Managing a Small Business

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Introduction

There have been many efforts in trying to define what a small business is. Although there is still no clear definition of a small business, there are characteristics that are common to small businesses. They have relatively fewer employees compared to big businesses, at most 100. Most of its functions are geographically localized and are normally started and financed by few individuals.

However, not all small businesses meet all of the above conditions (Farhoomand, 2005). Mr. John Wesley operated a small business which started by supplying fresh juice products and snacks within his neighbourhood. He called it JW Delicacies. It was to specialize in selling juices and bakery products to customers living around his home area and passers-by.

Goals of owning and managing a small business

Goals refer to the motivational factors behind the desire to own and run a business. These goals can be economic, personal freedom or ego gratification. Mr. Wesley was mainly driven by economic goals because as a trained chef he believed he was not getting enough money at his place of employment. Therefore, he wanted to increase his earnings by starting a business where he would maximize his earning potential.

He was also driven by personal goals of freedom whereby he wanted to implement some ideas which he had proposed at his working place but were not implemented. He also wanted to have job security because at his working place there were always fears of retrenchment whenever the economy was performing poorly.

However, anyone aspiring to own a business must remember that businesses do not produce profit immediately. Therefore, in their planning they must be realistic on when their businesses will be established and become a stable source of income (Carter & Jones-Evans, 2006).

Roles of a small business manager

Owning and running a business comes with responsibilities that are not found when employed by someone else because the employer is responsible for all the operations of the business. However, when one starts a business, almost all managerial duties performed by the employer are now shifted to the small business owner.

Therefore, the business owner must know all his or her duties and responsibilities as this will help him in planning (Longenecker, 2008). One of the duties is being a tax collector whereby a business owner is responsible for collecting payroll tax for his employees.

If the owner is a retailer of goods, then he is supposed to collect sales tax for the various government institutions. Mr. John Wesley, the owner of JW Delicacies, was supposed to remit a monthly deduction of his employees’ salary to the social security fund.

In addition, he was supposed to use an electronic track register to deduct sales tax due and remit them to the revenue authority on a monthly basis (Canadian Council for Small Business & Entrepreneurship, 1985).

Secondly, the owner will be expected to be the manager and the boss. This means that the owner is responsible for all the human resources related functions of his employees. For instance, Mr. Wesley was responsible for hiring and firing employees. At the start, he did not employ any salaried staff because the business had no adequate capital to pay them and hence he relied on the services of his family members.

He trained his family members to help him in the business as volunteers and he would give them a stipend. He arbitrated on any conflict that arose in the business. However, as the business grew, he began employing some workers and determining their remuneration packages (Longenecker, 2008).

Thirdly, a small business owner would have to assume the role of the sales and marketing executive as well as deal with advertising. This refers to duties related to attracting and retaining customers. Mr. Wesley planned to hire the services of a designer in the neighbourhood to design advertisement flyers and posters for the business, which would be distributed within the neighbourhood to inform people of the new business.

Fourthly, every business owner should have some accounting knowledge. This includes those who are planning to employ accounting experts because he or she needs to know how the business is doing financially.

Mr. Wesley lacked accounting knowledge, which meant that he had to have a trustworthy person handling his finances. Good enough, his sister in-law was an accounting officer at Wal-Mart retail stores. She would review the business’ financial records on a weekly basis and advice him appropriately (Longenecker, 2008).

There are other duties which do not affect the day-to-day operations of a small business. They include a lawyer- which is important when signing contracts, business planner- which is important when planning to make changes. There is also a market researcher whereby the owner would want to find out about the characteristics of his customers.

A technology expert can also be important when dealing with repairs and technological upgrades. Mr. Wesley had unsuccessfully tried running business before on a part-time basis. He could not commit the adequate time for the business and the people he had employed ended up mismanaging the businesses. He therefore resigned from his employment to focus on developing his own business (Longenecker et al. 2005).

Building a business plan

A business plan is a written plan that outlines the goals of a business and the means of attaining those goals. Every small business owner should have one, though most do not. Many of them believe that it takes a lot of time, energy and effort, which they are not ready to commit.

By writing a business plan, the business owner will be forced to think where he or she wants the business to go and how he or she wants to take it there. Therefore, a business plan acts as a roadmap to follow as you run your business.

A business plan can be formulated in many ways. However, there are some essential components which must be present as mentioned below. A description of the business which should include the goods and services the business is dealing in (Hatten, 2008). The marketing plan component is an outline of the market which the owner of the business is targeting as well as details of ways of attracting customers and their retention.

There is a financial management plan which details costs of operating the business and how the costs will be met. It should also include the source of financing, whether it will be external and how much will be needed.

Most financial service providers ask for a business plan before considering whether to offer financial support to a business. Lastly, there is the operations management plan which describes how the owner plans to manage the core processes of the business. This mainly includes the human resources functions (Hatten, 2008).

JW Delicacies’ Business plan

Mr. Wesley had a simple business plan which had the four essential parts of a business plan. The business was to start as a small venture for supplying fresh juice and bakery products to his neighbourhood. The business would produce fresh juice and bakery products such as cakes and cookies. These would be served within the business or would be supplied to people’s homes when ordered.

The juices would be served cold or warm depending on the customer’s preference. Those served within the business would be in glasses while those served in people’s homes would be packed in bottles (Stokes & Wilson, 2010).

The business targeted customers within the neighbourhood, who were about thirty families with an average of three members each. The business would also supply the passers-by because it was situated along the street. Mr. Wesley had identified the need when he was working as a chef in one of the nearby hotels.

Every time he supplied foods to homes in the neighbourhood, people would ask him if he had juices and bakery products. The nearest supplier of such products was located three miles away from the neighbourhood. In addition, there was a school in the neighbourhood, which was a potential market because students loved snacks (Lussier, 2008).

The company would use flyers and posters to advertise about the business. Its main target market was situated around the business and hence flyers would be passed to all homes in the neighbourhood to inform them of the products and services of the new venture.

To market to passers-by, the business would use posters because the customers would be passing around the business location. The business would also put up a large banner that is visible from a distance of half a mile. This would enable people to know about the business and the goods and services it dealt with. The financial plan explained that the business would be funded from the family savings (Lussier, 2008).

Mr. Wesley had been making some savings for starting the business. In addition, the business relied on the workforce from family members which meant that most of the costs associated with employee compensation were reduced. The start-up costs as per the budget amounted to 68 euros.

The family had savings amounting to 90 Euros which were contributions from both Mr. Wesley and his wife. Sales projections for the business per day were 10 euros per day. This meant that the business could make an average of 300 euros per month.

The business expenses were projected at 40% of sales. Therefore, the business was to make a profit of 180 euros per month. Mr. Wesley and his wife agreed to deduct 60% of the profit for family use because the business was to become the main source of income for the family after Mr. Wesley resigned from his job (Carter & Jones-Evans, 2006).

The operations management plan explained how the daily operations of the business would be carried out. Mr. Wesley was to deal with preparation of the juices because he had an experience from the food industry as a chef. The wife was to be involved in serving the customers who visited the business for a sit in.

His two sons were to be suppliers of orders in people’s homes around the neighbourhood and to be messengers for the business. One of the daughters was to be involved with packing customer orders which were to be delivered to the homes and the other one was to help in receiving money from the customers.

The account records were to be sent to the sister in-law on a weekly basis for verification and advice. This meant that at the start the business was entirely managed by the members of the family (Carter & Jones-Evans, 2006).

Small business growth and managerial practices

A business can be started from scratch but it can grow and be established until its organizational structure and pattern of management will require change. Management in any organization must adapt to changes in its environment. Otherwise, it risks being pushed out of business.

However, changes in the early growth life of a new business are much more widespread compared to those in a relatively mature business. Various models that have been proposed by experts explain the various growth stages and the management issues related to each stage (Lee-Ross & Lashley, 2008).

Stage1 is called a one-person operation, which refers to a firm run by one person. Stage 2 is called player coach whereby the owner continues to participate actively in the operations of the business though he now has people under him that he manages and leads. At the third stage, the leader has some supervisors under him and does not do any of hands-on or operational work such as making products, selling and many others.

Stage four involves the formalization of organizational functions. Here there is adoption of organizational charts and job descriptions, writing of policies and standardization of personnel practices (Lee-Ross & Lashley, 2008).

Management of growth in Wesley’s business

Mr. John Wesley and his team started business and they got a very positive response. There was a very high demand for their products and hence they ended up overworking themselves to meet customer demands. Therefore, it was apparent that the business had to be expanded. The first expansion step was to bring in more employees to provide extra work force.

The second step was to change the businesses’ management structure which would involve introduction of experts into the management. The business had started at stage two of the growth model of small business.

This means that Mr. Wesley acted as a coach player whereby he managed the employees of the organization but also performed operational work of the business. For instance, he was involved in the preparation of juice that was sold to customers (Steinhoff & Burgess, 1993).

The business therefore employed two professionals in the management position. One was an accountant who was to deal with all financial matters of the business. The other one was a marketer who was charged with product development and marketing of the organization and its products as well as services. Mr. Wesley became the CEO and was to head the production department.

Twelve other employees were employed whereby six were taken to the production department, four to the marketing department and two to the accounting department. Each of these new employees was qualified for the respective areas of specialization. In addition, all the previous employees were included in the business’ payroll (Longenecker & Loeza, 2010).

Small business marketing and strategies

As the business grew, there was need to introduce more professionalism in its operations. The marketing department designed a customer relationship program for employees to learn the strategies that the business would adopt to win customers’ loyalty. This strategy was focused on increasing the business’ profitability as well as customer satisfaction.

It was based on the following principles: acquisition costs for new customers is huge, long-time customers tend to spend more on the business than new ones and satisfied customers are likely to refer their friends and colleagues to the business. Therefore, the business planned to use word of mouth as its main marketing tool for spreading information about its offerings (Kakkar, 2009).

Customer-relationship management practices carried out by Wesley’s employees were as follows: First, those serving customers were to provide exceptional experience in every transaction they were carrying out. This included appreciating and acknowledging customers who came to be served. Secondly, the marketing department was to design sales materials that are clear and easy to understand.

This included sales conversations, flyers and posters as well as banners. Any one dealing with customers must respond promptly to their concerns and requests (Kakkar, 2009). This required a sense of urgency and responsibility to customers’ complains and inquiries. Standing behind products and services, which means the business was to guarantee the quality and satisfaction of customers with their products.

Lastly, they would develop personal relationships with customers by having their contacts and addressing them by their names (Kakkar, 2009).

Through these practices, the business attracted more customers that were loyal. They were pleased by the exceptional services offered by the staff. The business depended on referrals to expand its customer base. After two years, the business had a customer base of over 120 customers who were served through home delivery and a daily average of 60 customers who visited the business cafeteria to be served.

The profits of the business tripled, though the costs had also gone up. The business had spent much of its income in opening another branch in the neighbouring town.

As opposed to the initial venture, this one had a lot of costs to be incurred because they had to lease a building while the initial one was housed within the family’s property. However, there were a lot of prospects in the new venture and the CEO believed that the costs could be recovered within the first year of operation (Longenecker et al., 2009).

Challenges of small businesses

Although the business was relatively successful, the successes did not come without challenges. Competition from large and established firms was a constant threat to the business. The large firms had accumulated a lot of profit which enabled them to offer their products at relatively low prices (United States, 2003). Mr. Wesley’s business could not compete with such firms on pricing.

Therefore, he resorted to offering personalized services which the large firms could not manage to offer because of their mass marketing strategies. This helped the business to fight their competitors. Increasing costs of production was also a major challenge especially when the business was at its initial growth stages.

The business managed to counter the high costs by eliminating those expenses that were less essential. This included relying on volunteering services instead of employing salaried employees (Stokes & Wilson, 2006).

Conclusion

Small businesses contribute a great deal to the development of many economies in the world. In addition, many people aspire to manage their own businesses. In spite of these positive indications, most people have not been able to own and run their businesses to success. Some of the things they should consider include the goals they intend to achieve and the roles they will play in managing their own businesses.

They also need to build a business plan that will act as a roadmap for their business activities. Every business will need to adapt to environmental changes. As a small business grows, it will need to reorganize its management and adopt new growth strategies to enable it to become established and be competitive.

Small businesses have their own challenges which include lack of enough resources to compete with the large and established firms. In addition, they are the most hit by tough economic conditions because they have not yet adapted to the fluctuations in the economy. The small businesses can counter competition from large firms by segmenting the market and offering personalized goods and services.

To deal with high economic costs, the management can cut out the non-essential expenses. Therefore, one can be able to run a small and vibrant business by acquiring the necessary information, adequate planning and employing the services of experts in the management of his or her business.

List of References

Canadian Council for Small Business & Entrepreneurship. (1985). Small business management and entrepreneurship. Journal of Small Business and Entrepreneurship, 19(2), pp. 4-19.

Carter, S. and Jones-Evans, D. (2006). ‘Enterprise and small business: principles, practice and policy.’ Harlow: Pearson Education Ltd.

Farhoomand, A. F. (2005). Small business management and entrepreneurship in Hong Kong: a casebook. Aberdeen: Hong Kong University Press.

Hatten, T. S. (2008). Small business management: entrepreneurship and beyond. Mason, OH: Cengage Learning.

Kakkar, A. (2009). Small Business Management: Concepts & Techniques for Improving Decisions. New Delhi: Global India Publications

Lee-Ross, D and Lashley, C. (2008). Entrepreneurship and small business management in the hospitality industry. Burlington, MA: Butterworth-Heinemann.

Longenecker, J. G., Moore, C. W., Palich, L. E. and Petty, J. W. (2005). Small business management: an entrepreneurial emphasis. Mason, OH: Cengage Learning.

Longenecker, J. G. (2008). Small business management: launching and managing new ventures. Mason, OH: Cengage Learning.

Longenecker, J. G., Petty, J. W., Palich, L. E. and Moore, C. W. (2009). Small business management: launching and growing entrepreneurial ventures. Mason, OH: Cengage Learning.

Longenecker, J. G. and Loeza, M. E. T. (2010). Small business management. Mason, OH: Cengage Learning.

Lussier, R. N. (2008). Management fundamentals: concepts, applications, skill development. Mason, OH: Cengage Learning.

Steinhoff, D. and. Burgess, J. F. (1993). Small business management fundamentals. New Delhi: Tata McGraw-Hill Education.

Stokes D. and Wilson N. (2006). Small business management and entrepreneurship. London: Cengage Learning EMEA.

Stokes D. and Wilson N. (2010). Small business management and entrepreneurship. Hampshire: Cengage Learning EMEA.

United States. (2003). Major management challenges and program risks Small Business Administration. Darby, PA: DIANE Publishing

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