Long-term planning can help you manage financial and human resources pitfalls.
During the life of a small business, many will face that moment when something is going wrong and ask, "How did it come to this?"
Almost without exception, problems start small and are either misunderstood or not acknowledged. Then, they grow. By the time you get to the "how did we get here" moment, many options you might have used to solve the issue are no longer open to you. Decisions may feel existential, and often, multiple parties are involved. How can you avoid reaching this point?
Managing Missed Financial Targets
Let’s look at potential problems in two categories--one in your company's financials and the other in human resources with an employee issue. Often these two categories overlap, but let's simplify for a moment and take each in turn.
When your company misses a financial goal, you usually see it first in your monthly financial data. Sales are down, cash flow is short, or expenses tick up. What can you do?
As the leader of your company, when you ask a question, there is often special weight placed on it by others, so use that to your advantage. Quickly and calmly, ask your controller what happened, and then work your way back through the data to identify the cause. Your guiding principles during this search should be to get to why something happened (not just what happened), and to push your team members to show you data as opposed to telling you what their intuition or gut is telling them.
You don’t want to be a mindless short-termer on data, and you need to sort out normal variation from a meaningful change that requires action. Creating a culture within your company that comfortably examines why a number was missed and encouraging others to bring it to you early are a great start.
Managing Human Resources Conflicts
Problems that begin with an employee can seem more difficult to confront--the personal always is harder than the cold data. The approach, however, should be similar.
When you see an employee or team not doing things the way you want it done, respond. It’s human nature to not want to confront certain personalities--those who shift blame, don’t respond to feedback, or grow angry or defensive when questioned. But those personality types are usually behind the problems that can fester in a company. Addressing the issue is best done in private, one on one. Quickly and calmly tell the employee the way things need to be done. Make it clear that this matters, but in a way that doesn’t signal anger or a personality conflict. It’s often best to jot down the points you want to make (so they are clear to you and thus the employee) before the conversation. Then, lower your voice, speak more slowly, and don’t laugh or make light of a situation. These techniques signal importance (without threatening punishment) and rightfully imply this is about data and getting it right.
Taking simple steps--and encouraging others to bring things to you they think you may not want to hear--will put you far ahead of more difficult problems later. Giving your employees quick and calm feedback will let them know the culture you want to create and make them more mindful when something begins to go wrong.
Based in New York, ED POWERS is a managing director and head of the Capital Access Funds team at Bank of America Merrill Lynch. Capital Access Funds is an experienced, returns-driven private equity fund-of-funds.