The Importance of Business Management
Businesses need a business plan to set them on the right course to success. Businesses also need managing to ensure that they stay on the right course.
Business management is the way businesses ensure that they continue to head in the right direction. The business plan will contain forecasts – especially financial forecasts – which may have been used to convince a bank manager or investors to fund the business. It is entirely unacceptable, for those reasons, as well as for the fundamental well-being of the business, to forget about the business plan once the business is up and running. Business management is about making sure than the business sticks to its plan – or updates the plan along the way.
Measure To ManageSomewhere in the business plan – either implied by figures in the financial forecasts, or specifically listed – will be some objectives, targets or even an action plan. It is against those objectives that the managers, directors or owners of the business should manage the business.
There is a business mantra: “You can’t manage what you can’t measure.”
While this may not hold true in every situation, it is certainly the case that small businesses will run better if they have some understanding of their numbers, and therefore some form of measurement is important.
Use SMART ObjectivesObjectives in the business plan are more easily managed if they are measurable (as used in SMART objectives). Business management against measurable objectives is easier than hoping or pinning your decisions on “gut-feel”.
Of course, we should not lose sight of the fact that management is about more than just counting the beans. If you have staff, or even with your business partners or fellow directors, the best management is about planning, organising, leading, controlling and directing, especially where people are concerned. Nevertheless, it is important to select some key measures for your business (for example: sales, profit, turnover, expenses – take your pick) against which you can measure its success. No business is successful if it loses money.
Make Your Business ScalableIt is not just the finances that need to be measurable. To grow, a business must be scalable. If you can only ever produce one widget a week, then you can only ever sell one widget a week, and the business will not grow. You must remove the bottlenecks to enable a business to grow. To do this, you will need to break down the way it works into business processes. You must remove dependence of the business on individuals. When a business consists of business processes then the way it works is easier to measure.
A business of one person (sole trader or single person limited company) is unlikely to grow into a truly successful business if that one person is responsible for doing the work, as well as managing the business. It will always be restricted. Yet if the single person analyses his/her business, breaks it down into business processes, and then begins to use other people to do the tasks within those processes, the business can be scalable and has a chance to grow. Those processes will then lend themselves to measurement and consequently be tools for business management.
Reassess The PlanBusiness management is an ongoing process to ensure that the business stays on track. However, that is not to say that the original business plan should be adhered to blindly. Indeed, continued reassessment of the plan and measurement against its forecast is a must. It would be foolish to continue to do things that make no money or, even worse, lose money, just because they’re in the plan. It would be equally foolish to ignore opportunities that come your way because they weren’t in the plan. Without measurement and management you would not know what is making you money and what is not.
Business processes enable measurement which enables business management. Updating the business plan and continuing to measure in an iterative process is the way a business can understand where its success and failures are coming from, and how it can update its business plan for future success.