In this third chapter in the series about acquiring and running a small business, past RCS staff member, and current small business owner, Simon Hicks, will take us through his final pearls of wisdom regarding what to do once you’ve bought the business you wanted to acquire.
(16) Don’t change the business right away. Don’t make significant changes for at least six months because it will take you this long to understand it. Otherwise, you are just creating a start-up. You bought it for a reason, so don’t trash the reason, but improve upon it. For example, we saw a specialist burger bar taken over, and the menu changed in the first week: the customers left in droves.
(17) There is no such thing as an auto business. Please don’t kid yourself that you can buy a good business and then sit back and watch it make you money. Whatever you choose, you need to understand how that business works thoroughly; its management and operations. There is a reason that new franchisees go to MacDonald’s University to learn the business from flipping burgers up. Even if you have a good manager, (18) No employee will care about the business as much as you do. You will never have all the answers, but if you know the business thoroughly, you’ll know the right questions to ask. You’ll also be better placed to monitor and understand how the three secrets of profit (Gross Margin, Turnover and Overheads) are playing out.
(19) A one-page business plan. You should be able to summarise what you want your business to do on one page. Preferably on the back of an envelope. Consultants might produce a small book for you, but you need to clearly and succinctly state what you need from your business yourself. If you explain your business to a friend and their eyes glaze over, it’s not clear enough in your mind.
Spend your time writing a (20) Blueprint or Operations Manual. A prime attraction for us taking on the Pizza Shop was the previous owner’s blueprint. This was essential for us to learn something we knew little about and train new staff. And when we came to sell the business, it was a key asset.
Likewise, don’t waste too much time working on overblown budgets. It is sufficient that you know enough to understand how you are tracking against benchmarks and your GM, Overheads and Turnover, and can cashflow it. Many spend so much time gathering data and analysing it but then fail to make decisions. This is the difference between collecting information and using it. Budgeting and monitoring’s prime function is to make you think about your business.
(21) Don’t run a Small Business like a Large Business. Most small businesses are cash flow dominated. They won’t thrive under the bureaucracy and ponderousness of large businesses. These can get away with this because they, like farms, rely on the real estate business to cover any cash flow variations.
(22) Build a good team around you. Most businesses will need staff, especially if they are to grow. Put time into growing your team with the right, well-skilled people in the right role. “Clients do not come first. Employees come first”, says Richard Branson. Motivation for staff comes not just from wages but from being valued. There are many ways to reward staff. Be wary of bonus schemes. They are invariably complex and hard to construct in a way the employees can influence directly. But always remember that (23) Staff work for you for their reasons, not yours. Understanding this can save you frustration.
If you are running a business in partnership with others, (24) Partnerships are built on trust, needs and understanding, not written contracts. I have seen businesses fall apart because partners did not work to understand their shared and differing needs. Worse, don’t set out on an enterprise relying on a written contract or agreement to bind together untrustworthy partners. It will merely add to your legal fees at the finish. And what is your exit strategy? When you are starting out on your new adventure, be clear on how to end it amicably because eventually it will end, and you should know how the split will look.
(25) Don’t be a perfectionist. Remember the 80/20 rule. To grow the business, you need to scale turnover and curb your perfectionism. This is the difference between a hobby and a business. Work on making the business system perfect, not each item you sell.
And finally, (26) Maintain the work/life balance. Monitor the business to ensure it’s providing you with those three things: money, time and challenge. As the business develops, this mix will change, and the combination that you need will change. It might temporarily be unbalanced, but if things are out of wack for too long, you need to ask why you are doing this and what needs to change.
Your business should work for you, not you work for the business. No family and friends at your graveside will ever say, “I wish he spent more time at the office.”
Did you miss parts one and two? Check them out here.