Review tips to get your small business running

By Reed Richardson

 

For many business owners-large or small-there may not be much interest in looking back at the year that was 2009. Sure, your personal retirement savings may have rebounded, but the stock market's resurgence still hasn't been accompanied by a corresponding upturn on Main Street. As we begin sprinting through the new year, however, there are some hopeful signs of life in the broader economy and for a small company to be fully ready to capitalize on the recovery-when it does come-it pays to look back at 2009 to gain a thorough understanding of where it stands and what it needs to do going forward.

 


Infrastructure

Since the financial crisis in the fall of 2008, many small businesses put off investing or upgrading their company's infrastructure in order to conserve cash. As a result, they may have been limping along the past 16 or so months with overtaxed computers or under-maintained machinery in an office too small or a shop too big for their future needs. So, it's worth getting a sense of what your company has been neglecting or unnecessarily hanging onto, infrastructure-wise, in order to anticipate the kind of long overdue upgrading or downsizing your company needs to do in 2010.

 


Reviewing all your overhead contracts-rent, energy, fuel, etc.-is a good place to start, asking yourself if what you have suits not only your needs now but 12 months from now as well. If you've been pulling back on the spending reins for a while to squeeze as much productivity out of your current computer hardware and software, it might finally be time to consider the benefits of a system-wide upgrade, thanks to the significant price declines seen recently in desktop and laptop prices. Likewise, if you have an old copier or antiquated delivery vehicle that spends as much time getting repaired as it does working, you might not be saving as much money as you think, when you factor in lost time and opportunity costs-maybe it's time they are finally retired and replaced with more efficient and reliable versions. If you've been making do the past year with a "temporary" workaround in your small business' manufacturing flow because you wouldn't (or couldn't) purchase a new piece of equipment, now may be the time to seriously re-look at ways to pay for it as well.

 


By the same token, if the recent economic turmoil has forged a new, leaner and meaner version of your small business, your might be ready to do some decluttering of your infrastructure. If half of your office cubicles now sit empty everyday and most of your work is done out and about via phone calls, email, and text through your smartphone, it could be time to review your lease and talk with your landlord about downsizing your space or going completely office-free. But keep in mind, even downsizing can necessitate new expenditures. If your business now expects employees to start telecommuting, you might have equip them all with networked, VOIP phones and software for remote server access, for example, to keep communication flowing as easily as it did when everyone shared the same physical workspace. If you do take this road, don't forget to update your company's contact information on its website and on your employees' business cards as well. (For more tips on annual upkeep and housecleaning of your company website, go here: http://searchengineland.com/a-small-business-year-end-web-site-checklist-12915.)

 


Staffing

Small businesses, in particular, remain gun-shy about staffing changes in 2010. A recent Discover Small Business Watch survey taken just as the holiday sales season began found that roughly three out of four small companies had no plans to increase or decrease the workforce in the early months of 2010. Nevertheless, even the smallest of businesses have probably experienced some significant staffing changes during the recession and many may have not yet struck the right balance between employees and work to keep them properly employed.

 


Reviewing where your workforce stood a year ago may be painful if your company has experienced layoffs, but it's a worthwhile exercise, as even after only a few months, it can become hard to remember the exact situations that prompted those cutbacks. And while few small businesses anticipate adding staff-only 7 percent in that same Discover survey-a savvy entrepreneur will put in place a staffing plan to deal with an eventual increase in workload well ahead of time. This process should start with asking hard questions about what necessitated the staffing cutbacks in the first place: Was it simply a lack of work or were there staffing and scheduling inefficiencies that contributed to it as well? From there, an entrepreneur can start to make informed decisions about what his or her company's employee picture will look like going forward. That picture that may look substantially different-possibly combining several old positions into one new full-time job or dissolving one previous position and farming out its duties among current or even part-time employees.

 


This part of the review must also encompass employee compensation and benefits. While it's certainly true that fewer employees are likely to jump ship in the midst of the worst job market in 28 years, it's still worth examining how your company stacks up by plugging in the wage and benefits data of your business's key personnel into sites like http://www.salary.com/ and http://www.bls.gov/bls/blswage.htm. Rising health care costs can be an especially important benefit to consider when thinking about your workforce situation in 2010. It may make sense, on paper, for your small business to drop health insurance altogether, but increasingly, the presence of health care is the best way for a company to ensure loyal and more highly motivated employees.

 


Finances

For tax reasons, the year's end is a natural time to look back over the previous 12 months to get a sense of your company's overall financial health. But this year, it's worth digging deeper than a simple P & L statement in order to really understand how and why your small business spent its cash. For those entrepreneurs who simply hand off a shoebox full of receipts to an accountant every January, this could mean taking the extra time to have a more involved discussion with your tax preparer or financial planner, one that focuses on how your emerging financial picture could necessitate larger changes in 2010.

 


To get a relatively quick yet thorough diagnosis of your company's financial health, you'll want to look at two other metrics besides its profit margin: current ratio and debt ratio. The first of these compares current assets against current liabilities. In general, a company strives to have a greater than a 1:1 current ratio, but keep in mind that if this ratio rises to 4:1 or 5:1 or beyond, your business may be in danger of building up too much inventory behind not strong enough sales, which is not a good way to manage your company's cash flow. Debt ratio is simply total debts divided by total assets and, in this case, a company should try and keep it below a 1:1 ratio. If your company's figure rises above that, it has become highly leveraged and is likely to start having trouble getting access to capital through loans or equity investments. (For more on these financial measurements, check out: http://sbinfocanada.about.com/od/management/a/3ratios.htm.)

 


If your small business did eke out a profit in 2009, but did so only after slashing payroll by half or burning off months of excess inventory, you're probably not poised for another positive year without some rethinking. You might need to take a long, hard look at your sales projections from last year and apply a reality check to them to get a sense of what minimum revenues you can expect this upcoming year. Then, you can work up your balance sheet, examining ways to trim top-line expenses, like, say, renegotiating with your vendors to lower material costs or restructuring employee hours to include more cheaper temporary or part-time workers. And if your company's been hoarding cash in a liquid, but low interest-bearing account, 2010 might be the right time to reinvest that capital elsewhere, like in a longer-term, higher-yielding financial vehicle or, better yet, back into your business.

 


Marketing/Advertising

Typically, marketing and advertising budgets are early and frequent targets of business cutbacks during economic downtimes. This, despite several well-known studies proving that companies pursuing more aggressive advertising campaigns during recessions tend to have better returns and become market leaders in the long run. But for entrepreneurs who never had much in the way of marketing dollars to begin with, lopping this line item off the balance sheet may not have been that much of a loss. And more than a year after the financial crisis hit, small business owners still look warily at ad expenditures-the November 2009 Discover Small Business Watch survey found that 53% of small companies planned further cutbacks in things like advertising for the first six months of 2010.

 


After severe drops in 2008 and 2009, most advertising industry surveys expect further spending declines in 2010 in traditional media like TV, radio, newspaper, and magazines. This trend hints at a larger paradigm shift in the advertising industry, one that bodes well for small businesses that lack huge marketing budgets and creative advertising teams on their payroll. In short, more focused and, less expensive, media platforms like social media websites and smartphones represent the next marketing wave as consumers fracture into smaller and more demographically distinct segments. And as a result, small business owners that, just a year ago, may have never considered any kind of advertising beyond an ad in the yellow pages now have many more opportunities to directly market to potential customers.

 


In fact, a recent "Advertising and Marketing Investment Forecast" by media analyst Jack Myers predicted that the few segments that will see ad investment growth in 2010 are satellite radio, online search advertising, online video, social networking widgets, and mobile phone advertising, which includes apps for the iPhone and other PDAs. The good news for small businesses is that these platforms all have a relatively low cost threshold for entry and, thanks to their highly selective audiences, offer better ROI for ad dollar spent. In particular, online search and social media have a lot to offer smaller companies looking to reach new customers or just build buzz in 2010 without having to spend a lot of cash. (For a few online marketing tips for your small business, check out this checklist: http://searchengineland.com/small-business-yeare

Operations/Vision

Perhaps the toughest issue to confront during a review is the one least tied to a spreadsheet, timesheet, or balance sheet: Where, exactly, is your small business headed? For many companies-large and small-this answer may not be readily known or it may sound radically different than it would have 18 months ago. But unless you're willing to step back and assess just how well your business's reality matches up with your hopes and dreams, you've left out the most important step.

 


For many entrepreneurs, the past year has been a humbling one. It may have meant waiting or missing out on a series of opportunities if not a taking several steps backward. One trap that many business owners can fall into during an economic downturn is to let the external events that temporarily overwhelm their business plan permanently alter their long-term vision for their company. Spend too much time in "crisis management" mode, in other words, and you'll soon get so tied up in day-to-day challenges that you neglect to plan for next week, next month, and next year. So, it's critical to step back and ask big-picture questions like "Is my business plan still relevant?" "Do my products or services still match the market?" "Am I poised to grow my company?" and "Do I have the resources available to manage that growth once it occurs?"

 


Of course, many entrepreneurs launch companies with little more than the proverbial idea sketch on a cocktail napkin, let alone an exhaustively researched business plan. But if, after several years, your small business is still operating in startup mode, veering from one project or sales quarter to the next with no real direction, now might be the time to sit down and sketch one out. Even a basic business plan template (like the one found at the SCORE website: http://www.score.org/downloads/Business%20Plan%20for%20a%20Startup%20Business_July.doc) can help you develop fairly comprehensive long-term strategies for your business that will, in turn, make decisions about what to do or not to do during 2010 that much easier. What's more, having a written plan or vision that you can refer back to will serve as a helpful emotional barometer as well, letting you check yourself for those feelings of independence, fulfillment, and achievement. After all, those emotions, more than the potential profits to be earned or prestige to be gained, are probably the main reason you started your small business in the first place.

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