START, OPERATE, MANAGE AND GROW
Starting and running a business requires the creation of a smart idea and constant creation of smart marketing, operating, administration, financial management, and growth strategies.
This is the day you roll out all your business and open doors to customers. You can simply open your shop slowly and quietly or you may need a formal opening day where you invite the press and TV media and potential customers to make a launch. Opening with fanfare helps in creating awareness but can be costly and not appropriate for all businesses.
Operate and Manage your Business
Once the business is up and running, it needs close monitoring and evaluation to ensure that positive progress is made towards achieving the mission. If the business is not performing according to plans, you need to ask why and what needs to change to correct course. This is the aspect of running a business in the title “how to start and run a business”. Sir Winston Churchill, the former Prime Minister of the United Kingdom has been quoted to have observed that “no matter how beautiful the strategy is, you should occasionally look at the results”. This is what managing a business is about. Some of the main tools that are effective in managing a business are explained in the financial section of this write-up. The main ones include:
Goals and targets
All critical activities that need the undertaking to achieve the mission of the business are reduced into goals and actions that are (SMART) specific, measurable, attainable, relevant and time-bound. Implementation of these goals should be assigned to be people and monitored very closely say on a weekly or monthly basis to determine whether any progress is being made. Any results that deviate from plans should be interrogated to determine the causes and necessary corrective actions which can include change of plans if need be. One of the actions could be to review the overall strategy or some parts of the strategy (engage in strategic planning).
The budget is used to monitor the performance of revenue and spending. As a financial performance tool, the budgetary system involves creating an income, expenses and capital budget amount for each activity on a line by line fashion, followed by comparing the actual performance of each activity, again line by line, with its budget regularly say weekly or monthly. Scrutinizing the deviations from the budget to discover the reasons behind the deviation of the actual performance from the budgeted parameter, taking appropriate corrective actions, and reviewing of the budget in the light of the changes in circumstances or changing course altogether.
Failure to meet targets could mean wrong budget assumptions, unworkable strategies, fierce competition, wrong pricing, problematic product features and benefits, poor marketing strategies, low productivity, employee incompetence, ineffective and inefficient internal processes and systems, unnecessary costs and waste, internal corruption or a combination of any or all these.
Below is an example of how a variance analysis table may look like:
Table 5: Budget variance analysis for the Quarter ended March 2010
|A||B||c = a-b||c/b x 100|
|Recurrent Expenditure (COPEX)|
Cash flow, income and statement of financial statements
Cash flow statement presents the sources and uses of cash on a weekly or monthly basis. A forecast cash flow statement can show in advance whether the business will have a cash surplus that can be invested in other ways or shortfalls that need planning for. Income statement captures revenue, expenses, and profit, which can regularly be compared with the budget to see where deviations are occurring. Statement of financial position shows the positions of assets, liabilities and owners’ equity and can indicate whether the business is building quality assets or is moving towards insolvency.
Employee performance appraisals
Employees are the ones who drive the business. They are the ones who, together with systems and processes, hold the key to productivity in the business. As a result, they need to be carefully selected for knowledge, skills, energy, passion, and positive attitude and appropriately deployed, as in placing square poles in square holes. Each one of them should have clear roles and targets. They also need to be led, trained, coached, developed and motivated. Their performance needs to be regularly and objectively appraised, corrected, rewarded or punished as appropriate.
Growing the Business
Once the business is up and running, and is bring a stable profit, you may want to grow it. When it comes to growing a business, there are three possible ways of growing, namely expansion, licensing, and franchising. To grow the business, you require engaging in business development discussed (see an expounding of this right below). All these expansionary things can be carried out provided the outlook of economic conditions warrant it and there are adequate resources to create, fund, and support the desired growth. Without these, the desired growth may not be realized. Forge
Business development involves activities that seek to expand existing markets, identify new markets, strengthen old relationships and partnerships, and create new relationships and partnerships such as agency relationships, acquisitions, and mergers. It also entails repackaging or creating additional values and benefits on existing products and services, creating new products and services, adding values to existing customer needs, identifying new customer needs, creating new and more efficient delivery systems, and engaging in the brand promotion to create a general awareness of new and existing products and services and their benefits.
In a wider sense, business development can encompass looking at and reforming other activities across the whole organization that include marketing, sales, distribution, product creation and management, operating facilities and logistics, security services, project management, supply chain and supplier management, internal systems and processes, customer service, negotiations and lobbying, record keeping, cost-cutting measures, acquiring funds and human talent development. The reason for this wider approach is that all these across the board activities are complimentary and come together to bring business development activities to fruition.
Let us now look at each of the possible growth methods in some detail.
The expansion involves enlarging the business by organic means where product lines are added, production facilities are expanded, sales are boosted, market share is increased, branches are added, delivery systems are expanded, processing systems are improved, sales outlets are added and so on. Such an expansion aims to boost sales, profit and the value of the business in general. Some ways through which a business can be expanded include:
i) Horizontal and Vertical Integration
Horizontal integration involves merging or acquiring another business in the same level of production in the value addition chain in the same industry to share strengths and mitigate weaknesses or even to create synergies. Vertical integration can involve buying or merging with a business that makes your inputs or one that distributes your products.
ii) Scaling up
Scalability in business is the business’s potential to be expanded to accommodate desired growth and generate more sales and profit without constraints. It is the capacity to operate at any scale without being constrained by space, infrastructure, resources or ability. If a business currently delivers Y amount of goods using Z amount of resources and it has potential to deliver 2Y amount of goods using same Z resources or slightly more (say 1.2Z), then such a business is scalable. If the business would need 2Z resources or more to deliver a 2Y amount of goods, then the business is not amenable to economical scalability.
This is the ability to reproduce something like a book quickly, reliably and inexpensively and distribute it across regions. Scaling and duplicating are two business concepts that appear the same but have slight meanings. Scaling up, for example, is where you make small adjustments to operations like the factory to more than double the output that can all be sold in an expanded market. Duplication, on the other hand, is about replicating the same operation in another or more locations. Duplication and multiplication more or less mean the same thing.
Licensing and Franchising
Licensing and franchising are other ways of growing a business. Licensing is a business pact in which one business allows another business authorization to use, for example, its patents, trademarks, copyrights, designs, logos, and other intellectual property to manufacture its product for a specified payment.
A franchise is fail-safe and repeatable operating systems for making products or selling products or services that are leased to others to operate and pay fees and royalties. The concept involves developing a tested and working business model that can be rolled out anywhere by anybody. The main difference between a franchise and a license is the level of support the franchisee gets from a franchise. A franchise provides a tested and fool-proof model and guidance in site selection and on-going training and marketing support. A license usually provides nothing more beyond intellectual property rights.