Some folk enter business because they have a great new idea or concept that they believe consumers will clamour to buy.
But the majority of folk start their own business because, after years of working for others, they have become technically very good at what they do. Usually they have a few potential customers, and the idea of being their own boss, and earning a bit more, is understandably attractive to them.
“If you are technically competent, have a few customers and a willingness to work hard surely you must succeed!” probably summarises their thinking. But that summary is fine only if the business remains very simple. As the business grows, technical competence and hard work will never be enough; the business operator will need to learn a whole new range of business skills.
In fact the number of business skills which must be learned is dauntingly large. The obvious ones include:
- Marketing and customer relations
- Getting the best from staff
- Understanding business and commercial law
- Basic bookkeeping and understanding financial statements
- Inventory management
- Predicting and managing cash flow
- Debt collection
- Preparing Budgets
- Capital raising
- Developing internal controls
- Time management
- Costing Pricing policy
Many, possibly most, business failures can be attributed to the business operator’s failure to acquire business skills. The simple case of a business operator who works hard and produces an excellent product, but who fails to develop good credit policies and debt collections procedures and so has high bad debts and very tight cash flow, will serve as a good example of what we mean. But rarely is a single management failure to blame for the collapse of the business. Our experience is that usually the absence of two or three business skills combined will bring the business down.
Short of doing a crash Masters Degree in business administration it is hard for the new business operator to know what he or she has to know, and to find ways of learning what they need to know. This is where their accountant has a role to play. Certainly compliance work must be done, but each accountant must also develop business mentoring skills. No accountant can possibly run their clients business for them, but they can and should help the client identify, say, the three main risks or challenges faced by the business and suggest how the client can develop skills to better manage those risks.
In essence business management is about gathering business information and trends relevant to your business, and thinking about what that information means. And then doing something about it!
In the final analysis when asked what he does a plumber should be able to reply “I manage a plumbing business” instead of “I am a plumber”. If he can do that the risks of business failure will be enormously reduced.