What Is Most Important to Small Business Owners?

A small business owner is the organisation's central figure responsible for conceiving, creating and running it. Independent decisions, financial benefits, the satisfaction of creating an independent venture are the rewards business owners enjoy.

Managing finance, clients, suppliers and the burden of investment risk are the critical challenges of owning a small business. We begin with a quick recap of small business.

What is a small business?

A small business is a privately owned enterprise where the ownership is mostly a sole- proprietorship or, in some cases, a partnership.

If we look at India, the small business is an important segment. The government focuses on developing this sector (MSME - Micro, Small and Medium Enterprises) in terms of growth and efficiency. This industry has been categorised based on investment in plant & machinery and annual business turnover.

For the micro sector, the limit for investments in plant & machinery is Rs. 1 crore and for annual turnover, Rs.5 crores. For the Small industry, the limits are Rs.10 crores and Rs.50 crores, respectively. The medium sector has an investment limit of Rs.50 crores, with the turnover capping at Rs.250 crores.

India's small business sector has around 6.3 crore units (as of 2020) and plays a crucial role in the economy, with a 29 % contribution towards the GDP. The government has several initiatives to encourage this sector. (Ref. Msme.gov.in; Statista.com)

In such a scenario, what is important for the small business owner? But first, a look at some of the characteristics that makes a good business owner.

General characteristics of a good business owner

1. Passion

Passion drives success. Great ideas come out of passion, and the most significant obstacles are also conquered by a desire to succeed.

2. Confidence

A confident approach to whatever you do increases the chances of success many times. In the tricky business world, confidence is a powerful characteristic that can guide you to your goal.

3. Risk-taking ability

Business is about taking risks. Be prepared for accepting losses as part of the business. Courage is necessary to move out of the comfort zone and face the challenge as it comes -it may be a decision to stock a significant raw material because of a price increase or committing additional funds for business promotion.

4. Adaptability

A flexible approach drives your business in the right direction. Like in life, a company can throw up unpredicted things anytime, which you can efficiently handle if you have an adaptive mindset. Failure to adapt to change has doomed many businesses both in the large and small scale sectors.

5. Focussed mindset

The owner of a business must have a clear focus on the goals set. Goals, along with a plan of execution, must cover all areas of your business, from product quality to customer service, profits and growth.

What is important for the small business owner?

Financial criteria are the standard yardstick for assessing the success of any business. Many small business owners face several difficulties in running the organisation due to the limitation of resources. Small organisations operating in different sectors may face specific challenges, but in general, the issues may be classified as:

• Cash flow
• Shortage of raw materials
• Profit
• Growth
• Marketing issues
• Managerial skills

1. Cash Flow

Cash flow is a critical element and perhaps the most vital challenge for a business, small or big – when it is in short supply, it affects all the operational aspects. How to improve cash flows?

• Manage your receivables better

Small business owners are often afraid to push harder for their client's payments due to fear of upsetting the relationship. The right approach is handling your customer on your product/service's strength and being firm on payment terms.

You may use your position as a small organisation to request a support (of timely payments) from all your clients.

Another practice to avoid in times of distress is to offer additional discounts to recover overdue payments. Once you provide such discounts, clients will always ask for similar amounts in future.

• Better terms with suppliers

To support cash flow improvements, you must also try to negotiate better terms with your suppliers, landlord and bank. It may not work in every case, but where it does, you stand to gain.

• Deferment of expenses

Review all overhead expenses and take a hard decision of deferring whatever is possible by at least 60 days. This short term strategy may help you to tide over a temporary cash-flow problem.

2. Shortage of raw material

Multiple suppliers, cordial relations and timely payments are the key to successful material management. Cash flow problems at your end can magnify issues here, but with a multiple supplier strategy, you stand to manage better.

3. Profit

This is one of the main reasons for doing business. Without profit, business dries up, and there is no fuel for growth. A constant review of your processes, product prices and input costs, other overheads can help you significantly with the margins.

4. Growth

As your business grows, you need to evolve positively. Better technology, process improvements, outsourcing are necessary actions that can sustain growth for your company.

Businesses in the B2B and B2C sectors must concentrate on better customer relations as a critical measure for growth. It is easy to increase production, but it is tough to find the right customer.

5. Marketing issues

A small business mostly operates with no specialised marketing staff. Most of the activities of promoting and selling the product have to be performed by the owner. How to proceed then?

• Prospective customers

With a low budget for promotion, you need to focus more on the list of prospective customers identified during your planning survey. Research more on customers' target profile (trade directories, online information and market intelligence) and prepare a shortlist of customers who are more likely to buy your item/s. Then approach the entire group – contact personally wherever possible. Similarly, have a clear understanding of your competitors.

• Digital methods

A website is a necessity if you are in B2B or B2C business. The website must be made attractive by including regular customer feedback and blogs on industry-specific information.

A digital strategy of using social media, local SEO, and platforms like Google My Business can substantially improve your business's marketing.

Besides, Positive customer feedback and word of mouth are effective ways of promoting a local business. Email marketing still delivers results. You may use all these options.

• Staff development

Train an employee on marketing support activities- answering all customer emails, responding to their requirements in consultation with you.

6. Managerial skills

You, as the central figure, have to handle employee issues. In today's business model, outsourcing plays a crucial role and therefore, review your needs closely and decide to outsource. Within the organisation, delegate as much as practicable.

Also Read:

1) How to Create Mobile Applications for Small Businesses?
2) How to Get the Attention of Small Business Owners?
3) What are the Perks of Owning a Small Business?
4) Why Do Many Small Businesses Never Expand?

FAQs

Q. How to arrange additional funds for my working capital? I am not able to meet all the requirements of my bankers.

Ans. Banks generally ask for various documents and statements. A financial consultant can help you to organise all the necessary information.

Another option is to approach an online finance company. They can arrange funds through NBFCs and can also organise required information from your raw data. OkCredit is one such fintech company with experience in handling small businesses.

Q. In my existing packaging business, I have reached my full production capacity. How can I grow further? Orders are not an issue with my organisation.

Ans. You can think of outsourcing – Third parties can do some operations at their locations; consider working double shifts / or working on holidays, keeping in mind the statutory requirements of labour laws.

Q. What considerations should I make before deciding to borrow additional funds?

Ans. a)Your order book position b) capacity to produce c) impact on overhead cost. Your risk-taking ability and confidence will be the ultimate decider.

Q. Should I hire more staff to meet my additional demand for sales?

Ans. If the increase is temporary, plan only contract employees. Overheads can be a hefty burden for a small business. Review operations closely for considering permanent staff.