Small business is not as small as you think. Did you know that there are 32.5 million small businesses in the United States and that they generate approximately 45% of the US economy? A small business is defined as a company with less than 500 employees. 80% of these small businesses have NO employees! The other 20% account for 40% of all private-sector jobs, and 60% of all job growth this year. And it’s worth remembering that all large corporations started out as small businesses. There’s no question that small businesses are essential and significant.
Sadly, 20% of small businesses fail in the first year, and over 50% fail within the first five years. Those are sobering statistics given how important small businesses are. Why are these businesses failing?
The Top Five Reasons for Small Business Failure
- Poor cash flow management
- Losing control of the finances
- Bad planning and a lack of strategy
- Weak leadership
- Overdependence on a few big customers.
As a virtual CFO helping companies become more profitable, I see the above happening on a regular basis. For most of those challenges, there is a common solution.
I believe a disciplined approach is key. For example, when it comes to accounting, I help my clients use a simple framework that incorporates a weekly scorecard to project financial results and cash flow with a look toward monthly goals. For this to work, having accurate, up-to-date numbers are essential. This allows for wise decision-making.
Another benefit of a disciplined approach is the documentation of processes. I find this is best done with a 2-person approach. One does the actual procedure while the other documents what is being done. The final documentation doesn’t have to become a cumbersome ‘operations manual’. Written checklists are great. You can screen-record the actions or have an employee make a demonstration video and save the links in a company-wide folder or intranet for easy access. Such documentation resources can help you in training your employees to be on the same page with how processes are to be done.
Consistency and efficiency in processes are vital. One of my client experiences was helping unite the staff who were differing over how they approached systemic processes. One department was, “We do it this way”, and another was “Well, we do it that way”, etc. I helped them get to, “No, this is how WE do it as a company.”
Consistency and efficiency can also help the company succeed without the owner having to be involved in day-to-day operations, allowing them to focus on their business’s longer-term vision. The secret lies in systems that make sure transactions are handled consistently no matter WHO is doing the work. As an added bonus – strong documented processes significantly increase overall business valuation!
How is it in YOUR company? Do you have good systems in place? Are they documented? If not, I can help. Contact me!
One of the best things a business leader can do is become less relevant to the daily company processes. For more, read Become Less Relevant to Your Company.