This got me thinking. When can we say a small business is healthy? Is it simply a matter of profits, or are there other things involved. So I did some research, and below is a synopsis of what the experts say makes a small business a healthy business. You may be surprised at some of the items.
(1) The business has a clear direction, mission, or set of goals and is clearly defined and focused.
Focused businesses have people all working toward the same thing, and not running around in circles trying to accomplish 50 things at once. They are not trying to be all things to all people, but they are trying to be the BEST at some THING that they do very well. Focus also involves employees, making sure they know what is expected of them in their jobs, and asking them to meet the requirements of performance for each of their positions.
(2) The goals are monitored/measured as to what is achieved on a monthly, semiannual and yearly basis.
Goals are meant to be measured. You don't just set them and say "that's nice." You set them and check back on them regularly to see how far you've come in meeting them. That's why every goal should have the following elements: (a) state the objective; (b) state the expected result; (c) quantify the goal for measuring purposes; (d) set a deadline/date for completion.
An example of a poorly worded goal might be: "Improve customer contact to be more effective."
There is no mention of how to improve it, by when, or how improvement will be measured. AND, who defines "effective?" What exactly will be considered effective? A better way to word that goal would be: "Monitor customer interactions by surveying 10% of the customer base each year." This goal implies a survey will be designed as a measuring tool, one which would ask questions that help us define what is and isn't effective. The goal also tells us exactly how many surveys we will do in the course of a year (12 month period). Ultimately, many better measurements could come from this goal.
(3) Business owners set aside time to plan for the business' success.
I've met plenty of business owners who tell me they don't have the time to do alot of things. They don't have the time to take classes and continue their education. They don't have the time to attend business functions, community activities, or networking opportunities. They don't have the time to plan, they are too busy running their businesses!
I do understand that running a business is, well, BUSY....but, if you don't make the time to plan for your future, to set those goals, to set the direction, you will eventually find that you are not as competitive in the marketplace as you should be. Planning is key to the success of a business.
(4) Owners examine their environment, including their competitors, regularly.
This can almost be tied to number (3). Time needs to be given to watching what is happening in the marketplace around the business, to examine what competitors are doing, and to figure out what responses YOUR business will make (if any) to the findings. If you know, for instance, that a competitor is missing the mark with a certain type of customer, you may be able to fill that gap and supply that customer with what he or she needs. But you won't know that unless you make some time to look the situation over. Healthy, successful businesses do not live in their own little shell. They are constantly interacting with their environments and surroundings, pulling pieces of information from their interactions which may be used to better their businesses.
(5) A healthy business has the resources available to do what it has planned. (And if it doesn't, it finds them and puts them in place.)
The term "resources" applies to many things: people, capital, facilities, equipment, etc. A business should not plan itself OUT of business. That is, if the goal requires more people with certain types of capabilities be employed in the business to see the goal through, then the business needs to have the capital in place to hire those individuals and find those capabilities. If it doesn't, it may have to scale back or attempt the goal in phases. It's okay to set some challenging goals for the future, but don't rush into them until you have the resources in place to assist you in achieving them.
(6) The owner understands how to construct a Cash Flow Statement.
If there's one thing I know for sure, it's that a Cash Flow Statement is the truest picture a business can have of the flow of money in and out of the business. If a business owner could only pick one statement to concentrate on in terms of helping them to understand trends in their business, and how those trends affect their available cash, this is it! If you are thinking right now that you have no idea what a Cash Flow is, go back up to (3) above and set aside some time to take a seminar in understanding Cash Flow. (You may also sit down with an SBDC counselor and have them explain it to you.)
(7) A healthy business pays its people and its vendors regularly.
This probably doesn't need much of an explanation. If you are good at (6) above, you have a head start. Healthy businesses maintain their expenses. It's as simple as that.
(8) A healthy business is a fun place to be.
There really wouldn't be anything healthy about going to your business on a daily basis and hating it. You have to like what you do. You also need to work at making your business environment a great place for your customers, suppliers, employees and others to be.
These are just a few of the characteristics I've found that are related to healthy businesses. Can you find more? If you do, post a comment and tell us where you found the items, or give us your opinion on what you think makes your business healthy!
Source: http://scrantonsbdc.blogspot.com/2009/01/is-your-small-business-healthy.html
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