In Australia small businesses make huge contributions to the national economy through both spending and employment.
But there are drawbacks.
Transforming a company from a small business into a large enterprise requires a certain level of comfort with the idea of change and it can be difficult to keep emotion out of decisions.
According to David Henderson the CEO of ROCG Asia Pacific, the local branch of a global accounting and business advisory firm, and founder of CashMAXforecaster.com, a website that distils big-business modelling into a real-time analysis dashboard, SMEs are hindering their growth in three major ways: emotional decision making, lack of attention to detail and business as-a-hobby mentality.
Having worked with SME’s over the last 20 years, Henderson has come across these problem areas regularly and consistently, and says they can be easily fixed with focus and goal setting.
Here are the three major areas that businesses fail in, and how to make sure your SME doesn’t make the same mistakes.
1. Lack of attention:
“Because business owners are busy round the clock, and often wear many hats, they get caught up in the day to day operational things. The strategy that matters most to the future of their business do not get attended too until it is too late in the process.”
SMEs must effectively manage “the minutiae of working out the hours and variables required to meet success criteria, such as calculating the benefit of what adding five trading-hours each week could mean to the business.”
In order to avoid this Henderson says focus is the key.
SME owners “need to ask some hard questions of themselves. What do I want to achieve, why do I want to achieve it; what do I have to do to achieve it?”
Objectives need to be kept at the forefront of mind and broken down into a simple step-by-step plan. He suggests business owners should find themselves a mentor to be the sounding board for this business model.
“Someone outside the business who keeps you accountable and says, ‘what have you done to move towards that goal and what has stopped you from doing so’ and then importantly – ‘what do we need to change to keep moving in the right direction?’” Dedicating time for this to happen can be critical to a business’ success.
2. Emotional decision making:
“Emotional pricing often sees owners base their price and service structures on gut-feel without considering where they sit in the marketplace,” Henderson says. “Because of this close attachment their business decisions are intertwined with their public standing and the perceptions of peers and family.”
He refers to the classic example when business owners keep a non-performing team member on longer than they should, because they want to give them another chance. “Similarly with product line on non-revenue making services and activities, they’ll hang on longer because in their eyes changing or closing a product line is in akin to failure.”
Henderson suggests reviewing where your business is at and what needs to be updated.
“Constantly think about the business and what is changing in your market. Set time aside for considering everything about the business.” And if someone is holding you back, cut them loose.
3. Business as a hobby:
Henderson says SME owners can often spread themselves over the business too thinly.
“They look at it like a hobby – without financials and cashflow as a primary goal. There is a bit of a ‘let’s play with it’ mentality.” He says time can be taken up with non-revenue focussed activities, prioritising parts of the business that they enjoy without achieving any real value.
Instead, stand back and see the business as an entity that must perform for profit. Don’t rope in friends and family, ensure recruiting and training is good and compliance is spot on.
“These things often just evolve of their own accord as there isn’t a driver or a ‘boss’ to be accountable to. Issues go unnoticed often until there is a crisis or the owners realises business isn’t growing or moving forward.”
Henderson says at the end of the day SME owners must not be a perfectionists. Make sure your goals are realistic. He says “if you set an unrealistic goal you are setting yourself up for failure.”
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