small businees
How Does a Small Business Operate?
A small business can be defined as a business that is independently owned and operated, one that has only a few employees, and does a rather small amount of business. A lot of times, small businesses are sole proprietorships, meaning that only one person owns the venture. There are many different types of smaller businesses, and there are unique advantages and disadvantages to owing one.
There are many different kinds of small enterprises and ways to operate and own them. The usual consideration for deeming a business “small,” is that it has to have fewer than 100 employees in the U.S., and fewer than 50 in Europe. There are many businesses that are typically small, and a few of these are: hairdressing salons, bakeries, convenience stores and gas stations, photography shops and restaurants, as well as offices for lawyers and accountants, and many others.
All of these are considered a small business for various reasons. Employee size is not the only thing that defines what makes a small business, as other criteria include annual sales, asset value or net profit.
The smallest businesses are called micro businesses, and they are often located inside someone’s home. Both the U.S. and Europe defines “mom and pop” businesses, where the operation is almost entirely run by the owner’s family, as businesses that have less than ten employees.
Franchising is a great way to own a small business without having to create the whole thing from scratch, as the corporation will often pay to get most of the business going. This allows the owner the freedom to concentrate on running the business and not worry about failing so quickly.
There are some great advantages to owning a small business, and there are great disadvantages as well. If you feel that the advantages are better than the disadvantages, then you are a good candidate for a small business venture. Probably the biggest advantage to opening a smaller business is the fact that most take relatively little start up capital.
Smaller businesses have an easier time finding and keeping a market niche. Advertising for small businesses is usually cheap and easy, and smaller businesses can use internet marketing strategies more effectively than a larger company. The biggest disadvantage to opening a smaller business is that it is very easy to go bankrupt.
There are incredibly high business tax responsibilities for smaller businesses as well, and it is necessary that the gross income is always greater than the fixed costs of the business, otherwise it will fail. Additionally, just because someone has a good business idea does not mean it will be successful.
Now you know a little more about small businesses and how they operate. Just remember, if you are planning to open a small business, then make sure to conduct proper background research, because if you don’t, then your business will likely fail within a year or two. In depth research and viable business plans are essential!
Small Businesses – Measuring Performance From the Business Process Perspective
Small business needs to continually grow and evolve. Every business needs to look at its internal business processes and determine a strategy that includes continuous improvement and development. It also needs to determine how to measure that improved process performance.
Typically, businesses using the balanced scorecard, determine their goals and objectives from both the customer and financial perspectives before they determine their intent from the business process perspective. Determining the objectives in this sequence provides the advantage of aligning their business process improvement and process capacity building to support their customer and financial objectives.
So how/what do you measure when it comes to business processes?
First, take a look at the cues your customers are providing. By looking at the types of things that your customers are complaining about, or are shopping for but not finding, you can determine where your focus needs to be in terms of measuring performance. Examples are:
* Product Cost
* Perceived Value
* Quality of Product
* Quality of Service
* Cycle times
* Fulfillment and Delivery Cycle Time
Next, take a look at your financial cues. Examine your financial measures and break them down to measure the performance of each of your business processes, and in so doing, expose the role they play in your overall profitability.
* Manufacture Costs
* Process Yield
* Process Time
* Fulfillment Process and Delivery Cycle
Using the Business Process Value Chain as a Guide
While each business has its own unique set of processes for creating value for customers, Kaplan and Norton, have identified a generic model that businesses can customise. This value chain is an excellent way to break down your business process model into manageable, measurable chunks.
The value chain is broken down into three main areas of concern.
1. Innovation
2. Operations
3. Post Sale Service
The Innovation Process
The innovation component of the value chain, includes the research of the emerging needs of your customers and the subsequent development of products and services to meet these needs.
Research and development is not usually considered ‘important’ by small business owners. But those businesses who embrace being efficient, effective and timely, at this stage, often find competitive advantage early in their life stages and go on to survive and thrive.
Possible measures include:
* Percentage of Sales from New Products
* Improved manufacturing process capabilities
* Time to develop next generation of products
* Break Even Point
The Operations Process
The operations process is the next step in the value chain. This is, traditionally, where organisations have focussed their performance measurement activities. This process focusses on efficient, consistent, and timely delivery of existing products and services.
Traditional measures include:
* Standard Costs
* Budgets
* Budget Variations
* Labour Efficiency
* Machine Efficiency
* Purchase Price Variations
* Product Quality
* Cycle Time
* Waste Management
* Energy efficiency
Post Sales Service
The post sales service process concentrates on those activities that occur after the sale or delivery of the product and service and usually include support, service and warranty processes.
Possible measures include:
* Number of complaints
* Speed of response
* Cost of Post Sales Services
In measuring your business’s performance you need to ensure that you have a balanced set of measures. Focussing on the traditional financial measures can skew your results and dramatically alter your business’s direction. The balanced scorecard approach, by Kaplan and Norton, is just one way to ensure that your business performance is a well balanced, well thought out, aligned approach which will put the reins of business firmly in your hands.
Examine your business today to determine how you start to effectively measure your performance from the business process perspective!
Five Challenges Every Small Business Owner Faces
Small businesses are the backbone of our economy, you’ve heard that; and it’s true.
Some 98.6% of all businesses are considered small, so they’re significant, and every large business was at one point, small.
Here are five challenges every small business faces:
(1) Staffing. How can small businesses attract and afford the best talent? This is tough, because larger firms and even the nonprofit sector and government might dispense better health benefits and even compensation. So, the small enterprise has to sell potential employees on the fact that they’ll gain experience, get hands-on training, and see more growth possibilities with them.
(2) Leadership & Management Skills. Most small business owners are great at some task, whether it’s cost containment, niche marketing, or creative skill. But they tend to not have formal training in how to manage their enterprises, or what to do, strategically, to make them better and to get their people to perform better.
(3) Sales. Every business can use more sales, and as one of my clients said, there are few problems in business that can’t be cured with a few more sales! Even if the boss is great at selling, he or she probably has too little time, and too many hats to wear to do it enough to take the enterprise where he wants it to go.
(4) Training. Without a capacity to train new employees quickly and efficiently, businesses can’t grow. Too little effort is put into the training function, and far too little investment, as well.
(5) Change Management. Because of its size, the small enterprise should, theoretically, be able to change on a dime, but it is more resistant than many firms hundreds of times its size. It is especially slow to abandon products that no longer contribute to profits, but that are held in esteem because “they put us on the map!”
These problems are not by any means, insurmountable. They can and should be addressed with the help of coaches, consultants, and others who can be brought in on a project basis.
The sixth challenge small businesses face, is the willingness to ask for that help!