Monthly Archives: October 2012

Small Business Management Information and Organizational Staffing

Different-sized businesses have different needs in terms of internal structure and systems, particularly during times of economic decline. As the entrepreneur adapts to changes in his or her competitive situation, the size of the business may vary enough to put it in competition with either larger or smaller competitors. Implementing systems to match competitive requirements is a necessary first step toward efficient organization and operation.

Management Information Systems

Small businesses usually enjoy the pace a smaller organization and a high level of personal involvement in decision-making. The systems typically in place range from a manual bookkeeping system inadequate in reporting timely developments to overly complex programs that require more attention than the small business leader can give. Therefore, the goal in a small operation should be to minimize company reliance on record-keeping as a chore and focus on the development of meaningful reports. With all systems tied together, the financial systems can work with marketing and operations systems. The reports generated can then be used by each department.

Accounting Information

Accounting information that should exist in at least a semi-automated form includes accounts payable, cash projections, expense estimating, and quotation systems. It is impossible to run an efficient operation with anything less than this skeleton. The payables are easily recordable as invoices are received and paid. Cash projections contain–at a minimum–information about loans, revenues, and disbursements. A basic expense estimating system posts invoice amounts  (direct costs) and allocates indirect  costs as appropriate to to specific projects or clients. Finally, a method of preparing quotes should be implemented to standardize pricing based on cost data.

Marketing Information

Marketing information should include inventory listings, commission agreements, advertising schedules, and research into market demand and competitor product offerings. Inventory listings are a natural by-product of the job costing (expense estimating) system and should include gross profit percentages, inventory age, and a measurement of the relative sales priority of inventory based on carrying costs. Commission agreements highlight the sales force’s expectations for representation of company products. Advertising schedules will help the business leaders plan for regular promotions. Finally, research into market demand and competitor product offerings will require periodic updates.

Operations Information

While accounting information is preferably computerized or otherwise automated, operations information, like marketing, need not be automated as a first priority. Information systems for monitoring operations include purchase orders, scheduling, and either timekeeping or job progress. A purchase order system is essential for cost controls, order documentation, and verification of amounts and qualities delivered. Finally, scheduling systems provide for systematic fulfillment of orders.

Organizational Staffing

Small businesses must determine the organizational development and staffing levels based on their need to delegate tasks and thus free themselves for critical activities. Office management, marketing and operations managers should be hired only after careful screening. These individuals need to possess industry specific experience and a good general feel for how your business works. Sales people and administrative staff are not innately qualified to work for a particular organization. When verifying references and conducting interviews, then, look for a match in values!

Office Management Staff

In the management of the office functions, organization and attention to details are essential. One or two well-trained individuals–preferably capable of performing each other’s jobs–should be enough to keep the internal operations running smoothly and to help with some of the company’s daily busy work when necessary. Ideally, these office employees should be able to handle accounting, calls, filing, and word processing.

Marketing Staff

The marketing staff need not consist of one or two well-trained individuals either. One person must have responsibility for digital marketing–all things web-based including website, social media, and CRM. The other should handle strategy and supporting sales and other executive staff on marketing issues, including advertising, branding, collateral materials, proposals, etc.

Operations Management

A team of one or two should again be sufficient. Depending on the size of the organization, the complexity of its operation, and the rate of growth, a good rule of thumb is that one manager should have responsibility for no more than five to eight direct reports. These managers should be expert in keeping work on time and on budget.

 

How to Handle Lenders

In dealing with lenders, it is important for executive teams to understand the background of those with whom they transact business. Bankers, for instance, are often conservative by nature, have little experience running their own business, and can be a part of a corporate system that is bureaucratic and slow moving. Realizing from the outset that the word “risk” is a four-letter word to these professionals can prepare you to have better conversations. Furthermore, you must accept that most front-line bankers are not empowered to question the standards they must enforce on behalf of their employer or the banking system as a whole. All of this is especially true after the recent mortgage industry troubles of the 2008 recession genre. By keeping in mind who is on the other side of the desk when a loan request is submitted, you as a management team member can position your request in a way that gives the banker the best ammunition to give you an affirmative response.

How Lenders Think

Understanding how lenders think helps the entrepreneur better understand why lending policies are pragmatic rather than opportunity-driven, standard rather than adaptable, and monitoring rather than recommending. While market opportunities drive the entrepreneur, lenders approach the very same data with caution. The same unpredicted cash shortage that merely surprises a business owner may send a lender into a panic. Lenders are not in the business of selling advice–in fact, they can be held liable if found to be doing so and the business goes under. They are in the business of making money on loans. Therefore, their loyalty is to company profits and a return on their monies borrowed–and noting else! Anyone who wishes to test the strength of this premise should try missing a few note payments.

Consistency is the hallmark of the lender, due in large part to the constraints of a corporate directive of standardization. The seemingly two-sided face that the entrepreneur sees the lender wear is real; the lending officer truly wants to help and has empathy, but is governed by institutional guidelines. Overidentification with the needs of the borrower can cause a lender to lose her job. 

Consequently, the face the business owner sees is not reality but rather a front depicting what the lending institution would like to see happen. Rarely does a borrower learn the true acceptable level of performance that a lender would be willing to accept. Since lenders control the purse strings to the resources that keep the borrower in business, these lenders are impossible to control. Knowing a lender’s true bottom line enables the borrower to influence lending policies that permit operation under the best possible conditions.

How Lenders Act

During tough economic times, lenders are expected to:

  • serve as a flexible yet profitable source of capital,
  • monitor the performance of borrowers in their book of business, and 
  • provide sound references to inquirers on behalf of their clients.

Lenders must be allowed to continue to make money on the loans they have extended, but the borrower may request modifications of the terms of repayment based on business financial performance. Principal payment deferrals, interest accruals, and other methods can be used to create cash within the business operation, but one is ill advised to single-handedly embark on such practices without securing the commitment of the lending institution in advance.

To the extent they are able, lenders should be encouraged to visit the places of business of their borrowers and check things out. Outside assessment of company execution of its plans by this important stakeholder group can prove valuable to the management of the company. Hopefully, an open dialogue creates an environment where the lender reference in credit applications is always a positive one and facilitates smooth operations in your company!

 

 

Entrepreneurs: Learn to Delegate to Capable Employees

Delegation

The “take charge” attitude that permeates a builder’s very makeup is easily channeled and tempered with proper direction and focus. Avoiding “one man rule” tendencies is as easy as one word: delegation. The effective executive delegates rather than performing all critical tasks. However, successful delegation requires that responsibility and authority also be delegated. Herein lies a problem for the executive–“hands off” management.

An experienced founder’s abilities and characteristics relate to starting and preserving a good business idea. Chief among those abilities would be creating a vision for the company, which is usually unstated but somehow understood. While it may seem a chore for others in the company, projecting a confident and self-assured image that appeals to prospective buyers  comes naturally to the experienced executive.

Additionally, identification of market opportunities and provision of top notch service to meet customer needs are focal points of the founder’s vision. Unfortunately, the ability to create a workable organization to achieve company goals and objectives may prove more elusive. The business owner who possesses the innate skill to attract others to pursue an unwritten vision may lack the skill to build an efficient organization.

Employees

Clearly, employees are critical to the success of profit maximization in any business; it is their effort that keeps the wheels of progress turning. Most employees have spent careers in similarly sized (small) companies in the same industry setting–be that white collar or blue collar–with limited exposure to alternate environments. Consequently, their frame of reference in employer/employee relationships amounts  to that which the founder and, where applicable, previous employers have provided.  With limited cross-training in other professional disciplines, these members of the team have the least job flexibility and therefore generally welcome changes in work flow patterns that can make their jobs appreciably easier and more effective.

Job Specialization

While cross training or shared skill sets occur as a matter of necessity, job specialization is a focus of many small businesses. A certain “pride of ownership” can arise from this high degree of specialization. Fiercely loyal, most employees would rather sacrifice some temporary perks rather than leave a benevolent employer “high and dry” in a time of financial duress. Since the employees tend to be skill-oriented, they require a great deal of direction in defining work assignments. At the same time, they spend a lot of time observing the founder and mimicking his or her efforts; if the entrepreneur is a go-getter, they will learn to hustle on the job in order to meet production requirements. In short, employees can be extremely valuable in performing the legwork that makes the business optimization a reality.

Employee Responsibilities

Employees are required to adhere to schedules, commit to the strategic plan, be willing to work long hours, and be brand ambassadors of the company in the community. Schedules governing production, documentation, and reporting must be religiously followed to ensure optimal work efficiencies. Time, budget, and administration constraints are to be respected and emphasized among employees and their  supervisors.

Mindful of how they represent the company, your people are the “front line” experience that others have with your brand. Whether buying from suppliers, meeting with customers, or serving in a local non-profit, they have an opportunity to make you look great–or not.

When company plans cause inconveniences for employees, it should be up to the employees themselves to raise the issue with their superiors. Once they have been given the right to voice their opinions and concerns, they should be expected to fall in line with the plan. Failure to follow established guidelines should not be tolerated. Without respect of your core values, your employees should be replaced by those who can carry your banner proudly!