Core Small Business Skills – Operational Management

As a business owner and entrepreneur it is important to develop a set of key management skills upon which you can build your business. Even more so when you consider research into Australian small business failures, has identified that in 90% of cases, a lack of management skills has been a key reason for small business failure. Operational Management skills have been identified as one of the core skills required for small business success, and I would go so far as to say that they could be a deal breaker. So let’s look at the operational management skills you need to run a successful small business.

You need to build operational management skills in order to develop the systems and processes by which you deliver your products and services. The more efficient and effective they are the more ‘productive’ your business will be. Core operational skills include planning, management, communication as well as effective systems design.

Operational and Project Planning Skills

The ability to develop operational plans which focus on the day-to-day running of your small business and to develop and manage project plans for specific bodies of work are essential skills for business success. The best operational and project managers ensure that have identified,in as much detail as possible, what is required when and allocating appropriate resources to get the job done. They are also fanatical about identifying risks and issues upfront and managing them so that they have little or no impact on the task at hand.

Monitoring and Reporting Skills

Small business owners need to be able to assess their small business’s performance against its objectives and to develop and distribute a series of reports that indicate the level of that performance to key stakeholders on a weekly basis. Keeping an eye on your progress highlights any emerging issues and allows you to effectively manage the situation. This ensures that the reins of business are always in your hands and in your control. You need to be able to create a set of operational key performance indicators (KPI’s) that drive the behaviours and values you want your business to embody, create a set of operational performance ‘dashboards’ and develop a system that captures the information that feeds into the operational dashboard.

Effective Business Communications Skills

Strong communication skills are vital. In many respects, it is the oil that keeps your systems’ gears meshing nicely. You need to be able to inspire your troops to act in concert with your strategic intent, whilst delivering the communication to the troops about what needs to be done, when, where and why in an effort to keep your operations running like a well oiled machine. Strong written, verbal and non-verbal communication can be the difference that can take your small business from good to great.

Systems Design, Development and Implementation Skills

Every entrepreneur should be aiming to build an effective small business that operates without them. After all, most entrepreneurs build their business with the hopes of working only when they want to, not because they have to! The only way this can be done is to design, develop and implement systems that replace the business owner. Systems design requires the ability to observe, analyse and design solutions to systems problems. Having the ability to design systems is vital throughout the life of the business because all successful businesses will be in a constant state of re-design in order to keep abreast of the ever-changing demands of your customers and the context within which your business operates.

Developing strong Operational Management skills are essential to the day-to-day running of your business. Continuing to hone them is important as these particular skills will be required throughout the entire business life cycle, but the effort you put into developing these skills will pay handsome dividends when it comes to your day-to-day small business success.

Business Succession and Estate Planning

You may be surprised to know that when it comes to protecting your business, neither a will nor a living trust could provide adequate protection. A business succession plan is also essential. You will find, however, that a business succession plan works best if it is implemented over a span of several years and that process can be complicated.

When developing a business succession plan, keep the following suggestions in mind:

· If you are still active in the day-to-day operation of your business, your succession plan should include specific details regarding how that operation should continue should you become incapacitated or die.

· If you die, who will take ownership of your share of the business and who will become the business’s new manager?

· If you carry life insurance, how should that life insurance payment help the business? Options include:
Ø Providing a financial “cushion” should the business incur liabilities
Ø Hiring staff to perform the duties you previously performed
Ø Funding the business to keep it open.

· If your business’s needs change, does the succession plan have the necessary flexibility to address those changes?

Potential tax issues should also be considered when developing a business succession plan. If your business fails after you die, the IRS could calculate and assess a tax value on your business as if it were still operating. To prevent this, your business succession plan should include any factors that could decrease your business’s value and make it harder to sell. This list of factors will help your family argue the case to the IRS that your business has minimal, if any, value.

Of course, you hope that your business doesn’t die when you do, but sometimes it happens when the business’s very existence is dependent upon its owner. For example, a doctor or dentist’s office or an individual’s law practice are wholly dependent upon the owner’s viability. When these owners die, the businesses generally have little or no value. Similarly, an owner of a small business who keeps the business’s income and doesn’t reinvest that income back into the business will leave a business with little value upon his death. If you are the owner of a small business and want to see that business to continue to operate successfully after your death, consider having a business succession plan.

What if you want to transfer ownership of your business to another family member such as your child? Or what if you want to sell the business to a family member or someone outside your family? Plan before your death to train and support that person so that the transition will occur smoothly with little to no disruption to operations pending the sale.

Eight Key Questions For Family Businesses

Family businesses often have great strengths arising out of the family members’ commitment and long schooling in the culture and operation of the business. But the family aspect also creates specific issues in any business that will affect the business and its operations.

The involvement of, and interaction with, a family is obviously the key difference between family businesses and others. And families are complex emotional units with dynamics and relationships that involve a whole range of issues other than the business. It is therefore critical to recognise that this is the case in family businesses and to take into account the family aspects of the decisions that need to be made and the influence this will have on decision making.

In any business, there will be at least two differing interest groups, the owners of the business and the workers in the business (and some people of course may be both owners and workers). The owners of a business may have quite different core interests (their financial return on their shares for example), from those of the workers in the business (security of employment for example). In a family business this is then overlaid with family membership so there may be family members who fall into any of the above categories, or be outside the business completely.

This leads to business owning families differing in the degree to which business decisions will be made in the interest of the family, or of the business. In some cases, the business is run purely in the business’s best interests, in some cases it is run purely in the interests of the controlling family. Most family businesses operate however at a point somewhere between these two extremes, although the way in which family or business interests will be balanced in any particular decision may vary depending on the matter involved.

Specific questions family businesses need to address are:

1 – Succession – restriction of the choice of senior managers or directors in the business to only family members can be a huge restriction on the use of the potential pool of talent within the business. Equally, businesses often struggle to achieve an effective hand over to a younger generation when the older one is still within it, and businesses can remain in a state of limbo, in some cases for many years as no one is really sure who is actually in charge.

2 – External capital – there is often a reluctance to allow ‘outsiders’ to participate in the company’s equity.

3 – External skills – it can be difficult to attract high quality external management into a family business, as potential candidates will be conscious that the centre of power can lie within the family structures, with all key decisions taken around the Sunday dinner table for example, rather than formal business structures, and there may be limits to promotion where certain roles are reserved for family members.

4 – Inflexibility – some family businesses carry on with, or are reluctant to change, parts of the business on the basis of emotional attachments, such as grandfather started the business making widgets so we cannot stop now, rather than commercial logic.

5 – Fairness – if members of the family are employed in the business their treatment in comparison with non-family employees, for example on timekeeping can be quite different from that of other staff, and this can have a real impact on staff morale.

6 – Diversion of resources – in a family business which is regarded as ‘owned by the family’ (or an individual entrepreneur), there can be a risk that company funds are used to meet more and more personal expenditure such as telephone bills, parking tickets, subscriptions, computers for home use, box at the local football club (of course it’s used for marketing purposes) to the detriment of the business.

7 – Don’t want to be here syndrome – family members may go into the business because they are ‘expected’ to do so, rather as a result of any vocation or aptitude for it.

8 – Dilution of interest – as the firm passes down the generations, shareholding can become subdivided into smaller and smaller lots leading to potential difficulties in obtaining clear decisions about some issues. This becomes particularly accentuated when the family shareholders are divided into those involved and those not involved in the management of the business.

So, if you are running a family business, particularly in challenging times, isn’t it worth taking a moment out from thinking about the business to consider how the business and your family members’ interests actually interact and the impact this has on the success of the business?

Of course the information contained in an article like this can never be a full statement of the legal position as the relevant laws are complex and liable to change. This article can only therefore be a general guide as to the issues involved and as these can have serious implications you should always seek appropriate professional advice on your own particular circumstances before taking any action.