A Small Business Must Have a Solid Foundation

 We all know that a building has to have a strong foundation if it is to survive, so, too, a business.

There are many planks that support a business but there are four corner-posts that bear the most weight…

The four corner-posts are Marketing, Selling, Production and Financial Control. There are a multitude of other aspects which helps to make a business profitable. For example, customer service, adequate capital, and location.

But I can guarantee that if a firm is failing in any one of marketing, selling, production or financial control the business will fail.

And that’s the chief difference between a small business and a big business. A big business has whole departments to oversee each of those functions and it has people who do nothing else but make decisions (manage).

You must carry out all four functions and manage at the same time.

Marketing
I have been counseling in small business for 30 years and still find people who do not know what marketing is.

At seminars I ask about their marketing and it almost certain one or more participants will say, “Well, we advertise in the local give-away newspaper”. Advertising is not marketing. It’s only a tool of marketing.

To use any marketing tool you must know who your target is and you must know what you’re selling.

Your customer is not buying a drill. He is buying a hole! I do not know who first said this and it has been around for at least 40 years. It sounds simplistic and hackneyed but it is really a profound observation.

I don’t think that girl is really buying a hole. She may be buying independence; the ability to hang pictures, put up curtain rods without having to rely on her male partner. The features and benefits which appeal to her will be different to those which influence a builder.

So if you are hazy on marketing you’ve got a lot of reading to do to get up to speed.

Selling

We all know what selling is…don’t we? Well perhaps not, because most small businesses do it badly…or the owner does it but the staff has not been trained to do it.

“Do you want fries with that?” has been made famous by a well known take-away. We call that up-selling .It was a very successful tactic which increased sales of fries etc. but it is starting to lose its edge.

Several times on recent visits I have been asked whether I wanted fries when I already had fries, or did I want desserts when I already had them. That gives negative vibes. They are not really thinking of helping me. They are just trying to increase sales.

Production

This applies to both manufacturing and retail establishments. You have to ‘produce’ your product but you must do more than that. It must be produced at the location, at the quality, at the time and at the price that your customer wants.

A restaurant had their production down to a science but the waiting time between sitting and having the order taken was 45 minutes. I would have left long before. I am never that hungry. They are now out of business.

A kitchen renovator had a unique quality product and used an excellent installer. His price was very low compared to others in the area. They are now out if business.

You can produce low quality items at a low price and a high quality product at a high price, but you will lose your shirt if you try to sell low quality products at a high price or high quality items at a low price.

Financial Control

For some reason this is the area in which most small businesses fail.

One reason is that bookkeeping is a skill that can be easily learned (especially with all the accounting packages available). Accounting, however, is a discipline that requires 3 to 5 years of study and a lifetime of learning.

Yet the small business owner tries to do it all himself at the same time as all his other functions. Or he leaves it totally to his ‘girl’ who cannot do it either.

But the success for any task is reliant on the ability to measure every important aspect. In a restaurant we measure the value of wages against sales for the same period. Is your wages 45% of sales? That’s too high. Let’s work out how we can reduce it.

“We put 50% on our purchases to arrive at a price”. That means your gross profit margin is 33% but your financials show that you are only achieving 29%. Let’s do something about it.

A compromise for the small business owner is to have a professional accountant design an easily kept system that will produce the information required. Then your ‘girl’ can be trained how to operate the system.

Most Businesses Fail

Only about one in ten businesses do really well and makes some money for the owner. Your’s won’t be one of them unless you can get the four corner-posts right.

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