The vision many people have when they dream about running a business is often a far cry from the day-to-day reality. The freedom, flexibility and fine dining lunches don't necessarily materialize. In their place, many small business owners struggle with long days, stress and cash flow.
Though common, those issues don't need to be part of the experience. Often, they arise when small business owners need a stronger grounding in the basics of business operations and process.
Here's what you need to know to ensure that your business ticks along like a dream.
Running a Business is its Own Skill
You might be an incredible marketer, lawyer or plumber. But the skills that set you apart in your field of expertise don't necessarily translate to running a business.
Running a successful business requires that you have a high level of skill in your vertical AND a good head for business. You'll need to know things like:
- Accounting - for managing taxes and balancing your books
- HR - for hiring staff, offering competitive benefits and building a company culture
- Marketing - for getting the word out in a cost-effective way
- Sales - for landing clients and keeping your pipeline full, think recurring revenue
- Planning - for setting big-picture goals and ensuring growth
There's a lot there to learn. Just like your existing skills, running a business takes time to master. To do it well, you'll need to wear a few different hats: a managerial hat, an entrepreneurial hat, and a technical hat.
Of all the hats, the entrepreneurial hat is the most important. Now that you run a business, it's time to start thinking like a business owner - not an employee.
Like People, Businesses Mature Over Time
But don't worry. Rome wasn't built in a day, and neither
Just about all businesses grow through a series of phases - infancy, adolescence, and maturity. These phases can largely be identified based on the owner's role within and attitude towards the business.
During infancy, the owner is hands-on and focused on the product/service, not the business. The result is high effort and low margin. As the company grows, it becomes clear that this approach isn't sustainable - you can only fight so many fires and juggle so many balls!
Many businesses fail at this stage, but the ones that succeed move into maturity. That involves the owner stepping back from the product/service (that's why you have staff, after all!) and focusing on running the business itself.
You probably know the phrase "work on the business, not in the business." That's precisely the goal. Focusing on the business itself means that you can find more efficient, higher-margin ways of doing things. You can land more prominent clients, scale up your product or service, and build a team of skilled people who can take over the technical side of things.
To enjoy the fruits of running a mature business, you need to master basic business operations and processes.
In the following sections, we'll take you quickly through the key operational areas and what you need to know.
What's Your Structure?
A basic but complicated question. Different business structures come with various tax and liability requirements. Will you be a sole proprietorship, a corporation or an LLC?
The structure you pick will depend on what you do, your size - and how you plan to grow. Taxes, 401K plan requirements, and personal liability can vary from one to another, so it pays to get it right.
If you're not sure of the differences and what makes sense for the trajectory of your business, we recommend consulting with an attorney or CPA. They can advise on the most effective structure based on your vision for today - and tomorrow.
The Where and the Whaaat?
With your structure defined, you'll need to turn your eye towards physical operations. This aspect covers where you'll run your business, as well as the resources and tools you'll need to do so. You'll want to choose a cost-effective option that gives you the best returns for your business.
You'll want to do a buy vs. lease calculation, plus factor in the cost of any equipment and maintenance, technical staff and support staff such as a bookkeeper or payroll service.
When setting up a physical space, be sure that your business meets all legal requirements and is in line with others in your industry.
The Fun Stuff - Reporting, Accounting
Business rules and regulations can present a steep learning curve for a new business owner. But learning them - or at least hiring an expert to counsel you - is vital for the future of your business. Claiming lack of awareness of knowledge won't absolve you if a breach occurs.
You'll need to ensure:
- Proper business formation at the state, federal and city levels, including employment verification, business registration, articles of organization and licenses and permits.
- Payment of appropriate taxes plus any related documentation. Taxes may include income tax, self-employment tax, payroll tax, and sales tax.
- Appropriate intellectual property management such as patents, trademarks, copyright and non-disclosure agreements.
- Creation of legal documents such as contracts and leases.
- Appropriate insurance coverage, including business liability, worker's comp, and property insurance.
- Proper accounting documentation, including P&Ls (profit and loss - an income statement), balance sheets (for business health) and cash flow statements (showing cash on hand).
- Proper bookkeeping and records including receipts and proof of assets.
Here's where your procedures and processes come in. Have you defined your procedures and communicated them? Have you created benchmarks so that you (and your staff) can gauge success?
Knowing how your processes relate to each other makes it easier for you to ensure the smooth running of your business. For example, if your products aren't created, they can't be shipped - or billed for. Understanding these sorts of relationships will help you identify where problems are starting and how to fix them.
It's All About Reoccurring Revenue
If there's one thing entrepreneurs and founders needs to consider is developing and building a business with a sustainable reoccurring revenue model. It's the first commandment of business success.
Recurring revenue is the portion of a businesses' income that is highly likely to continue in the near future. Recurring revenue is business revenue that is predictable, stable and can be counted on in the future with a high degree of certainty.
Without recurring revenue business owners are trapped selling new business every month going forward. It's not a trap you want to build for yourself.
Putting It All Together
Taking the time to master your business operations will set you apart in all the right ways. Rather than struggling to play catch-up or to understand your obligations, you'll be able to take a proactive stance - building your business instead of fighting to keep it afloat.
Need some help building out a clear picture and strategy for your business operations? Get in touch!