Running a small business can be difficult. It can be easier if you know the answers to these 10 questions:
1. What problem or need does your business solve? Every business exists because of an opportunity within the market. As a business owner, you must define the need and/or problem you are solving. If you can’t answer this question, how will you know if your product or service is working? This is the most basic question that every business owner should ask before launching a business. Ask your customers why they buy from you. You need to know the answer and understand your value proposition as to how your business is differentiated from its competition.
2. How does your business generate revenue? Determine which products and services are significant revenue drivers. Is the market large enough and will you be able to penetrate it effectively? If you want to cut costs and increase revenue, this will help you understand where you should be focusing your resources — and where you should not. This information is available to you through your monthly profit and loss statement.
3. Are there segments of your business that are not profitable? All small businesses have limited resources. Your business should only support sales that are profitable. Understanding your target customer will help you define your marketing strategy. Review this information from your monthly profit and loss statement under revenue, cost of goods sold and net profit (by item).
4. Is your cash flow positive? If there’s a business segment generating a negative cash flow, you may need to reexamine your business plan. You should be aware of cash flow requirements and track dollars-in and dollars-out. If cash flow is tight, this may be your most important report to review monthly or even on a weekly basis.
5. Does your pricing strategy make sense? Customers buy value. It’s difficult to make a large gross profit on commoditized items. Don’t be afraid to experiment and test higher prices with customers. Is there a service component that will allow you to raise prices? How are you positioned with respect to your competitor’s pricing? Shop your competition and do a SWOT — meaning strengths, weaknesses, opportunities and threats — analysis.
6. Are you focused on working on your business as opposed to working in your business? Know your break-even point. If you are not profitable because too much money is spent on payroll and other overhead items, then your overhead is too high. Look at your payroll and categorize each employee as either income-producing or as overhead.
7. Are you retaining your customer base? If older customers leave as you bring in new ones, then you are not building a stable company. Try to add new business and retain repeat customers. You should track customer revenue year to year, and analyze changes. Do not hesitate to take corrective action when necessary.
8. Do your happy customers refer others to your company? Customer acquisition costs are less expensive when you receive referrals from existing customers. Ask your customers for referrals. If you get a new customer from an existing one, track their referral business. Consider offering incentives to your existing customers to refer more customers.
9. Do you know who your best (most profitable) and worst (most costly) customers are? Some customers may be the best customers you never had. Review your gross profit by customer. Ask your employees which customers are the biggest time wasters and abusers of company resources.
10. Are you paying attention to social media? Social media must be part of your marketing strategy. In addition to creating and maintaining your website, spend money on search engine optimization. Perhaps your business lends itself to Facebook advertising. Hopefully, you have a functional customer relationship management (CRM) system. Use Google Alerts to track vendors, customers and employees.
These questions represent a handful of some basic questions you must answer in order to have a successful business. Your business plan and your strategic plan must focus on these key questions.
If you do not have a business plan or a strategic plan, you can obtain free help from SCORE. Nationally, SCORE has helped more than 10 million businesses over the past 53 years.
Dennis Zink is a volunteer, certified mentor and chapter chairman of Manasota SCORE. He is the creator and host of Been There, Done That! with Dennis Zink, a nationally syndicated business podcast series. He facilitates a CEO roundtable for the Manatee Chamber of Commerce, created a MeetUp group, Success Strategies for Business Owners and is a business consultant. Email him at [email protected].