Control and the Single Person (Business)

Introduction

5 Key Principles of Small Business Management

Getting a new small business started on your own can be a daunting task. It never ceases to amaze me how many government agencies seem so determined to spend so much time and effort encouraging people to start out on their own when it is clear that it is a choice that people need to make for themselves. That is, the risks and difficulties can be so great that you really do need to be wired up in a particular way to both survive and prosper and only you can really know if you have what it takes.

Having said that, surviving out on the open sea in that small lifeboat of your own making can throw some challenges at the small business person that even the most prepared and single minded individual can find almost (or even entirely) overwhelming.

You may be reading this in preparation to launching your own small business. If so, then do not be put off by the comments above: if have the right frame of mind and are prepared then, given a fair wind, all will be well. If you are already out there on the open sea and running and managing your own small business, this may be an opportunity to reflect on how things are going.

It may seem excessively simplistic to do so, but the principles of getting control over the day to day management of the business can be distilled into 5 simple principles which are in order:

1. Get Serious

2. Balance the Load

3. Tool Up for the Job

4. Focus your Activities

5. Outsource (what you can)

The following sections examine these principles in more depth.

1 – Get Serious

One of the interesting sentiments often expressed by people starting out on their own, after working for someone else for any extended period of time, is the unreality of the situation. There is an immediate sense of liberation in moving from being just a number to being number 1. You are now in complete control. However, at the same time, all responsibility now rests with you and only you.

If you decide to throw a sicky now it can destroy everything as you are now at once both the sales force and the means of production: if you are not there, then literally nothing at all happens, which means 'money' doesn't happen.

Often it is the case that, in order to make the leap, you may have lined up some work already to get you started. Often as not this is with a contact you have made as part of your normal work, an old customer of your former employer or even an existing customer. It is not the purpose of this article to make any moral judgements on this, it is simply fact, a common state of affairs.

Getting started in this way launches the venture with a fair wind behind it. For some lucky individuals this wind continues to blow, but for a majority the contract will end and will need to be replaced. It is at this point you will then discover whether you have a real business or simply an income stream. A real business will not only have other contracts lined up, but will also have established a mechanism for generating or gathering new opportunities and converting them into contracts.

The points and principles below provide some guidance on how you might go about this, but the start point is your frame of mind and your attitude to towards the business overall. In other words stepping away from the idea that this is an income stream to thinking of it as a business. The business is separate to you; if it is a limited company then it even is a separate legal entity. Regard it as such even if you are a sole trader.

Early contracts may come from friends and family, later contracts will come from hard headed strangers who wish to deal with a professional business that looks the part and presents itself to the world as though it means business.

This means: professional looking (i.e. professionally designed) literature and web materials; dedicated business lines (if working from home); answering the phone as if you are part of the business, good solutions for managing enquiries (e.g. phone redirects, professional phone answering services etc.); good quality stationary; professional (and professional looking if open to public view) equipment to carry out the job; the right tools for management and control of the business such as ProQuin Fundamentals software; and a business working routine that is focussed on tomorrow as much as today.

Balance the Load

With a serious frame of mind you will quickly appreciate the almost impossible dilemma of balancing your time between service delivery (i.e. fee earning time), administration (i.e. fee burning time) and sales.

On the one hand you must deliver. If you are working on a contract it is vital to get it finished as soon as possible, not just to satisfy the customer's requirements, but also to shorten the time required to turn this work in to cash: to get the cash coming in and ease the cash flow.

On the other hand you need to pay attention to administration not just for legal reasons (e.g. VAT, Companies House etc.), but also to ensure you are in control of what is required by whom and when and ensuring that invoices go out on time and are followed up and paid. Yes this does burn fees (or rather fee earning time), but it also makes sure that fees come in and the business does not degenerate into chaos: it has to be there.

Yet on the other hand (that is three hands by now) sales are still required. You may have a business model that drops new contracts on your lap. If so, well done and lucky you. For everyone else you have to do stuff to generate sales. I use the word stuff deliberately here, because generating sales is a whole separate subject. Inevitably the stuff you have to do will involve taking your time and probably a chunk of your valuable fees. How much stuff and how big a chunk is very much down to you, your business, your market and the prevailing economic environment. There is a book to write here and many people have written one – reading them will take yet more time, but you will have to spend this time if the business is to grow.

Balancing your time between these different demands which often conflict directly with each other is by no means easy. The trick is to allocate specific time to each. This may mean carving the week up in a way that gets the most out of you and uses the natural weekly cycle to its best advantage for each type of work. Here are some examples covering a typical working week (50 to 60 hours) which makes best use of available time.

Monday:
am - will be best for delivery as sales will not be easy at the start of the week
pm – some sales may be possible, but may be best to have a whole day on delivery

Tuesday:
am – keep early part for delivery, sales will be easier around the central part of the day
pm – sales or delivery will be an option (sales always easier on a morning)

Wednesday:
am – keep early part for delivery, sales will be easier around the central part of the day
pm – sales or delivery will be an option (sales always easier on a morning)

Thursday:
am – keep early part for delivery, sales will be easier around the central part of the day
pm – keep to delivery only as this is a part of the week when people are getting tired

Friday:
am – keep morning for delivery & some administration (e.g. credit chasing)
pm – use for administration as customers may be difficult to reach for delivery or sales and this is a good time to prepare for next week.

You will notice that the weekends are ignored and there is certainly no specification for hours as that is entirely a personal thing. The weekends should ideally be regarded as overflow time. If you get into the habit of working weekends, not only will you get tired, but you will have nothing to fall back on for busy periods. By all means put the hours in during the week, but make sure there is some fall back and recovery time available most weeks.

Tool Up for the Job

This will seem to be self evident, but is often neglected in some pretty critical ways - usually for cost saving reasons.

The question to ask yourself is: “is not spending this money, actually costing me money?”.

A classic example is the computer and the excuse of “I have a computer already so I don't need to buy one”. The mistake often made is one of using an older machine loaded with family photographs, instant messaging software, poorly protected and loaded with viruses. And, of course, the rest of the family still want use it when you are not.

This situation will just eat fee earning time and is an accident waiting to happen - especially if your business based backups are not 100% and the hard drive fails.

Better to start with a brand new dedicated machine with up-to-date software, up-to-date anti-virus and firewall software and a solid backup solution (can be just a portable external drive) that you use consistently. Additionally this machine should be used for nothing other than business purposes. It might be spangly and new, but no-one else should get to use it unless it is for business purposes.

Additionally, install a powerful piece of administration and management software such as ProQuin Fundamentals to provide leverage to your productivity and put administrative and management infrastructure into the business.

This is of course part of the getting serious mind set and if you are working at home – put the machine in a separate room with a separate phone, desk, fax, filing cabinet etc.

Of course there is more to delivering a service than computers, but the principle of not working around your equipment is the key. If you are spending time waiting for the equipment to do something, or double keying records you should evaluate exactly what this lost time is costing you. This time is called opportunity cost and it can be simply calculated as follows:

(Hourly Charge Rate) X (No. hours waiting / working around)

If you do this calculation for one week's worth of waiting or working round time, you may well realise that not spending one or two hundred pounds could be costing you thousands.

Focus your Activities

As mentioned above it can be nice to realise that you are at last number 1, the top dog, the Managing Director, the Principal, the Senior Partner, the Chief Consultant – whatever title in fact that you do wish to confer upon yourself and have printed on that quality feel business card (see Get Serious above).

However, if you do have a great new business card what could be better than giving it out? It is easy to get distracted by this and for the best reasons. Here is a good example of what I mean.

I mentioned above the need to fit in sales activities into the working week and one of these could be a networking event. You will quickly learn (I hope) that there are networking events and there are networking events. One thing that may take a while to cotton on to is that there are many business support organisations (throughout the UK here) that receive funding specifically to establish networking events. Equally there are many private businesses that derive their principle source of income from organising networking events. In other words the networking events being organised are ends in themselves: the networking event simply needs to be set up and have people attend for the objectives of the organisers to be satisfied.

This may or may not be a help to you. Some events are very well organised and the organisers highly focussed on ensuring attendees are doing business with each other during or after the event, but many are cynically put together and a successful outcome from attendance can be a lottery. Remember this: it is much more likely that you will be attending a networking event to look for contracts (i.e. sell) than attending to look for things to buy. Strangely enough therefore you will often find yourself in conversations where the other person is much more focussed on telling you about their service, or product rather than listening to you about yours.

Even worse can be events that promote co-operative ventures. This may sound great: an opportunity for leverage on the single person business, obtaining referrals from the other party or commission for referrals you may provide. Before long you are meeting to thrash out details draw up contracts and move forward – all of which takes time.

The most cruel thing about this is that it can all seem like productive sales activity, a positive step in that third area of activity which is focussed on the future of the business and income for tomorrow. Well it can be, but it often isn't.

Like the issue with tooling up correctly you always need to calculate the opportunity cost of networking, meetings and follow up activities with people who are not buyers, or who may be buyers, but do not have a budget and/or a purchasing time-scale.

Focussing your activities in this regard means focussing on the money and asking the questions 'where is the money?' and 'when will the money happen?'. Whether this be networking, sales presentations, joint ventures, training courses, information seminars, expert consultations or whatever, if you cannot see a direct link to short to medium term earnings it is likely that, as a small business person, you should not be doing it.

Outsource (what you can)

The last, but not least, option in terms of getting control over your small business is to outsource whenever possible. This means in all areas, i.e.: delivery, administration and sales. The reason why you need to consider this is that outsourcing can extend both your personal time and the reach of the business overall. It will give you the time to work on the business instead just working in the business.

It is counter intuitive to say so, but outsourcing delivery can make a great deal of sense - especially when the business is getting on its feet. Okay, the business may be founded on your skills and interests, but if you can find individuals who will price work at 75% or below of your normal selling price, then outsourcing can make sense, leaving you free to concentrate on a greater percentage of sales work in your weekly schedule while still effectively earning. This will allow you to develop a sales pipe line, you can then decide how much work you will do and how much you will farm out. In fact after a while you may be able to bring it all in house again.

This approach can also be used to extend your technical capabilities by employing subcontractors who have skills you do not, but a word of warning on this: ensure that the quality of the subcontractor(s) is clearly demonstrated or under your control in some way. This should be both in terms of the end product and time-scale. For example a penalty for late delivery is a good term in the contract, or an ability to hold (say) 5% of the contract fee back for 6 months after completion to ensure there are no warranty claw backs that you will be liable for.

Administration outsourcing is more widely accepted with outsourcing for things like accountancy more being readily and widely taken on board. Take this as far as you can, but be warned poor quality accountancy services can be very costly to you, so have a selection process and interview the accountants you will use – don't let them interview you. Keep the accountant on a close rein and be ready to switch if you do not get the service you think you should have. One thing to look for is a pro-active approach from the accountant. That is, not just responding to the records you send for book keeping purposes, but advising you on tax efficient strategies for the business and tips on cash flow management, debt control etc. Remember: they will market themselves as professionals, but at the end of the day they are providing subcontracted services to you - the customer.

Sales is by far the hardest things to outsource. There are plenty companies and individuals out there claiming to do this, but it is always a huge risk, especially if you have any intellectual property to protect. Ideally, you may be able to contract in an agent who will work on a commission only basis, but you will need to be prepared to give away a large percentage of the contract – at least 15%. Remember you have to make it worth their while to get out of bed and go and make some money for you, so consider a sliding scale that ups the commission if the sales volume goes up.

Typically a sales agent will work with between 2 and 4 principals which they sell depending upon the opportunity. Both you and they should be ensuring that your service fits in with their portfolio so that ideally they can walk into any business and sell all of their offerings without veering too far off the core subject, or reason for the sales visit.

You may have to adjust your offering to make this work as short term, low cost packages work better with sales agents. That is they like to close the sale on a single visit then move on. They are not big on customer service, that will be your responsibility and you will have to make sure your are geared up to meet demand. Interestingly enough employing sales agents is in some ways the opposite of employing accountants. You will start by thinking you are doing the interviewing only to find yourself being interviewed. You will need to let this happen (it really needs to be a two way discussion) and will be asked some challenging questions. If you cannot answer them correctly, you need to look at your offering again to make sure you have an agent friendly package that works for everyone. Good luck on this one - it is not easy.

Conclusion

Although by no means the full story, the above 5 principles of small business administration, management and control provide a solid basis to get started and make your business grow.

by: Editor

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