Posts Tagged ‘budgeting’

5 Steps to Sound Growth for Small Businesses

by Matthew Carmen on July 4, 2011

Over the last several months, I have mostly written about the financial, strategic and operational needs of mid-sized and large companies.  What about small business?  Companies with, say, 10-150 employees…what in these areas can best serve them?  Of course there are the obvious: the ability to track expenditures, report on company spend, rudimentary budgeting, payroll, etc. Certainly these are very important, but really, the owners and stakeholders of the small business should be able to handle this on their own – or with minimal help.   The most important need for small business owners is to work with someone well-versed in things financial, who can offer a growing business the ability to formulate strategy and then develop sound finance processes, procedures and who can offer the right tools to turn strategy into practice.  In this way, the finance person participates in the growth of the business and helps take the company to the next level.

This resource discussed above is the hardest to articulate to small business clients.  They usually want someone to tell them how much they are spending, on what, and how they can spend less on the same services.  These are important questions, but somewhat short-sighted.  What the client should be asking, (and I like to ask questions to get them thinking this way) is:  How can I get my company to the next level?  The proverbial next level of course means something different for each company: it may be $10 million in sales for one, higher margins for another, or opening up new markets for another still. Regardless, I’ve found that there are 5 key steps that must take place in order to reach ‘next level’ status:

  1. Decide what the next level is, specifically.  What is the direction in which your company wants to go?  There will be some type of desired growth, what is it?  Does this growth match the company’s mission and values?  Formulating your goal is most important; if the goal is unclear, there is no way that a strategy can help achieve that goal.  Sure, some goals are reached anyhow simply by dumb luck, but as you probably guessed, it is not a scalable process.
  2. Develop a strategy to reach a clear goal.  This takes true leadership from within.  Once a goal is formulated, a well-thought-out strategy or detailed plan is needed to get there.  What will it cost to reach our goal? What skills are required (marketing, product development, operations, etc)?  How much time with this endeavor take?  Once these large questions are answered, a program or project management team should be able to take over and develop a detailed plan of action.
  3. Plan of action. The program team in a small company (usually 1 or 2 people) will need to develop the timeline for the actions that need to take place, and who will actually perform the work.  This program team may be made up of internal employees or outside contractors/consultants.  There are many tools which help in this area as well, including Microsoft Project and others, that can help organize tasks and timing.  Once a plan is developed and approved, the real work starts.
  4. Communication:  The plan and assignment of roles must be clearly communicated to the entire organization.  This serves multiple purposes: it lets those that will be involved understand their roles and what their expectations are, and it also lets those not involved know what the future state of the organization will look like. Finally, it lets management know how they should start planning for future roles in a fashion that will evolve along with company goals.  Expectations of everyone will change during this process, typically for the better.
  5. Reporting and Tracking:  This step entails reporting on the progress of the strategic implementation.  The best tools for this are a balanced scorecard and separate financial reports.  A balanced scorecard will track the inner workings of the strategic implementation – what is going on at the operational, leadership and learning levels, how the organization is changing and ensuring it is on track to meet goals on time.  The financial reporting piece will let leadership know if they are spending what was approved and in the right areas.  Analysis of both these reporting mechanisms will allow for operational changes as the external environment changes (competition, products, legal, etc.)

The process is finished once the project goals are met.  (Have the new systems been put into production, etc.?) Now the claims made by the new strategy need to be monitored closely, and the results examined likewise.  Is there progress being made towards our goal?  If yes, is this progress happening as planned? Faster? Slower? Perhaps the new systems now in place allow for amending goals upward, or results in better returns on investment. If so, what a great problem to have, right?  Continued reporting and vision are also required – and once new goals are established, the process should ideally begin anew.

So you see, the finance person at a small company must wear many more hats than his/her counterpart in larger organizations.  In the scenarios above, there is a good chance that the finance person will also serve as the program manager for the strategic implementation, or at least play a key roll in that implementation.  The risks are often greater for a small company, but the rewards for the company can be greater as well – and isn’t that what owning a business is all about?