Five Basic Rules to Achieve Financial Stability in Small Business

We live in a highly competitive world, those who are in business, aware of this context. An organizations health is identified by its financial strength. The turnover you achieve this year neither assures nor supports the next year growth. We cannot predict accurately all happenings in today’s dynamic business. In that case running a business successfully for a longer period is a challenging task that each entrepreneur has at this moment. The aim of any business is making money. But, focusing on ‘making money’ neither assures the success nor provides sustained results every time. It is only achieved by focusing on roots of the business. The root is made up of financial stability of an organization.

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Stability generally means withstanding in difficult situations with minimal discomfort. The stability in finance not to be overlooked. Whatever impact that an organization will have due to any external issues should not bother the firm much in terms of financial aspects. In simple terms, if a person loses his job due to collapse of his companies share, he should be able to meet his family expenses and debts for at least 6 months and within the period he should be able to find a new job. In that case, his financial stability is well managed. Similarly, an organization must meet the customer demand even in absence of suppliers input, produce faster based on the customer requirement and should be prepared to adjust with the market volatility any time etc.

Organization must be flexible enough to adapt themselves for various unpredicted situations. I would say an organization need to achieve the following five basic rules to achieve the financial stability.

  1. Small Team, Better Efficiency
  2. NIL or Less inventory
  3. Less time in execution
  4. Improve Team’s Skill
  5. Charge Less

Rule:1 – Small Team, Better Efficiency

Large business doesn’t mean employing more people. A modern proverb says, if your team can’t share a single pizza then your team is big. Big companies that you admire was once started with a very small but committed team. The co-founder and executive chair of Alibaba Group, Jack Ma once said that I always hire a person who is smarter than me. I will be surrounded myself with optimistic team of people. They may look like expensive in the beginning, but your business will grow in multiples.

Rule:2 – NIL or Less inventory

It is a conventional way of thinking that we need bigger inventory to meet the customer demand. Keeping inventory makes your customer secure but harms your business every day. When you keep more inventory to operate without any problem then actually you are hiding your business problems by it. When suppliers are not able to provide the raw material on time, an entrepreneur forced to keep inventories and spending more money on it. Remember! a car is manufactured by assembling thousands of parts. If a car manufacturer decides to keep inventory for the thousand parts how much money they would be investing. So, all automobile manufacturers focusing on developing vendor base to provide on-time delivery with highest quality, rather spending money on keeping inventories. It increases their profit ten folds. They order the material to supplier once the customer gives order to them and they get the material exactly when they want it. Remember, if you treat your suppliers as business partners then the transformation begins. Identify your key suppliers, understand their problem like your own. Try to resolve it and build a great relationship with them. That is how top companies working.

Rule:3 – Less time in execution

Understand the difference between lead time and cycle time in your operation. Lead time is the time taken from taking order to delivering the complete product or service to the customer. Cycle time is time that is spent on adding value to your work. The addition of cycle time or value-added time and non-value-added time is called as lead time. We often confused and believe that a work requires some definite days. But once we recognize that many non-value-added activities involved in the process, we would be surprised. You cannot take same time of delivering the product you have taken on previous year or previous project. Simply move faster.

Rule:4 – Improve Team’s Skill

Understand what your team is capable of. You can’t aim for sun when you know you can’t reach moon with the team. So, be practical in setting the target and assess the gaps in the skill level of your team including you. Understand the difference between the existing and desired level is the beginning of any development. Now, fill the gap with required training, creating awareness, on-job practice and methods that provides them better knowledge and make them efficient. This is to be done consistently. Employees are not machines; they are human being. Respect and Value them like your customers. Remember! if you take care of about your employee’s future, they will take care of your business under all circumstances.

Rule:5- Charge Less

Charging the customers less than your competitors is achieved only when the above four rules are in place. Without strengthening the basics, if you charge less in order to grasp the market it will no longer benefit the business. Follow the four rules effectively, the fifth will happen on its own.

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