When small business owners deal with the problems that are an inevitable part of running a company, their hope is usually for a quick fix. They want to come up with a solution and move on to something else that seems more productive.
Taking a broader view of what’s going on with the business might be a better approach. Professionals who advise small companies say many problems — for example, something as basic as a first-quarter cash crunch or rising health care costs — should be handled in the context of how the entire company is working.
"What we do is try to look at the whole picture," said Paul Sarvadi, chairman and CEO of Administaff, a Houston-based human resources firm.
Sarvadi used increasingly expensive health insurance as an example of a problem that can be solved by taking a broader view.
The quick answer for many owners might be to switch health plans, or reduce or even eliminate coverage. But that can hurt employee morale, encourage some workers to leave and make it harder for a company to compete for new staff.
Sarvadi’s suggestion is to look at the company holistically, examining all aspects of a business to see how one part of the operation can help another. In the case of rising health costs, he suggests looking at a company’s sales and finding ways to make its salespeople more productive.
"You need to start getting the revenue side going to take care of some of this," Sarvadi said.
This kind of approach might be more time-consuming than calling another HMO, but chances are it will make your company run better.
Sarvadi has another suggestion. If you have to ask employees to absorb some of the expenses, create a compensation system that gives workers an incentive to be more productive and earn the money back — and then some.
"High-performance human resources practices can actually increase revenue and reduce costs," Sarvadi said.
Accountants also find that many small business clients opt for a quick fix only to regret it later because it wasn’t the wisest move overall for the company. A common situation is a business owner basing tax decisions on how much money he or she can save this year instead of looking at taxes and a company’s finances in general from a long-term perspective.
Gordon Spoor, a certified public accountant with Spoor, Doyle &Associates in St. Petersburg, Fla., gave an example of a bad tax decision he often sees company owners make: "They have a good cash year and adopt a defined benefit retirement plan," getting a deduction for that tax year. "But they don’t think that they need to keep funding that thing for years to come."
Spoor says it’s also common for small business owners to take all the available cash out of the company at year’s end as a bonus, only to find the business is short of cash early in the new year.
It’s a bad decision in two ways: They end up paying personal income tax on the money, and they’ve deprived the company of working capital.
Forgoing the quick-fix lessens the chances for a company to end up in financial trouble. But taking a broader view can be hard, especially when a business owner is immersed in the day-to-day operations of a company.
It’s a good idea to seek help before trying a solution that could turn out to be a bad one.
Advice doesn’t have to be expensive, and it’s easy to come by. One avenue is SCORE, the organization of retired executives who supply free advice to small businesses on a wide range of topics; you can get help online at www.score.org or by calling 800-634-0245.
Small Business Development Centers, sponsored by the U.S. Small Business Administration and operated at 1,200 sites across the country, can also help. You can find one close to you at www.sba.gov/sbdc.
If tackling overall problems at the company seems overwhelming, a good approach is to make the best assessment you can, then single out one area for immediate action, Sarvadi said.
"That’s where you start," he said.
Small Business is a weekly column on the topic by The Associated Press.
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