Why business management is important
I’m a strong supporter of the writings and thoughts of Michael Gerber and his ‘E-Myth’ concept regarding small businesses. One of the reasons I think he’s right in what he says is during my many years of coaching I’ve seen the proof. I’ve seen technicians start small businesses thinking their technical skills will get them through, only to find they’re soon struggling because they have no skills at managing a small business.
When a new small business owner is just getting going they very often fail to get the office side of things sorted out – either because they’re too excited about the business or they’re simply ignorant about what needs to be done and how. I’m just going to pick out a few things about small business management that I feel are important and which will help the new small business owner stay on top of things.
The general paperwork
You probably don’t need to go out and get a small business document management system from the start but you do need to develop some sort of filing system so that you can keep on top of where things are. Despite the promise of the paperless office you will be surprised at how much paper is still generated even in the smallest of businesses.
Simple systems can be a real help here:
Have set times in your default diary for when you are going to deal with different types of paperwork – mail, invoicing, writing up client notes etc.
Find a filing system that suits your business. For example if you provide a service to companies then perhaps each file is named after that company; if you are a production business then file things by job number. Another alternative is to use a Kalamazoo type system where all files to deal with accounts are in the 100 series, all those to do with sales are in the 200 series etc. The key thing is to make sure the system is logical and expandable.
Filing on a PC is as important as in the filing cabinet – people tend to get sloppy with computer files so make sure you put a system in place here too for naming files. One system I have seen used successfully is to use a date or reference number in the title, followed by meaningful words. For example: ‘20111010 – Letter of introduction to Morley Inc.’.
The sales process
One small business software tool that I would recommend to any business is a Client Relationship Management (CRM) system. A good CRM system is like having a personal assistant because it will file stuff away for you and keep you on track with where you are with each client or job.
CRM systems are primarily a way of keeping on top of the sales process but for a small business they should be able to pretty much do everything else that you need. I use mine as my main contact database, diary, keeping emails sorted by client, sending out email marketing shots (integrating them into standard letters and emails that are also in the system) and, of course keeping me informed of where I am in a particular sales process and what I need to do next.
Choosing which CRM to use is a personal thing and there is a bit of a dilemma in that the ones that will give you the most flexibility and performance will also be the ones most difficult to learn how to use. One of the first ones I used was Goldmine – a fantastic system but expensive, not user friendly and even after 4-5 years’ use I was still just scratching the surface. ACT! is another popular one that will give you most of the performance you would ever need but not as complex as Goldmine.
Both of the above CRM systems are bought outright; one option you might want to look at is online systems. Salesforce.com is one such system where everything is hosted online and you pay a small monthly charge. This can be a good thing for your cashflow in the early days and it also means you don’t have to keep upgrading or maintaining it but it does mean that over time you could spend a considerable amount of money on it.
Another one I’ve recently discovered but haven’t really tried yet is Highrise. Like Salesforce it’s a pay monthly system (but very modest amounts) and from my initial investigation it looks pretty comprehensive and easy to use. The interface looks quite similar to Facebook and so looks familiar and is pretty intuitive in how it works (a far cry from Goldmine!).
(I’d just like to say here I’m not on any sort of commission for mentioning or recommending any of these CRM systems).
Keeping control of the finances
That leads us on nicely to the accounting and finance side of things.
If there’s one area of small business management that the majority of business owners try to distance themselves from it’s the accounting and finance side. I would urge you to be the exception to that rule. If you are going to have any chance of understanding your business you need to understand what’s happening to the flow of money in and the flow of money out of your business – be honest, do you really understand cashflow?
And don’t think that just because your accountant or CPA has a big certificate on the wall and a sign out front that they are not beyond taking their client (ie you) for a ride. I have had clients who just passed all their financial stuff to their accountant and said ‘sort it’, only to find later that the accountant had been skimming stuff off the top. Interestingly, they were the clients who called me in because they couldn’t understand why they were working so hard and not making money (and no, it wasn’t simply because of a crooked accountant – they didn’t understand their own business – but that’s another story).
I’m not saying here that you need to become an accountant yourself but you do need to be sufficiently involved to see what’s going on. Let me describe the approach I take with my business.
As a small business business coach I don’t tend to have a huge number of small invoices but a small number of large ones; so, it works well for me to invoice once per month and, at the same time, sort out all the other incoming/outgoing bills and receipts. So what I do is invite my bookkeeper in during the third week of each month (it’s in my default diary so we both expect it) and we input all the data into my accounting system.
Alan, my bookkeeper, and I sort everything out into the separate piles (invoices, bank statements, credit card receipts, other purchases etc) and he guides me through as I input everything into the system. By doing it this way I rely on him for understanding which tax codes to use and where things need to go to balance up properly but, at the same time, I see exactly what goes into the system and can question him as we do it. We go through a similar system every quarter for my tax returns and annually for the full set of accounts. Alan also liaises with my accountant for the deep technical stuff but keeps me informed of what he’s doing.
This process really works for me I feel engaged and in control of the system without having to spend a huge amount of time understanding accounting practices and, over the years, I have learnt a huge amount about bookkeeping.
The accounting software I use is Sage which I think is probably the best accounting software there is for small businesses; it’s (relatively) easy to use and understand, there is good backup if required and it is scalable for pretty much any size of business. Plus, because it is one of the ‘standard’ packages it’s easy to transfer data. Before settling on a package I would, however, speak to your own accountant to see what they use as it can make life easier (and cheaper) if you bot use the same system.
(As with the CRM software, I’m not getting anything from Sage for promoting them here; I’m just a satisfied customer).
Are you insured?
Small business insurance isn’t really part of running a business but it is really important to make sure that you have it otherwise you’re unnecessarily putting yourself in danger. There will generally be some fairly clear guidance for you as to what is the norm for business insurance for you in your business sector and you should dig out this advice and heed it.
As well as the insurance you need for the business activity there are two other insurance policies that I recommend you consider.
The first is small business owner personal liability cover. This covers you as an individual (and as a director/owner of the business) against any actions that you take that may not be covered by the main business insurance. This is particularly important of you are someone like a coach, accountant or advisor of some sort.
The second is small business owner health insurance. For most people starting out they are pretty much the business and if you stop working then the money stops coming in. Even if you do have a small back room team working for you the chances are that in the early years you will be the only sales person or electrician and if you break a leg them the work stops. Health insurance should cover a replacement sales person and ensure that you can get top medical treatment to get you back on your feet as soon as possible.
I suppose the big message here is don’t fall into the trap of thinking that just because you’re an expert in your field that your business will automatically be a success. You need to make sure that you have the business systems and knowledge to back up your professional skills. The reality is you could be a mediocre professional with a good understanding of how to run a business and beat the ‘expert’ opposition hands down when it comes to being a profitable and growing company.
I’ve talked here a lot about software support and I think as far as small business management software goes I would say that a good CRM management system is on par in importance as a proper financial or accounting software package and is one of the key tools I’d get in place really early. That will act as a foundation stone on which you can start to build everything else.