Join the Dots

15 Apr 2021 5:26 PM | John Heap (Administrator)

Most small businesses fail before they grow into big businesses. One of the commonest reasons is that they run out of working capital. In turn this is because the business leaders often do not understand the relationships between different aspects of their business. They fail to fully connect sales, production and finance.  


At times they concentrate on sales, without bothering to ensure they have the capacity to meet enhanced sales contracts.  Or they concentrate on production without having those enhanced sales contracts - and end up with lots of unsold stock.


Even when they consider sales and production together, they might fail to fully understand the implications for financing - in both the short and long term.


Yet these leaders of small businesses are ‘smart’ businessmen - they have fought tenaciously to establish and grow their business.  They have probably hired someone with financial acumen and installed one of the standard accounting packages.  They have created the conditions for financial control - just forgotten to exercise it.


Their performance management is probably similar.  They might measure performance  - output, quality, etc but fail to make all the necessary linkages or take the hard decisions that sometime need to be taken. If, for example, they tolerate poor performance (or even fail to recognise it), their workers will recognise this and may act accordingly - becoming de-motivated or exploiting what they perceive as management weakness.


In both areas, managers need to ‘join the’ dots- to make the various links between measurement and control; to establish measures which uncover poor performance and highlight problems’; to establish  communication processes which ensure everyone knows what their role is and how their performance is perceived; to establish rewards for good performance and sanctions for poor performance.


Then they might actually create the environment in which they can prevent small problems becoming big problems and enhance the possibility that their small business might grow into a large business.


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