In a previous blog, we discussed the importance of truly understanding who your customer is and how to best serve them. This time we’re going to talk about knowing your business, which is just as important to your success. If you know your business well – all aspects from operations to sales to finances and more – you will be much better equipped to position it for success. Let’s talk about some ways in which you can better get to know your business.
First, we need some proper context. Many people “start their own business” because they want to do the work they’ve been doing, but want to be their own boss. This is not necessarily “owning your own business.” This is more accurately described as “owning your own job.” Owning and managing a business is a level up from owning a job. It requires a solid understanding of finances, operations, and management that aren’t usually necessary if you’re just working for yourself.
OK, let’s begin with the first area of “knowing your business” – FINANCES.
You probably had one of two reactions when you read that word – excitement or dread. Some business owners truly enjoy digging into the company finances and some business owners would rather be waterboarded. Depending on the industry you are in, truly knowing and understanding your financials can vary significantly. Most businesses pay attention to gross margins (total revenue minus cost of goods sold), because if this number is negative you really have a problem on your hands. But there are also numbers like ROE or ROI that many other capital-intensive businesses should understand to know whether a new piece of equipment or a new building would be a good investment. What calculations do you do when deciding to purchase a piece of equipment, purchase a vehicle, or hire an employee?
Another example of “knowing your financials” would be the owner of a service business working to better understand how much the business makes off of each client, each type of client, each job or service call. By gaining a greater understanding of this information, the owner then has multiple options to improve the profitability of the business.
Next, let’s talk OPERATIONS.
It is important to understand that over the long term, if you intend for your business to grow, it can’t be just a one-person show. You have to have the right software, processes, and people in place. Today, does your business depend entirely on you being there? If you take a vacation, do you have the right resources in place so that everything doesn’t fall apart while you’re gone? Do you have plans in place to change this situation? It is very important to “know your business operationally” – to dig a little deeper to understand HOW your business runs. That way, you can communicate clearly as you add new people and processes when expanding your growing business. When you understand how the business operates, everyone does.
Knowing your business gives you insights into how to better position your business for success. Not just in finances and operations, but in sales, marketing, HR, and every other aspect. And as you deepen your understanding of your business, and as your business grows, communicate that understanding with key personnel so they can share your vision. Eventually, when you decide to sell or transition your business, you don’t want to “be the business.” You want it to be a truly valuable, self-sustaining entity that will fetch a much better price.
Learn more with one of my favorite reads
Asking if you know your business seems like a general question, but if you don’t know the answer, start working on it. I would also highly recommend the book: The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It by Michael Gerber which has some great insights for small business owners. And if you’re not the reading type, stop by and I’ll give you a summary of the book and we can discuss how to apply those principles to your business.