small business management

Why are small businesses small? For start-ups, the answer is obvious. Great oaks from little acorns grow, and companies as large as Hewlett-Packard or Apple Computer began as the proverbial two men in a garage. But the great majority of acorns, even if they survive, never grow beyond sapling size - and that requires more explanation.

One reason could simply be that their owners lack the professional abilities to manage much more than one shop or workshop. The young Charles Forte, though, was surely right. He reasoned that, if he could run a single milkbar profitably, he could handle two: if, two, four: and so on, in a geometrical progression which led to a world-wide catering and hotel empire and a peerage.

Forte, of course, was a brilliantly able young man. But others with less talent are perfectly capable of applying his insight on a smaller scale and of mastering the simple management technique which enabled Forte to grow. Knowing his figures in detail, he could work out what ratios of costs to sales would leave his first milkbar in profit. Apply the same ratios to each new outlet in turn, and he had the golden key to control and expansion.

Everybody can follow that principle. But would everybody want to? The difference between Forte and the proprietor of a single café, and between large business and small, is ambition. However ineptly a big company sets about the task, its managers expect to grow sales and profits. They often fail, sometimes miserably, but their motto is onwards and upwards. Small business owners may settle for staying put - a perfectly legitimate choice.

In one branch of engineering, wire-drawing, several small companies used to operate in the South of England. One alone invested in the latest machinery and sought to excel and expand. His competitors (if that was the right word) looked at him without envy: one observed, 'Me? I'd rather take the dog for a walk'. As it happens, the hare, over-dependent on Ford business, went bust. But the dog-walking tortoises can't have won any races, either. They weren't trying.

Yet a little effort makes so great a difference that it's surely worthwhile. Take the example of one retail business that had journeyed on for seventeen years, neither making a profit nor providing its founder with a reasonable income. She was far more interested in her merchandise than her money, and built an enviable reputation. But the business was only kept alive by small infusions of capital from admiring backers - and the future would have looked no different.

Nobody looked at that future, however, until one of the investors became anxious about his investment. He sat down with the owner and her general manager to devise a three-year plan. Few small businesses do any such thing: I've heard quite successful businessmen react forcefully against working out sales and profits in Year Three as a meaningless exercise. But it forces you to concentrate the mind, and gives you targets and checkpoints. Anyway, you don't start with figures.

That three-year plan began with words. Stop losing money in Year One. Pay the general manager a decent salary in Year Two. Give the owner a sensible income in Year Three and, at the end of that year, move to larger premises. These verbal aims were translated into simple figures, and simple controls were installed to monitor progress: a weekly cash report, a weekly management meeting, an annual month-by-month budget, a monthly profit-and-loss statement.

The results were spectacular. The three-year plan targets were met in two. Moving to much bigger premises, the business was soon selling more in a month than its best previous annual performance. Slightly bemused by this upsurge, the backer, who knew Lord Weinstock of GEC, mentioned it over lunch one day, described the simple changes, and said 'That's all we did'. Britain's greatest maestro of financial management looked at him and replied, 'That's a lot.'

For most small businesses, it is a lot - not in terms of effort, but of willpower. It's difficult to believe that planning the future improves the present. Yet the rewards are simply (the operative word) too great to ignore. And you can still walk the dog.