The 3 problems of small businesses

In a recent discussion with a small business banker, he identified three problems faced by most small businesses. They were:

• Cash flow
• Planning
• Staffing

In my Blog entry last week, I mentioned the problems from Quote to Cash, where many small businesses don't generate invoices on a timely basis.  If your only costs are time, and you have enough money coming in, then late invoicing may not be a big problem, and will not have a big impact on cash.  But if you have materials to buy, cash flow becomes a big problem.  You can at least reduce that problem, by issuing invoices on a timely basis.
Next week, I will describe a common problem that I have encountered with some small businesses who see having time to generate invoices as a problem.
Planning is the second area identified by the banker.  Often planning is what people do when they are not busy reacting to the challenges of reacting to day to day business issues.  Planning should outline what you want to achieve, so that you can focus your time on the important issues.  If you don't plan, you tend to react to business issues as they come up.  You focus on what's urgent versus what's important.  The key is to identify what is important to you, and spend your time on activities that help you get there.  That is what planning is all about.
Staffing is the third area mentioned.  As small business owners, we have a challenge finding staff, who have the skills necessary to do the job.  We can't afford the very skilled, because they are too expensive.  We hesitate to use specialists, because they are too expensive.  So we hire junior people and tell them what we want.  We then have to tell them over and over and they don't seem to get it.  What's wrong with this picture?  When we get into business, we start with a specialty and learn that we have to do many other things.  Most of these things are difficult to delegate to junior staff and we end up doing it ourselves.   Who is the busiest person in the office?  The owner.

All three of these problems are process issues.  I will provide some insight into solutions in my next few posts.

For anyone who reads this, if you have other problems as a small business owner, please let me know.

From Quote to Cash

Many small businesses suffer from the quote to cash cycle.  With many small business owners that I talk to, who work IN the business, delivering products and services, there is always a challenge to balance workload.

You work hard to get a sale, then work hard to deliver.  In many cases, these jobs are back to back, with a need to start working on the second, the minute the first is completed.

With a build to suit approach, which is where many small businesses start, a lot of time and effort is spent doing a quote or estimate.  Once the sale is made, all focus goes into delivery.  When the job is finished, you start to work on the next one.  Many times, you are too busy to create the invoice.

Most people might say "generating the invoice is the most important part!".  I always felt that, and was surprised at how many businesses don't do it immediately.  I found, surprisingly that many people are focused on delivering the next job.  They react to business critical items, such as paying their suppliers and their staff (or they can't do new jobs), but are very slow to pay themselves.  They often defer creating the invoice until they "have time".

In analyzing the situation with clients, I found the challenge.  Most of these owners hate paperwork and love doing the work.  They don't work at simplifying the paperwork, because it doesn't come easy to them.  They often create complex processes and tools that makes the job hard to do.  Yet they have done all of the real work, they just haven't made it easy to use.

A common example that I have seen is the generation of quotes or estimates in Excel or Word, the generation of the order form in a different product, purchase orders created manually, then invoicing again using a different tool.  Each of these often requires entry of customer information, product information, prices, etc.  Since there is no link between them, the data is entered multiple times.  In many cases, the same information in the quote is again used in the invoice.  Then the data is entered in the accounting program.  To save time, only the basic accounting entries are entered.

The result is that the business is able to do financial statements at the end of the year (often late), but has no understanding of the profitability of products or customers.

A simplified business process would capture the information once at the beginning, provide the ability to generate order confirmation, purchase orders and invoices simply, as well as save time, give you better information about your business, and get invoices to your customers faster.

Sounds like a winning proposition to me.  Why doesn't everybody do it?

An evolving business

I started my career in Information Technology and went from programming software, to planning data centres and networks.  In managing data centres, I learned that effective operational processes were critical to delivering consistent quality services.
As a consultant for 13 years, I started by improving IT processes in large data centres as The IT Process Doctor, to working with smaller businesses who were not getting value from their IT investments, as The Virtual CIO.
In my previous Blog entries, I blogged about IT.
Recently, I found my true passion, helping small businesses to operate more successfully, by eliminating the complexity in their business, so that they can improve productivity and eliminate many of the frustrations that they encounter in the activities that we all must do to success in business.
The approach to simplifying a business is rooted in simplifying operations through the development of consistent processes that continue to deliver day after day.
Every person who becomes adept at any skill operates on a subconscious basis.  The more you have to think about an activity, the slower you are.  The more you operate at a subconscious level, the more productive you are.  If we simplify activities, people can move more quickly to a subconscious level.
That's why change causes so much disruption.  When you change a set of activities, you have to think about what you are doing, and you slow down.  This can be extremely frustrating when you have to be really productive.
Over the next few weeks, I will be blogging about approaches and ideas to help small businesses improve their performance.