Author: M Bhebhe CA(SA)
Have you often wondered why corporates consistently find themselves surrounded by inefficient processes that they struggle to get rid of? Is your business currently small and these corporate challenges keep worrying you? Well, it is worth understanding the link between the challenges faced by corporates, which, believe it or not, often traces its source to where the business started.
There is an old adage that states that "Old habits die hard". Most of the habits that we learn in our youth may oftentimes become the core foundation of what we become. Similarly, the habits that are developed by a business during its infancy tend to follow it even when it has grown to the size of a corporate. It takes a huge amount of effort to change later, than it is to change things in the beginning stages. There is an old Zulu saying that goes, "sigotshwa sisemanzi", meaning that its easier to shape the core of an issue earlier rather than later.
As a small business, it is important to set up your business and operate it the way you would want to see it when it matures into a corporate. Visualising your business at maturity is critical in deciding on what is critical to address earlier in the business' life cycle.
1. Separate the business owner from the business transactions
The ability to ensure that your transactions as an entrepreneur are separated from those of your business is critical to the success of your business. This ensures that the business' performance is clear to understand and therefore, easy to identify the true areas of growth potential and blind sides. A number of entrepreneurs struggle with doing this, often taking cash out of the business for personal transactions or making use of business assets without recording these under the business. This causes a number of challenges for the business, including non-compliance with the Companies Act requirements which may result in the entrepreneur facing criminal charges.
It is is important to note that by law, a company is a separate legal person and is treated differently from an individual. Simply put, it is a complete "no" for company resources to be converted for personal use outside of recognisable contractual arrangements with the business. To be able to separate the business owner's transactions from those of the business, the following key elements should be considered;
2. Employ the right people and treat them well
The culture of your business as an owner tends to follow your own personal character, views and values. Who you employ, who you surround yourself with and how you treat them will often determine the pace of your business success. It is true that most SMEs source the bulk of their employees from close family, relatives and friends. Often, these employees feel part of the family and are able to understand the tough times that come with the business challenges. However, they are not always well equipped to be the agents of growth and change for the business. The informal nature of these arrangements tends to be the key contributor to the pace of growth in the business. It is better to employ relatives who are adequately skilled to enable the running of your business for success than to simply employ on the basis of the relationship to the owner.
As an entrepreneur it often sounds plausible to plough back to family to cover the burden of reducing dependence through offering employment. If indeed an entrepreneur is pushed by social factors such as reducing dependence and cutting costs by employing relatives, it maybe more sustainable and effective to employ capable people to drive growth in your business. This enables the entrepreneur the opportunity to carry out those responsibilities that pertain to family responsibility. Ensuring that your employees are treated professionally and fairly will yield the appropriate culture and behaviour that is a key ingredient for the success of a business. The following key elements should be considered;
3. Ensure proper financial discipline is consistently maintainedTo a number of entrepreneurs and SMEs, "Cash is always King" and Kings run the world. In fact, a number of entrepreneurs largely use cashflow to assess the strength of their business. Not maintaining your financial records as a business is similar to driving a loaded taxi on a narrow road that is surrounded by mountains and dangerous cliffs all this while blindfolded. Just because the tank is full of petrol does not mean the driver should worry less about other aspects that could make the journey memorable for his passengers. In fact, the full tank may turn out to be a ticking time bomb. Managing a successful business requires the driver to take note of all key aspects of the metrics that ensure that the trip is safe, directed towards the planned destination and for the consistent comfort of its employees and stakeholders.
The financial results of the business extend beyond cashflows and constitute a significant indicator of performance and verifiable clarity of the results of the business. All successful businesses set themselves a clear and measurable financial target and design appropriate activities to achieve these and enhanced by appropriate financial controls. Financial discipline entails a number of key considerations which should exist in a business which include some of the following;
4. Comply with key legislationIn this day and age, the reputation of a business and its stakeholders is fundamental to its success in the public. Reputation is not only linked to how the company conducts itself with its customers, but more importantly, whether a company is a good citizen. Compliance with appropriate laws and regulations applicable to a company should not be viewed as a choice for compliance by any entity. It is critical that each entity is clear from the onset, what group of legislation in the country(ies) it operates in and put in place policies and functions to ensure full compliance. Most SMEs do not often have the capacity and resources to maintain such functions within its environment, thus may have to either outsource this function or sign such responsibilities to an internal resource on an ad-hoc basis. However, this is a critical function in any business that ensures that the company keeps its reputation intact.
These regulations are dependent on the industry in which the entity operates. However, certain of these are applicable across industries such as the Income Tax Act, Value Added Tax, Companies Act etc. Most of these legislator frameworks require the use of specialised skills to ensure compliance. SMEs are advised to ensure that they have access to such specialists at all times to ensure that their actions are above board. This can be a reliable and qualified person who can be placed on a retainer to consistently provide such guidance to the entity. Ignoring the applicable legislation is tantamount to breaking the law by intent. The claim of ignorance by any executive of a business is not an admissible defence in law and will result in those charged with governance in that organisation being held liable for non-compliance. We advice that all businesses, small or corporate, should ensure that they continuously investigate their adherance to applicable legislation without fail.
5. Know your customers/clients and keep them happy
Any business that has no intricate knowledge of its clients and how it meets their needs will always struggle to grow. Our belief is that there is a difference between a "client" and a "customer" and it is important to know which category those that buy your goods or services fall under. Our definition of a is that a customer is faceless, can not be remembered and is part of a number whereas a client has a face, is known even by name and maintains a personal relationship with your business. Irrespective of which category, it is important for those that pay money to access the services your business offers to feel special. Defining the needs of your customers/clients is critical for your success as a business, irrespective of your size. A number of SMEs have the ability to be agile and versatile enough to be very personal with their customers compared to corporates due to volumes. The ability to provide customers with exceptional service leads to loyalty. Most importantly, when customers are satisfied by your service they tend to refer your business to other people. Keeping your customers happy is just about the only tool either than the quality of your product you have to keep your sales register clocking. Sometimes customers do not demand a lot, a simple recognition of their personal circumstances goes further than a classy gift. Finding means and ways of keeping your customers happy and engraining those activities into company's "way of doing business" is likely to enhance your business and its value to its customers.
6. Manage your cashflows
Every business' blood line is its cashflow, not at a point in time, but everyday. The availability of cashflow to any business, whether small or large, determines its pace of success. The company's ability to manage its cashflows is therefore fundamental to its existence and its ability to continue. The challenges that face SMEs is often vast and a result of many factors;
Ultimately, it is indeed true that "Cash is King". Respect the King and enjoy the rewards.
7. Know your products/services
There are a number of instances where businesses have a proliferation of products/services to the extent that not only their customers but even their employees are confused about what the business actually does. Being a "Jack of all trades" does indeed result in one being a "master of none". The identity of a company lies in the clear definition of its products/services. It is important to be focused and deliberate right from the beginning and to define the purpose of the business and its products. While the business focus can change over time, it is indeed different from simply being everything to everyone. What is clear is that when you know your products/services well;
Ultimately, businesses have all the appropriate levers to utilise to ensure success or failure at any point in their lifespans. Being aware of your capabilities, delivering them consistently to your targeted customers and ensuring that your customers are happy provides the recipe for success. Every business should be able to identify controllable and non-controllable factors that determine success for their business. Ignoring both can easily result in failure. Managing the risks of non-controllable factors and maintaining oversight on the controllable ones will enable any business to succeed. While all these principles are key, to an SME, the behaviour of the business owner will always determine the success of the business. An entrepreneur or business owner who surrounds himself with quality people will have a better chance at success. It is true however, that you can not hire quality people and then stifle their capabilities because this is a recipe for failure.