Common Small Business Problems Hinder Success

Swot analysis

One of the advantages of consulting is that you get to see others’ mistakes. And learn from them. I have made more than my fair share of mistakes. Yet, I still am surprised by how often the basics underlying how you run your operations are the most common small business problems.

Good administrative processes will support and enhance your ability to grow and succeed. Set them up early and properly to be effective. Boring work, probably. Critical, yes!

Financial literacy is quite low in the US.

Whether you are a financial whiz or barely understand cash flow, you need effective financial processes in your business. You need a system that is right for your size and work. But you also need to understand and use it. Get basic training. Or hire someone to help you set up your own chart of accounts and understand what your system can do for your business. Then add help to maintain it as needed.

Your ability to manage your cash flow is critical to your success. And your tax returns are far easier with a good system. So is your planning!

Yet… recently it was a long-time business owner whose bank account was overdrawn before he realized he had not seen his outside book-keeper in months and his employee was not entering everything correctly. Last fall it was a CEO who had not made payroll on time – again; but thought employees should understand good intentions!

And don’t even ask me what happens to firms which do not pay employee tax withholding on time – think locked doors, seized bank accounts, personal assets at risk.

How are you hiring and paying for services your business needs?

Do you have employees? Independent contractors? Contractors or consultants? Interns?

Tax and labor laws contain a lot of traps for those who do not learn about the rules. Pay attention to what you are doing when you bring in the help you need. Often solopreneurs and small organizations hire extra help or expertise on an “as needed” basis. But you do need to be clear about the “how” and “which” among your options.

If you hire via a company which provides such services, it is usually a nice clean transaction – business to business.

But if you hire someone directly, you need to be sure to keep it legal.  And that is true even if you only hire the person for a few days or hours.

Check out this IRS guidance on hiring independent contractors. Be sure the help you hire, no matter what they call themselves, is working with you to ensure both of you are in the clear legally on your payments to them. Get a W-9 form. Keep good documentation.

Do you have employees? The federal and state governments are cracking down on proper classification and payment of employees. They are looking at whether the organization is trying to call them independent contractors instead of employees to avoid paying taxes and mandated benefits. They are checking out wages and hours and whether the organization is trying to treat employees as exempt from overtime laws when the work done is actually not exempt.

And when you have employees, you need records of their employment status and how it starts and ends. People claim unemployment often when they really are not eligible. But if you do not have a record of hiring and termination, whether the person resigned or was in a short-term contract or internship, you may be charged and your unemployment insurance (UI) rates may rise.

Want to hire an intern? Lots of small organizations think of interns as free help. Not so! Generally you have to pay interns, unless you are working with an educational institution where the internship is a part of a class or program. Note: non-profits can hire unpaid interns more easily. See this DOL guidance. I see organizations all the time that want an unpaid intern to work for them but violate these rules – and get into trouble. Back pay, taxes, and fines are common.

Violations of these laws are quite expensive. You will need a good lawyer, probably an HR consultant, and be subject to financial penalties.

And don’t get me started on business planning!

We all know we should – but do you actually have a plan? Does it include realistic information on your revenues and expenses? SWOT analysis? (Do you even know what SWOT means?) Do you have an assessment of your market and potential targets? Do you have goals for the short and medium term? And, if you have been in business awhile, when did you last update or re-do it?

I have seen a lot of small organizations get into trouble because they overdid hiring or outside assistance when a simple business plan would have helped them think more clearly.

Help is available from the Alexandria SBDC. Good online resources exist at the SBA. Special programs also exist for veterans, minorities, and women – so seek out all the support you need.

 

These ‘administrative basics’ are not what many of us want to do, we are too busy finding revenue. But they are worth your time and effort to learn and do correctly — so you can SUCCEED!

Patricia A. Frame is an experienced management consultant, HR executive, speaker, and author on human capital issues. She is known for her ability to address organizational goals and issues effectively and to create human resource management practices which support these goals without excessive administrivia. Patricia has advised executives and boards on a wide range of human capital and strategic planning issues. She has expertise in organization development, talent management, process restructuring, compensation, and training. She has worked with technology-based companies, government contractors, non-profits, associations, and retail operations. She advises small to mid-size organizations on ways to succeed and to help their employees thrive. Ms. Frame has given seminars for SBDC in recent years on the basic processes of HR management. Additionally, she generously provides one-to-one HR counseling once a month through Alexandria SBDC.

Do I Really Need a Business Plan?

Alexandria SBDC Business Planning GuideMany people ask themselves that very question before starting a business or expanding an existing one and the quick answer is yes. Many entrepreneurs state that they have most of the information in their heads or on notes in outline form – why take the time to write it down in a format? It is well-accepted that if you take the time (a true commitment) to put your ideas in a clearly written form, the chances that your plan will be successful is multiplied many times over.

If you have never been a business operator and owner before, a detailed yet succinct formal business plan is what you need to give you tracks upon which to run. This train, with each of its cars (sections), will be pulled by a strong engine from the departure platform directly to a successful destination.

If you are an existing business owner considering an additional office or another retail store nearby (or completely out of town), a modified business plan will be helpful as you consider the costs and sales ramp-up period involved to reach breakeven.

On the other hand, if you are an experienced entrepreneur and have been through the process a few times, a “mini-plan” may be all that will be necessary for you to move ahead and obtain financing, if that is necessary.

If you foresee that funding the project will involve a lender, investor(s) and/or a landlord, a Business Plan is mandatory. Write for your intended audience but always write the plan for yourself. This plan will be an individual creation different from any other and bear your personal stamp.

Now, let’s talk about exactly what is in a business plan and how it works to help you. It is comprised of five major sections:

  1. Executive Summary;
  2. Business Description;
  3. Marketing;
  4. Operations; and,
  5. Financial.

In addition, there are sub-sections to the marketing and financial areas, cover page, table of contents and an appendix.

Contrary to what you may think, the Plan is not written in the order one may read it. The first section to complete is the Marketing section. This is the “engine” that drives the train and delivers the revenue you need to insure that your business can meet its cash flow requirements. The second section to craft is the Financial section with the project costs and performance projections spanning up to five years supported by written financial assumptions. When these two sections are considered to be in final form, you have completed about 80% of the hard work.

Finally, you are likely interested in how long it will take to finalize a business plan. You can anticipate it taking about 60-90 days if you work on it studiously and consistently. How long will it be? It will be anywhere from 30-40 pages (plus copies of tax returns for lender) dependent upon the audience for your plan. How does it affect the plan if it’s just for yourself? It shapes into a shorter and less wordy document. And, for a bank or other lender? Work on just the facts and prove the ability to service the debt. Lastly, for an investor(s)? Show returns over longer periods, concentrate on the return on investment (ROI) and exit strategy for the investor. You will find the task engaging and rewarding in many ways and glad that you took the time to do it right.

For more details on creating your business plan, visit Alexandria Small Business Development Center’s website or call us to schedule a meeting to discuss your needs.