Australian small businesses are made up of a huge amount of people that bravely take on their chosen market as well as huge personal risk and employ the majority of the adult population. But they are not helping themselves. Most of these brave individuals are missing the basic governance controls, systems and processes that help push their business into hyper drive, and protect it from failure.
The time to take a step back and see the cracks in your business starts now.
The lead indictors for an underperforming business should be pretty obvious and most business writers will have summarised them for you well before this article:
- Stagnant sales and declining sales growth rate
- Difficulty in maintaining profitability and profit margin performance decreasing
- Trading with insufficient cash flow
- Struggling with payroll and laying off people
- Too much multitasking
- Late or altered GST, PAYG and super payments
- Exceeding credit terms and overdrafts
Break your concerns down into things that you can control. The best way to do this is to identify the categories that you can personally influence. Focus on the categories that have optimal probability of being able to move the dial:
Microeconomic factors – Ask the hard questions!
- How long have you been running the business?
- Is market share improving?
- Do you know what your KPIs are each month?
- What are the trends in your business results?
- What are your relationships like with your customers and suppliers? Do you rely on a few or many?
- What is your bank’s level of service and commitment to your business?
- What about your financial structure – is it robust and supportive? How long do you have support for? Are you maximising your working capital performance? How do you monitor its performance?
- How insulated are you to economic shocks?
- How do you protect yourself from the shocks? Have you thought about it? Are you doing anything about it?
Governance covers a myriad of issues. Good governance can just mean a lean and efficient team. Bad governance is the death knell. The systems and controls are simple and identifiable, measurable and not costly. However, what governance means to the small business world is different to the larger, multinational corporations. For you, it is how do you deal with your stakeholders? How do they deal with you? What is your management team like? Are they committed?
As Martina Navratilova said, “The difference between involvement and commitment is like ham and eggs. The chicken is involved; the pig is committed.” Is this the same for your business?
Most businesses are either too focussed and not seeing the woods for the trees or are just so heavily invested in multiple initiatives and tasks that each is hopelessly diluted. Your goals need to be simple, clear and measurable.
This is the be all and end all – are you getting a satisfactory return for the risk that you take on? Are your stakeholders equitably sharing the risk based on the return they take? What are the game changing risks and are you insulated? Is risk management set in a command and control type culture? These are the hard questions to ask as small business owners.
Moving The Dial
Most business have so many little issues that are not being managed that they are unable to control them all – some get out of hand and result in business failure. The optimal way to deal with this problem is to list out all the things that are not optimal and put a plan in place to fix each one systematically and methodically.
Sometimes you can do this yourself and other times you may be better to ask for help because the time taken to fix the little things will distract you from the main game of building your business.
About the author
Arthur Psaltis is the Managing Director of VMG Capital. The company works with clients as a specialist advisor, providing them with advice on a range of business dealings including business viability reviews, capital raising and structuring, business performance optimisation, succession planning, mergers and acquisitions across all business types.