Running a small business can be an exhilarating yet challenging experience. According to the U.S. Bureau of Labor Statistics, most new businesses disappear within the first two years of their existence. It’s difficult for a small business to move to the next growth stage.
So what are the key factors and characteristics that differentiate the small businesses that make it past the crucial first two years of existence and those who don’t? We have shared some business management tips below and hope that they help you as you run your business.
1. Data driven decision making
The most successful small businesses employ data driven decision making as part of their strategic decision making process. Using internal business data to guide forward looking strategic planning leads to better business decisions. It also helps you visualize trends affecting your business more vividly and enables you to come up with the best ways to differentiate yourself in the market.
2. Proper cash management
Proper cash management differentiates businesses that make it past the two year mark and those who don’t. You can forecast a lot of incoming profits for your business but without adequate cash to make payroll and buy sufficient inventory, your expected future profits might not be able to save your business from going under.
When running your business, carefully forecast how much cash your business has in the bank to keep the business running. There are plenty of alternative ways you can fund growth or expansion. When billing clients, get a realistic estimate of how long it will take them to pay you and plan accordingly. Keep good tabs on your product inventory so that you don’t stock too much or too little (many online store solutions help with that). Always remember that cash flow is the lifeblood of any small business.
3. Focus on optimizing profit margins
No matter how much sales or revenue your small business is pulling in, what stands to always be of utmost importance is your profit margins. Are your costs currently exceeding your revenue? If so, your business might not be as healthy as your sales numbers seem to portray. Although, many small businesses operate at a deficit or breakeven point for a very long time, the goal is to continually strive toward profitability or even sustainability.
Carefully analyze your business and understand how your costs are influencing your profit margins. Regularly track your small business efforts to get rid of non-performing or under-performing segments or product lines that might be squeezing out your margins. Also, carefully analyze your costs and overhead to ensure that you are not using up to much resources funding unnecessary expenses.
4. Lean strategic planning
Another characteristic of successful small businesses is their focus on lean strategic planning. This ties in closely with analyzing costs and ensuring that most of your business expenses are justified and do not unduly squeeze out your margins. Lean strategic planning entails constantly tracking your company’s strategic and financial plan and making adjustments to it as you get more customer data, making your business more customer-focused.
Using lean strategic planning, you can quickly tweak aspects of your business model that you may not have had insights on when you were drafting your company’s financial plan for the quarter or year. This makes your business more flexible and responsive to changing market conditions.
5. Frequent communication with customers
Thriving small businesses regularly communicate with their customers to learn more about their likes and dislikes. This keeps them ahead of their competitors as they constantly have a feel for their customer’s preferences and tastes. If you have an online store for instance, consider running a survey to ask your customers pertinent questions on their experience with your store. You can also ask for their feedback on your various products and services through online helpdesk services such as Uservoice.
6. ROI driven marketing
The most successful small businesses understand that it is one thing to invest in marketing your small business but another to ensure that you are getting a reasonable return on your marketing investment. The good news is that marketing through online advertising channels like Google Adwords can help you better track the ROI on your marketing spend. Are you currently driving traffic to your website using Google Adwords or Facebook Ads? Check out the cost per click and cost per impression of your advertising campaigns and measure them against the amount of sales the advertising campaigns are bringing to your business.
7. Competitor Intelligence
Successful small businesses keep a keen eye on their competitors and how they are positioning themselves in the market. This gives them a better understanding of how to differentiate themselves and provide better value to their customers. Even if you think you don’t have direct competitors, monitoring your indirect competitors can give you useful insights for growing your business.
8. Strong talent pool
The best small businesses hire the best people. They are always looking to hire quality talent that can bring their energy, intelligence and drive to move their business forward. Take the quality of people you hire very seriously as it can mean the difference between whether your business succeeds long term or not.
What are you doing?
Do you have any tips and tricks on what you do to keep you small business alive and well? Let us know in the comments below.