How to Run a Business
There are a few elements all business owners need in order to learn how to run a business effectively. Here are 7 areas critical to business success.
Running a business sounds like a massive and complicated undertaking, but in reality, there are just a few elements that every business owner needs to focus on to create and run a successful business. Here are the elements you need to focus on to learn how to run a business.
1. Create and Follow a Business Plan
Your business plan is a roadmap that can help guide you to make the right decisions in your day-to-day business operations. Many business owners wait to create a business plan until they require financing to grow or expand their business. But a business plan can help you:
- See the big picture of your target market
- Analyze your competition so you can differentiate and compete effectively in the marketplace
- Identify, acquire, and retain customers
- Conduct market research for optimal product and service development and placement
- Market your products and services in the most effective way
A mistake many business owners make is to create a business plan, but when it quickly becomes out-of-date, they leave it in a drawer to collect dust. A business plan should be a living, breathing document that gets reviewed and updated regularly so that you and your team stay on mission and don’t get distracted by opportunities that are out of scope for your business.
That said, if new ideas for products, services, customer acquisition, or target markets come up, the business plan structure can help you to assess these ideas in a clear-cut fashion. That way you can properly identify risks and opportunities instead of relying on guesswork as to whether opportunities should be pursued or not.
2. Human Resources
Whether you have a full team, or it’s just yourself, you still have to deal with human resources when you run a business. You have to make decisions like how much to pay employees (and yourself), what employee benefits are you legally obligated to offer, and what perks you choose to offer in order to attract top talent. You will also need to decide how to hire, fire, and manage employee problems.
One of the most important things you can do to run a business well is to hire a diverse team, and we will explain why. It’s tempting to hire people who are just like you because it seems like it would lead to more fun and less conflict, but this can lead to a lot of employees with redundant points of view and skillsets. Instead, it’s best to remain objective when hiring and carefully weigh the pros and cons of each potential employee.
There is a surprising range of benefits to hiring a diverse team. According to research, workplace diversity can:
- improve company morale
- strengthen employee loyalty
- attract quality talent
- foster a sense of community
- boost business public relations
- earn the company greater profits
The other reason it’s important to diversify your team—in all ways—is that you’re going to need people who are talented in different ways and areas of business, and this is going to require you to bring people in that you normally might not think to socialize with. If you’re an artist and you need someone who is more technical on your team, you’re going to have to resist the urge to hire the creative when someone who is more scientific would get the job done better.
3. Accounting and Bookkeeping
It’s important for business owners to keep track of the financial health of the business. Even if you have the resources to hire a bookkeeper, you should learn how to read your profit and loss statement. This can help you make decisions like how much (or how little) to spend, and how hard to push for the growth of the business, and your profit margins.
Many small business owners think the answer is always to push more, faster, harder, but that’s a sure road to burnout for you and your staff. By having a handle on the business’s balance sheet, you are better equipped to make smart decisions and to plan ahead, rather than always driving towards maximum workloads and stress levels. Having a good overview of the company’s financials can also help you to pay rent, taxes, and payroll in full and on time.
A good bookkeeping system is a must, even if you hire a bookkeeper. You should look at the various pros and cons of accounting software and evaluate them based on the specific needs of your business. This is one area where you don’t necessarily want to skimp on cost if a cheaper system can’t actually perform the tasks that you need to understand the performance of your business properly.
It’s of great benefit for you to learn how to write your own profit and loss statement. Even though accounting software can create a P&L for you, creating your own simple statement will teach you how to read one. That way when your accountant or bookkeeper wants to discuss issues, you’ll have a full understanding of the points they raise, and you’ll be better able to make informed decisions about your business.
Having a good understanding of your business’s cash flow is critical to learning how to run a business. Most business owners find that tracking cash flow on a monthly basis gives a good idea of operating income and expenses for the business, but a cash flow statement can be prepared for any period of time, such as quarterly or yearly if you’d find that helpful to understanding the financial operation of your business.
A cash flow calculator can be a helpful tool to get a complete picture, as it can take into account those expenses that pop up once in a while, such as future obligations like taxes and insurance, or depreciation and equipment maintenance costs.
Speaking of taxes, it’s important to have a certified public account (CPA) who specializes in business taxes can help you make sure you claim all the business tax deductions you’re entitled too, while also keeping you on the right side of the law. While it’s tempting to do your taxes yourself, a good CPA can help make up their fee and then some by identifying special credits your business might qualify for or deductions you might not think to take. A good CPA can also save you a lot of time and stress by preparing your business taxes for you. It’s important you do your research and hire an accountant who is recommended, because just like any other profession out there, some are good at what they do, while others—not so much.
4. Hone Your Entrepreneurial Mindset
Entrepreneurship isn’t for everyone. Entrepreneurs are often internally motivated—meaning they don’t need a boss to crack a whip or dangle a paycheck in front of their faces to make them get to work. They are often risk-takers, knowing that they might pour time and attention into a project that doesn’t show them the money in return. While successful entrepreneurs understand that ROI is desirable, they also know it’s not guaranteed in every situation.
Richard Branson, one of the world’s most successful entrepreneurs is unfazed when faced with failure. He starts over. Successful entrepreneurs are comfortable with failure, knowing they can learn, grow, and improve with each failure, which gets them that much closer to success.
If you need others to motivate you, if you crumble at the slightest whiff of failure, if you crave certainty and stability—but you still want to be an entrepreneur, then work on your mindset. Read books about entrepreneurship, and learn what it takes to makeover your mind to get there.
One helpful tool to get and stay motivated as an entrepreneur is a mission statement.
A mission statement might sound like an airy-fairy element to include in business operations, but the motivation of you and your employees can mean the difference between success and failure of your business. As demonstrated by companies like Apple and Starbucks, business leaders that come up with a greater purpose and mission for their business are more easily going to keep going during difficult times and to turn a business around in order to prevent business failure.
If you have a clear-cut, inspiring mission and purpose for your business, and you hire people who are also passionate about this cause, then it can help to unite a diverse team around a single mission, vision, purpose or idea. A solid mission statement helps to define the company’s purpose in order to connect with customers and inspire employees.
Marketing is going to help you run a business via customer acquisition. A robust marketing plan should contain elements of paid advertising, social media, and content marketing. Let’s start with content marketing, as this is one of the least understood and yet most important pieces of marketing.
These days, with the rise of social media and content platforms, it means that anyone can create and publish great content that can be seen by the masses. Whether you are selling dog food or legal services, you can create content that is going to benefit your customers, educate them on how to make better buying decisions, and build more trust for you and your business simply because you took the time to create content that informs, helps, and educates.
Whether you make some quick videos on your phone and publish them on Facebook, or you write a thoughtful blog post to publish on your website, content marketing is a great way to form deeper connections with current customers and to help acquire new customers.
It’s very helpful to have an email newsletter so that if someone sees your content and likes it, they have the opportunity to sign up for updates from you when you create new content in the future. That way you can remain top of mind and easily reachable if potential customers have your emails coming to their inbox.
The next piece of the puzzle is figuring out how to get the word out. What if you take all this time to create this thoughtful content, but no one sees it? This is where paid advertising comes in. Rather than creating a standard advertisement that’s easy to ignore, you can pay for advertising on this high-quality content you created. For example, you can post a video or a blog post on your business’s Facebook page, then pay to advertise that content. Don’t forget to target the ad to your geographic and interest demographics so you’re targeting the right audience. Social media advertising provides a relatively inexpensive and yet targeted way to reach your target market.
6. Customer Relationship Management
For very small businesses, it seems like a dream come true to have so many customers that you need to track and manage them, but the only way to care for a small customer base well and to grow it larger is by carefully tracking and nurturing the customer relationships you have.
There are many customer relationship management (CRM) systems to choose from. Some ideas for how and why to track customers:
- Giving gifts, bonuses or coupons for special dates like birthdays or anniversaries
- Sending follow-up emails when you haven’t seen this customer in a while to help maintain the relationship
- Offering referral bonuses if your customer recommends your business to others
- Upselling customers to VIP services or higher tiers or packages with a discount
- Getting feedback from customers so you can continue to improve and serve your customers better
- Making revenue projections based on sales from your list of regular customers
Customer relationship management should focus on win-wins for both you and your customers. It should help to nurture the connection between you and your customers and offer benefits to your customers to entice them to keep using your business’s products and services, and if they are satisfied, to refer your business to others.
By tracking your interactions and sales with customers, you can hit the right notes by focusing on the products and services each customer is specifically interested in, as well as not overwhelming or underwhelming them with communication.
7. Business Financing
It’s an admirable goal to fund your business by bootstrapping and never going into debt, but there are times when a cash infusion can help to save a business from failure or to grow a business beyond what’s possible with bootstrapping. There are situations in which business financing has the potential to help grow a business and lead to greater financial success in the long run than bootstrapping alone.
How do you know when to finance the growth of your business? If you get to a point when you have more customers than you have products in stock, you can use the business financing to purchase more inventory. If you need to expand your operations, move to a larger location, or hire more employees in order to serve greater numbers of customers, and therefore see an increase in your profit margins, then you might be a good candidate to receive funding for your business.
Before you take on any business debt, it’s important to assess your ability to pay back the loan. It’s also essential to read the fine print on any loans or financial products you consider, because unfair lending practices, or not having a full understanding of the terms you’re agreeing to can lead to trouble down the road. If your interest rate or fees are too high, it can lead to eating up your profits, cash flow crunches, or an inability to repay the loan, which can all lead to business failure. So make sure your business is both ready to handle debt, and that you have a full and complete picture of the cost of your debt and how you plan to repay it.
Whoever you choose to finance your business, make sure you are impressed with their customer service and you can get the answers you need to make an informed decision.
After reading this article, you should have a good idea of the elements required so that you know how to run a business. If you have good systems in place for managing your money, your customers, and your own mindset, then you’re at least part of the way there in terms of knowing how to run a business. One good practice successful entrepreneurs have is to keep learning and striving as their businesses grow.