of Successfully Managing
are the secrets of successful management? Doing the basic things right! So
here you have it, some basic stuff that will make or break your business.
business is an ongoing activity that doesn't run itself. As the manager you
will have to set goals, determine how to reach those goals and make all the
necessary decisions. You will have to purchase or make your product, price it,
advertise it and sell it. You will have to keep records, and determine costs.
You will have to control inventory, make the right buying decisions and keep
costs down. You will have to hire, train and motivate employees now or as you
Good management is the key to
success and good management starts with setting goals. Set goals for yourself
for the accomplishment of the many tasks necessary in starting and managing
your business successfully. Be specific. Write down the goals in measurable
terms of performance. Break major goals down into sub-goals, showing what you
expect to achieve in the next two to three months, the next six months, the
next year, and the next five years. Beside each goal and sub-goal place a
specific date showing when it is to be achieved.
action you must take to attain the goals. While the effort required to reach
each sub-goal should be great enough to challenge you, it should not be so
great or unreasonable as to discourage you. Do not plan to reach too many
goals all at one time. Establish priorities.
advance how to measure results so you can know exactly how well you are doing.
This is what is meant by "measurable" goals. If you can't keep score
as you go along you are likely to lose motivation. Re-work your plan of action
to allow for obstacles which may stand in your way. Try to foresee obstacles
and plan ways to avert or minimize them.
Skillful buying is an important essential of profitable operation. This is
true whether you are a wholesaler or retailer of merchandise, a manufacturer
or a service business operator. Some retailers say it is the most important
single factor. Merchandise which is carefully purchased is easy to sell.
what to buy means finding out the type, kind, quality, brand, size, color,
style -whatever applies to your particular inventory - which will sell the
best. This requires close attention to salespeople, trade journals, catalogs,
and especially the likes and dislikes of your regular customers. Analyze your
sales records. Even the manufacturer should view the problem through the eyes
of customers before deciding what materials, parts, and supplies to purchase
free sample business plan template examples.
of your customers can be a prime consideration in establishing a purchasing
pattern. Young people buy more frequently than most older people. They need
more, have fewer responsibilities, and spend more on themselves. They are more
conscious of style trends whether in wearing apparel, cars or electronic
equipment. If you decide to cater to the young trade because they seem
dominate in your area, your buying pattern will be completely different than
if the more conservative middle-aged customers appear to be in the majority.
trade journals, newspaper advertisements, catalogs, window displays of
businesses similar to yours. Ask advice of salespeople offering you
merchandise, but buy sparingly from several suppliers rather than one, testing
the water, so to speak, until you know what your best lines will be.
suitable merchandise sources is not easy. You may buy directly from
manufacturers or producers, from wholesalers, distributors or jobbers. Select
the suppliers who sell what you need and can deliver it when you need it.
(Distributors and jobbers are used by most business people for quick fill-ins
between factory shipments).
spread purchases among many suppliers to gain more favorable prices and
promotional material. Or you may concentrate your purchases among a small
number of suppliers to simplify your credit problems. This will also help you
become known as the seller of a certain brand or line of merchandise, and to
maintain a fixed standard in your products, if you are buying materials for
buy is important if your business will have seasonal variations in sales
volume. More stock will be needed prior to the seasonal upturn in sales
volume. As sales decline, less merchandise is needed. This means purchases of
goods for resale and materials for processing should vary accordingly.
outset, how much to buy is speculative. The best policy is to be frugal until
you have had enough experience to judge your needs. On the other hand, you
cannot sell merchandise if you do not have it.
solve buying problems, you should begin to keep stock control records at once.
This will help you keep the stock in balance - neither too large nor too small
- with a proper proportion and adequate assortment of products, sizes, colors,
styles and qualities.
there are two types of stock control - control in dollars and control in
physical units. Dollar controls show the amount of money invested in each
merchandise category. Unit controls indicate the number of individual items
when and from whom purchased by category. A good stock control system can help
you determine what, from whom, when, and how much to buy.
Much of your success in business will depend on how you price your services.
If your prices are too low, you will not cover expenses; too high and you will
lose sales volume. In both cases, you will not make a profit.
opening your business you must decide upon the general price level you expect
to maintain. Will you cater to people buying in the high, medium, or low price
range? Your choice of location, appearance of your establishment, quality of
goods handled, and services to be offered will all depend on the customers you
hope to attract, and so will your prices.
establishing this general price level, you are ready to price individual
items. In general, the price of an item must cover the cost of the item, all
other costs, plus a profit. Thus, you will have to markup the item by a
certain amount to cover costs and earn a profit. In a business that sells few
items, total costs can easily be allocated to each item and a markup quickly
determined. With a variety of items, allocating costs and determining markup
may require an accountant. In retail operations, goods are often marked up by
50 to 100 percent or more just to earn a 5% to 10% profit!
work through a markup example. Suppose your company sells one product, Product
A. The supplier sells Product A to you for $5.00 each. You and your accountant
determine the costs entailed in selling Product A are $4.00 per item, and you
want a $1 per item profit. What is your markup? Well, the selling price is: $5
plus $4 plus $1 or $10; the markup therefore is $5. As a percentage, it is
100% ($5 markup = $5 cost of the item). So you have to markup Product A by
100% to make a 10% profit!
small firms are interested in knowing what industry markup norms are for
various products. Wholesalers, distributors, trade associations and business
research companies publish a huge variety of such ratios and business
statistics. They are useful as guidelines. Another ratio (in addition to the
markup percentage) important to small firms is the Gross Margin Percentage (GMP).
is similar to your markup percentage but whereas markup refers to the percent
above the cost to you of each item that you must set the selling price in
order to cover all other costs and earn profits, the GMP shows the
relationship between sales revenues minus the cost of the item, which is your
gross margin, and your sales revenues. What the GMP is telling you is that
your markup bears a certain relationship to your sales revenues. The markup
percentage and the GMP are essentially the same formula, with the markup
referring to individual item pricing and GMP referring to the item prices
times the number of items sold (volume).
an example will clarify the point. Your firm sells Product Z. It costs you
$.70 each and you decide to sell it for $1 each to cover costs and profit.
Your markup is 43%. Now let up say you sold 10,000 Product Z's last month thus
producing $10,000 in revenues. Your cost to purchase Product Z was $7000; your
gross margin was $3,000 (revenues minus cost of goods sold). This is also your
gross markup for the month's volume. Your GMP would be 30% . Both of these
percentages use the same basic numbers, differing only in division. Both are
used to establish a pricing system. And both are published and can be used as
guidelines for small firms starting out. Often managers determine what Gross
Margin Percentage they will need to earn a profit and simply go to a published
Markup Table to find the percentage markup that correlates with that margin
this discussion of pricing may appear, in some respects, to be directed only
to the pricing of retail merchandise it can be applied to other types of
businesses as well. For services the markup must cover selling and
administrative costs in addition to the direct cost of performing a particular
service. If you are manufacturing a product, the costs of direct labor,
materials and supplies, parts purchased from other concerns, special tools and
equipment, plant overhead, selling and administrative expenses must be
carefully estimated. To compute a cost per unit requires an estimate of the
number of units you plan to produce. Before your factory becomes too large it
would be wise to consult an accountant about a cost accounting system.
items are marked up by the average markup. Luxury articles will take more,
staples less. For instance, increased sales volume from a lower-than-average
markup on a certain item - a "loss leader" - may bring a higher
gross profit unless the price is lowered too much. Then the resulting increase
in sales will not raise the total gross profit enough to compensate for the
you may wish to sell a certain item or service at a lower markup in order to
increase store traffic with the hope of increasing sales of regularly priced
merchandise or generating a large number of new service contracts.
Competitors' prices will also govern your prices. You cannot sell a product if
your competitor is greatly underselling you. These and other reasons may cause
you to vary your markup among items and services. There is no magic formula
that will work on every product or every service all of the time. But you
should keep in mind the overall average markup which you need to make a
Whether you operate a factory, wholesale outlet, retail store, service shop,
or are a contractor, you will have to sell. No matter how good your product
is, no matter what consumers think of it, you must sell to survive.
selling methods are through personal sales efforts, advertising and, for many
businesses, display - including the packaging and styling of the product
itself - in windows, in the establishment, or both. Establishing a good
reputation with the general public through courtesy and special services is an
indirect method of selling. While the latter should never be neglected, this
brief discussion will be confined to direct selling methods.
establish your business on a firm footing requires a great deal of aggressive
personal selling. You may have established competition to overcome. Or, if
your idea is new with little or no competition, you have the extra problem of
convincing people of the value of the new idea. Personal selling work is
almost always necessary to accomplish this. If you are not a good salesperson,
seek an employee or associate who is.
way to build sales is by advertising. This may be done through newspapers,
shopping papers, the yellow pages section of the telephone directory, and
other published periodicals; radio and television; handbills, and direct mail.
The media you select, as well as the message and style of presentation, will
depend upon the particular customers you wish to reach. Plan and prepare
advertising carefully, or it will be ineffective. Most media will be able to
describe the characteristics of their audience (readers, listeners, etc.).
Since your initial planning described the characteristics of your potential
customers, you want to match these characteristics with the media audience. If
you are selling expensive jewelry, don't advertise in high school newspapers.
If you repair bicycles, you probably should. Advertising can be very
expensive. It is wise to place a limit upon an amount to spend, then stay
within that limit. To help you in determining how much to spend, study the
operating ratios of similar businesses. Media advertising salespeople will
help you plan and even prepare advertisements for you. Be sure to tell them
your budget limitations.
method of stimulating sales is effective displays both in your place of
business and outside it. If you have had no previous experience in display
work, you will want to study the subject or turn the task over to someone
else. Observe displays of other businesses and read books, trade magazines,
and the literature supplied by equipment manufacturers. It may be wise to hire
a display expert for your opening display and special events, or you may
obtain the services of one on a part-time basis. Much depends on your type of
business and what it requires. The proper amount and types of selling effort
to use vary from business to business and from owner to owner. Some businesses
prosper with low-key sales efforts. Others, like the used-car lots, thrive on
aggressive, hoop-la promotions. In any event, the importance of effective
selling cannot be over-emphasized.
other hand, don't lose sight of your major objective - to make a profit.
Anyone can produce a large sales volume selling dollar bills for ninety cents.
But that won't last long. So keep control of your costs, and price your
The keeping of adequate records cannot be stressed too much. Study after study
shows that many failures can be attributed to inadequate records or the
owner's failure to use what information was available to him. Without records,
the businessperson cannot see in advance which way the business is going.
Up-to-date records may forecast impending disaster, forewarning you to take
steps to avoid it. While extra work is required to keep an adequate set of
records, you will be more than repaid for the effort and expense.
are not prepared to keep adequate records - or have someone keep them for you
- you should not try to operate a small business. At a minimum, records are
needed to substantiate:
returns under tax laws, including income tax and social security laws;
request for credit from equipment manufacturers or a loan from a bank;
claims about the business, should you wish to sell it.
important, you need them to run your business successfully and to increase
your profits. With an adequate. yet simple, bookkeeping system you can answer
such questions as:
much business am I doing?
are my expenses? Which appear to be too high? What is my gross profit
margin? My net profit?
much am I collecting on my charge business?
is the condition of my working capital?
much cash do I have on hand? How much in the bank? How much do I owe my
is my net worth? That is, what is the value of my ownership of the
are the trends in my receipts, expenses, profits, and net worth? Is my
financial position improving or growing worse? How do my assets compare
with what I owe?
is the percentage of return on my investment?
many cents out of each dollar of sales are net profit?
these and other questions by preparing and studying balance sheets and
profit-and-loss statements. To do this, it is important that you record
information about transactions as they occur. Keep this data in a detailed and
orderly fashion and you will be able to answer the above questions. You will
also have the answers to such other vital questions about your business as:
What products or services do my customers like best? Next best? Not at all? Do
I carry the merchandise most often requested? Am I qualified to render the
services they demand most? How many of my charge customers are slow payers?
Shall I switch to cash only, or use a credit card charge plan?
of records and how many you need depends on your particular operation. A boy
selling newspapers part time each day does not need inventory records. He buys
and sells his entire stock each day. But shoe store or dress shop operators
will soon find they cannot keep necessary inventory information in their
a list of records, grouped according to their use. No business will need them
all. You may need only a few. As a matter of fact, you should not maintain a
record without answering these three questions: (1) How will this record be
used? (2) How important is the information likely to be? (3) Is the
information available elsewhere in an equally accessible form?
following list may call your attention to records you can use to great
and Purchasing Records provide facts to help with buying and selling
Perpetual Inventory Record
To Purchase Order File
Records to help determine sales trends
of Daily Sales
Records to show what is happening to cash.
Records show who owes you money and whether they are paying on time.
Receivable Aging List
Records show legally required information and information helpful in the
efficient management of personnel.
Earnings and Amounts Withheld
of Changes in Rate of Pay
of Reasons for Termination of Employment Employee Benefits Record
and Property Records list facts needed for taking depreciation allowances
and for insurance coverage and claims.
Records, in addition to some of the above, are needed if you use a
double-entry bookkeeping system.
efficient business operation, use information from records to keep inventory
stock in line with sales, to watch trends, and for tax purposes. Use records
to plan. A well thought-out business plan as a guide will strengthen your
chances for success.
showing the data for your business plan is the budget. Work up a budget to
help you determine just how much increase in profit is reasonably within your
reach. The budget will answer such questions as: What sales will be needed to
achieve my desired profit? What fixed expenses will be necessary to support
these sales? What variable expenses will be incurred? A budget enables you to
set a goal and determine what to do in order to reach it.
your budget periodically with actual operations figures. With effective
records you can do this. Then, where discrepancies show up you can take
corrective action before it is too late. The right decisions for the right
corrective action will depend upon your knowledge of management techniques in
buying, pricing, selling, selecting and training personnel, and handling other
probably are thinking you can hire a bookkeeper or an accountant to handle the
record keeping for you. Yes, you can.
But remember two very important facts:
the accountant with accurate input. If you buy something and don't record
the amount in your business checkbook, the accountant can't enter it. If
you sell something for cash and don't record it, the accountant won't know
about it. The records the accountant prepares will be no better than the
information you provide.
the records to make decisions. If you went to a physician and he told you
you were ill and needed certain medicine to get well, you would follow his
advice. If you pay an accountant and he tells you your sales are down this
year, don't hide your head in the sand and pretend the problem will go
away. It won't.
If your business will be large enough to require outside help, an important
responsibility will be the selection and training of one or more employees.
You may start out with family members or business partners to help you. But if
the business grows - as you hope it will - the time will come when you must
select and train personnel.
choice of personnel is essential. To select the right employees determine
beforehand what you want each one to do.
look for applicants to fill these particular needs. In a small business you
will need flexible employees who can shift from task to task as required.
Include this in the description of the jobs you wish to fill. At the same
time, look ahead and plan your hiring to assure an organization of individuals
capable of performing every essential function. In a retail store, a
salesperson may also do stockkeeping or bookkeeping at the outset, but as the
business grows you will need sales people, stockkeepers and bookkeepers.
job descriptions are written, line up applicants from whom to make a
selection. Do not be swayed by customers who may suggest relatives. If the
applicant does not succeed, you may lose a customer as well as an employee.
sources of possible new employees are:
by friends, business acquaintances.
bureaus of high schools, business schools, and colleges.
and industrial associations.
ads in local newspapers.
next task is to screen want ad responses and/or application forms sent by
employment agencies. Some applicants will be eliminated sight unseen. For each
of the others, the application form or letter will serve as a basis for the
interview which should be conducted in private. Put the applicant at ease by
describing your business in general and the job in particular. Once you have
done this, encourage the applicant to talk. Selecting the right person is
questions carefully to find out everything about the applicant that is
pertinent to the job.
References are a must, and should be checked before making a final decision.
Check through a personal visit or a phone call directly to the applicant's
immediate former supervisor, if possible. Verify that the information given
you is correct. Consider, with judgment, any negative comments you hear and
what is not said.
references can bring to light significant information which may save you money
and future inconvenience.
A well-selected employee is only a potential asset to your business. Whether
or not he or she becomes a real asset depends upon your training. Remember:
allow sufficient time for training.
to expect too much from the trainee in too short a time.
let the employee learn by performing under actual working conditions, with
follow up on your training.
the employee's performance after he or she has been at work for a time.
Re-explain key points and short cuts; bring the employee up to date on new
developments and encourage questions. Training is a continuous process which
becomes constructive supervision.
Supervision is the third essential of personnel control. Good supervision will
reduce the cost of operating your business by cutting down on the number of
employee errors. If errors are corrected early, employees will get more
satisfaction from their jobs and perform better.
Small businesses sometimes face special problems in motivating employees. In a
large company, a good employee can see an opportunity to advance into
management. In a small company, you are the management. One thing you may wish
to consider is to give good employees a small share of the profits, either
through part-ownership or a profit-sharing plan. Someone who has a "share
of the action" is going to be more concerned about helping to make a
success of the business.
by Meir Liraz. All rights reserved.