10 New Year’s Resolutions for the Small Business Owner
Jan. 4, 2021
The new year is a perfect time to re-evaluate your small or mid-sized business, especially after navigating an unstable climate for the past year.
In the past 30 years as a practicing CPA, I’ve been truly blessed to see the inner workings, processes and people in many successful and varied small and mid-sized businesses. The personal relationships developed during that time, both with my clients and my team members, have been valuable in cultivating a business framework, which I attempt to apply to our own CPA firm. I’ve been in a unique position to see businesses thrive and unfortunately have seen several fail or not reach their fullest potential. In each case, after the work is done and I have time for reflection, I’m able to connect the dots and find specific common traits in the most successful companies. Over the years, I’ve developed a keen interest on what makes great businesses thrive. While many business have already shifted to survive unpredictability of the last several months, the new year can also offer a renewed energy to take those key experiences and continue evaluate our own businesses.
Running a business requires a high quality product or service, a willing market for that product or service and a competitive advantage others can’t offer. It also requires the technological, industrial or mechanical means to produce the product or service in an efficient manner. To thrive, any business has to offer a value proposition that is both desired by the customer and exceeds that which can be gained elsewhere in the marketplace. Although, many businesses check all the boxes above and still don’t succeed.
The following are a few common denominators I’ve noticed thus far in my career, which set a business on a path to success. I’ve seen these traits work in most any type of business, industry or geographical market. Each element should be considered as a new decade dawns on an economy that seems poised to benefit many organizations.
Spend the Time to Find the Right Team and Empower Commensurate with Experience
In most businesses I’ve been involved with, EVERYTHING begins with the right TEAM. Truthfully, this article could be entirely about assembling the proper team. Sometimes, bad hiring decisions are made due to a bustling job market and low unemployment. Good team fits aren’t available in the market, and a less-than-perfect hire often seems unavoidable.
Additional factors can hinder a team as a whole. These factors include attempting to save a few dollars by hiring less-than-qualified personnel. Even more often, an owner will not take the recruiting process seriously due to other business pressures that seem more important at that time. Putting the proper time into the process will make the difference between success and failure of the new hire. It can take years to unwind an inappropriate hiring decision, after lost investments of time and money have been made and the entire team morale has suffered. I’ve found those who succeed are deliberate and patient in hiring, willing to wait for the right fit.
Once your team is in place, empower them to perform at a level commensurate with their experience and abilities. Skill and abilities are always changing and growing for employees. Strive for a constant acceptance of advanced responsibilities throughout your business. A constant ascension of challenging job duties can create a contagious momentum that will become the engine to drive your company.
Rather than layering on increased duties to an already-jammed schedule. You’re replacing duties that can be delegated to others, to hopefully achieve a “highest-and-best-use platform” for your entire team.
Develop a Positive Work Culture
Empower your team to grow into more advanced roles that challenge them and help take pressure off you as the business owner. This allows you to focus on your business and its growth.
People change jobs all the time for a variety of reasons, many of which are unavoidable. This is even truer in today’s tight labor market and with various generational changes in the workforce dynamic. However, many factors can be controlled to create a balanced work culture.
Businesses can thrive due to work culture and high retention rates. At the same time, I’ve seen others employ the “revolving door” mentality, and thus fail or struggle to reach their fullest potential. Owners or administrators spend loads of time recruiting, training and otherwise investing in new team members, only to watch employees leave due to a negative environment and bad morale. Unhappy employees with bad morale permeate a work environment and stifle productivity.
Today’s workforce demands a positive and challenging environment that fosters career growth and advancement. Employees desire open, collaborative workplaces where their valuable input is heard and addressed. Happy and positive team members support each other, are more creative, and are more willing to take risks and become future leaders. As a result, they rightfully expect to be rewarded on a level commensurate with their contributions.
And here’s a secret: This is all good for your business. It’s not a bad thing. Embrace it. Embrace a positive work culture by listening to your team, keeping an open door and an open mind, and being flexible with parental and other life demands. Your business will thrive in return.
Annual Business Process Evaluations, with End Customer Always in Mind
Every business has processes. For a manufacturer, it could be the methods by which raw materials are developed into end products. For a brick mason, it might be the way a particular construction project is estimated and bid. For service industry personnel, it may include the method by which a new customer is brought into the business. Point being, every business has processes through which the team creates a product or delivers a service.
In a rapidly changing landscape, it’s critical that all processes are evaluated constantly, with a keen eye on the end user, the customer. So many businesses get lost in the weeds of process development. They over-complicate everything, which costs time and money, causes frustration to the workforce and worst of all, doesn’t contemplate the value to the customer.
Conversely, owners can lack in process development, and miss critical steps that are important to the customer or business. For example, a commercial contractor may do work for a project owner before getting a properly agreed-upon and signed work contract or change order in place. The end result is often not what the owner wanted and was willing to pay for. A manufacturer can miss a production step that severely hampers final product quality. The long term result can be business failure.
Ancillary processes are a waste of time because they have no end-user benefit. It is critical to never eliminate steps that can detract from product or service quality and ultimately hold you back. You can’t accomplish this result in a rapidly changing technological and labor environment, without a timely and consistent evaluation of the overall business processes.
By taking time to re-evaluate, you’ll find process steps that lead to zero customer benefit, and counter intuitively, you’ll find missing steps the customer would appreciate.
Be Cognizant of Revenue Concentrations
Today’s businesses come and go. Diversity of customer and supplier is important, to provide shelter from an unexpected closing or sale of a business, or potential market lapse (or a pandemic!). I’ve seen insurance brokers fail because they only sold policies from one company which eventually lost its rating. Perhaps thousands of construction companies have failed because they specialized only in certain box retail chains, which eventually went the way of online shopping.
Successful and lasting businesses are generally diversified in their customer base, and not dependent on the success of one or two customers or suppliers or other factors outside of their control. Not only does a broader customer base mitigate business risk, the company’s enterprise value will always be greater without that risk.
Begin the New Year by finding ways to diversify, starting with your customer base. In most cases, you want to avoid one customer accounting for more than 15% of your revenue. Generally speaking, when one customer exceeds this threshold, accounting standards will require the information to be disclosed in financial statements sent to banks and other financial resource providers. Due to the underlying business risk, this further complicates your problem. Incentivize sales teams to broaden your customer base or geographic territory.
In the worst case, if you still can’t remove the large customer concentration, attempt to negotiate long-term contracts in a manner that make it difficult for the customer to change vendors.
Take Financial Management Seriously
As a practicing CPA, this is the area I’m most privy to on a day-to-day basis. The most successful companies I’ve dealt with, and had involvement with through other accountants and firms, have a mental grasp on where they stand financially at all times. By this, I mean they have knowledge for how much their product or service is costing them, which allows more accurate pricing. They know where their business is positioned at any given point in time, in order to make broader decisions. They have relevant and timely information for lenders, which is often critical for working capital purposes, and also know how their key performance indicators (KPIs) relate to other similar businesses.
However, I consistently see inefficiencies in financial management that lead to performance mysteries. Owners and third-party users such as banks are not being informed as to how the business is doing, sometimes until it’s too late. So often, companies operate through the year feeling great about financial status simply because they have cash in the bank, only to be surprised at audit time with unexpected liabilities. Manufacturers and retailers often tie up unnecessary working capital by stocking too much inventory, because they don’t have timely data to watch inventory turnover ratios.
Additional financial failures within a company include excess cash balances being mismanaged, debts not paid down, and income taxes not considered through the year, resulting in unexpected financial expense at tax time. With better financial management, the bad news can sometimes be eliminated.
Make it a resolution to stabilize the business’s financial status. You owe it to your entire team.
Always Take the Necessary Time to Work ON Your Business, Instead of IN it
As owners and managers of businesses, we all get lost in the weeds much of the time. The day-to-day process of meeting a customer or client demand sucks 110% of our time. We get complacent. We don’t delegate tasks that should be moved. While seemingly in control, we’ll never achieve our greatest potential if we don’t take time to step away and the business and customer experience as a whole.
A desire to micromanage can be a downfall for business owners. It happens in every business. They perform processes or tasks because they feel they can perform more efficiently than anyone else. The opportunity cost of time lost isn’t considered. Minutes spent doing routine tasks, are minutes not spent building the business.
Work at your highest and best use, delegate that which can be delegated your team, and work on your business effectively.
When Failure Happens, Learn from It
If business owners have learned anything from this past year, it's that running a business takes a certain amount of risk tolerance and resilience. You have to be decisive at times and make important decisions that could jeopardize particular relationships or cause short-term losses if not handled properly. As an owner, you have to ask yourself, “Am I willing to live with the consequences of my action?” Sometimes, things simply won’t go as planned, and you will find yourself forced to live with unexpected and undesirable results.
When evaluating a decision gone wrong, there is always an important takeaway. Learn from it. Be willing to let it go. Don’t let it stop you from making other critical decisions, because another will be necessary in time. Take what you learned, and apply it the next opportunity. Each failure comes with an important lesson that can be applied in the future.
Always Maintain Your Integrity
For business owners, many times will occur in which critical decisions need to be made that test integrity.
Whether an obstacle or opportunity, always take the course of maintaining integrity at the highest possible level. Do the right thing because it’s the right thing to do. Your business and more importantly, your final legacy, will always be stronger because of it. The most successful businesses I’ve worked with learned this lesson long ago.
Do What You Say You’re Going to Do
Commit to this in 2021! Being reliable and trustworthy could be the greatest common denominator of all in running a successful business. This mantra applies to business owners dealing with customers, suppliers and most of all, their team. If you promise a key team member an opportunity, stand behind it. If you promise your customer you’ll meet a time-sensitive deadline, then do what it takes to meet it. Always maintain this simple philosophy for your business.
Giving Back to Good Causes Reaps Great Reward In Return
As I’ve advanced through my own career and developed close relationships with a variety of business owners, I’ve observed that giving back is a common trait in most all of them.
Most successful businesses have a mindset of giving back their time and treasure to worthy causes that are meaningful to them. The correlation of business success and giving back is no coincidence. Simply supporting great causes never goes out of style, and it generally comes back to great businesses in terms of overall business reputation, team satisfaction and morale.