small businesses are especially vulnerable to occupational fraud. The median loss suffered by organizations with fewer than 100 employees was $200,000. If you don't have the expertise to implement policy and procedures to segregate duties and have checks and balances, spend the money to have an expert do this for you. Consider it an insurance premium that will pay royalties.
5.Customers. Spend the time and resources to better understand the needs and concerns of your customers. Years ago, the business marketplace was smaller and finding companies to provide products and services was a more regional effort than in today's environment. Customers were "forced" to accept less than top quality service because there were fewer alternatives. Today, even with small companies having larger markets through technology and a more global presence, competition among service providers has become even fiercer. The only way to retain (and grow) your customer base is to provide a product/service that meets their needs. Obviously, the first step is to truly understand their needs and adjust your business accordingly.
6.Financial Statements. Most small and mid-size business owners have started their business because they have a knowledge or expertise in their particular product or service. Unfortunately, they don't take the time to understand the financial side of their business. Every business owner must be able to read and comprehend a basic set of financial statements, including other statistical data that drives their business. These reports are the scorecard that drives the business. You need to be sure that you receive them on a timely basis and that they're 100% accurate, and you're able to analyze and digest the information.
7.Delegating and or Outsourcing. "I'm more qualified to perform most jobs in my company" OR "I can't afford to hire someone to do the administrative jobs, so I do them myself." You can't do it all. The quickest way for a business owner to drive his/her business into the ground is to spend too much time on administrative tasks. The amount of time spent on the admin functions is that much less time spent on growing the business and developing strategies. Leave the admin tasks to the administrators. It will be the best money you've ever spent.
While every business has its own personality and style, any one of the seven sins above can take a deadly toll on the future of the company. Get some religion and avoid the sins.