In reading the public notices of the local newspaper on any given day, I’ve been struck by how many small to medium sized companies quietly wind up, without much publicity or attention. Judging by the numbers, it appears going into business and staying in it, is risky. There are factors outside of our control that can impact upon our business i.e. unexpected catastrophe, competitors, international events, exchange rates, business trends, seasonal conditions. Fortunately though, there are also factors that we can control. There are some perils involved in transitioning successfully from a small business into a medium sized one but they can be minimised, with close attention to the following areas:

The infrastructure needed to support a two-person operation will not be appropriate for a burgeoning 20+ person business. A bigger business, with more of everything – staff, customers, turnover, stock, and complexity – needs an effective, sound base to support its activities. As part of the business planning process prior to actually expanding, developing and documenting the systems, policies, procedures and structure needed, is essential. If you currently do not have efficient communication systems, stock ordering and stock control systems, invoicing systems, to name but a few, then develop them. An inconsistent approach to systems use; a lack of clarity about the responsibilities and scope of roles or few operating policies i.e. debtors, creditors, personnel/HRM, is to be avoided. Do something about them – whether you are a small business or one in transition.

When businesses grow, management requirements grow also. Keeping a gimlet, roving eye on every aspect of the business is critical, although it may look a little disconcerting. This means doing business planning and having business plans as the roadmaps to take the business where it needs to be; it means having clearly thought out business objectives; it means spending time working ‘on’ the business – the birds eye, overview of the whole business – and ‘in’ the business, doing the doing. It means getting professional advice and support when needed i.e. public relations, marketing, IT. It means keeping abreast of trends, competitors, new ideas.

It involves developing annual capital and operating budgets and their monitoring systems. It requires careful attention to costings (you may be getting heaps of work, but are you making any money?). It means identifying the critical areas to be measured throughout the business, so as to provide markers of success or otherwise. It requires a consistent approach, good leadership and clear communications. It requires developing relationships with customers, suppliers, staff and others. It means careful attention to cash flow and all the systems related to debtors, creditors, debt collection. It means selecting the best people for the job and having ways of developing and encouraging their growth and development. It also requires sorting issues, as soon as possible, when it is apparent that some aspect of the business isn’t working as well as it could be. Watching, waiting and hoping that problems will vanish, if you turn your back on them, is optimistic and shortsighted. They won’t.

It also requires awareness of, and attention to, ‘organisational leakage’. This is anything that’s not quite right within the business, issues that are known by owners or management, but not fixed. For example, tolerating mistakes in paperwork (costings, invoicing, finishing documentation) and knowing it’s costing you money. Tolerating under performers, knowing that their inability to do the job required, for whatever reason, is costing the business. Tolerating a supervisor’s sloppy practices and knowing that everyone is knocking off the job a half hour early, every day, costs dearly. Leakage costs money and unchecked, will harm the business. Where do you want your money – in your pocket or down the drain?

A tempting practice for businesses is to take money which isn’t theirs i.e. PAYE, GST, to fund other areas like creditors, wages, furniture, supplies. It may seem fine at the time, but can be disastrous, when monies are due at the IRD and there is no money in the bank to pay the bill and late penalties are added to the original debt. Selling off the family silver and loved ones to get out of the financial hole, highlights that there is something not quite right in the business or its management. Get professional accounting advice and follow it, even though you may want to take a Robin Hood approach. GST, PAYE and other such money should be put into a separate specific account. If you’re tempted to use it, don’t. And if you have been doing this, know you’re heading into big trouble.

The transition from small business into medium sized business generally signals success and optimism. To get the most from the opportunity, minimise the risk factors within your control. Develop the infrastructure, systems, policies and practices and organisational structure needed, before leaping into the void. And once successfully underway, continuously adapt and improve them.

First Published in NZBusiness December 2001