November 25, 2013 2.32 pm This story is over 120 months old

The 6 rules of business: how to survive and succeed in the emerging economy

How to stay on top: Dr David Rae shares his six practical, learned-by-experience suggestions for managing your business effectively in today’s fast-changing economy.

It’s often said that people learn business skills by experience rather than in the classroom. It may seem odd that a professor in a business school largely agrees with this view. Much of my own experience, in business and working with owner-managers over the past 23 years, confirms the value of real-life learning and the ‘practical theories of business’ which people develop from finding out ‘what works for them’. Only rarely do you get there first time, and it can mean finding out what does not quite work and failing a number of times before you get it right.

The only shortcut to just learning from your own experience is by connecting and learning from your business peers. At Lincoln Business School, we work with business owners and managers to share experiences and insights into the problems, solutions and successful approaches they have learned and use in their own businesses.

We have all found over the past five years or so that managing a business successfully in a recessionary economy is much more challenging than in the ‘boom times’. But it’s also true that those businesses who managed effectively in a downturn are better placed than others to prosper as the economy is improving.

Here are Rae’s 6 rules for business which are a series of practical, learned-by-experience suggestions for managing your business effectively in today’s fast-changing economy. Which of them are you already using? Which could work for you?

1. Customers

  • Find and keep your own customers – you have to be able to solve their real problems & sell yourself effectively.

Too many businesses rely on ‘being in the supply chain’, have too few major customers and do not invest personal time and effort in developing and maintaining customer relations – remember, ‘people buy people’.

  • Check their credit rating and monitor their speed of payment.

You have not made a sale until they’ve paid the bill. Some customers have bad habits over slow payment; some are big enough to know better. Some will go under before they pay – avoid them.

2. Risks

  • Assess risks & their potential impact – e.g. customer or supplier closure
  • Develop contingency plans to mitigate risks

We live in a risky business environment. Don’t assume everything will be OK – look at the potential risks, pitfalls and liabilities for your business and at how you can reduce the biggest risks or anticipate how you will respond if the worst happens.

3. Opportunities

  • Look for ways to create new value  – e.g. new pricing, products & offers to stimulate demand
  • It often takes longer and costs more than you think to innovate or do anything new.
  • Use the technology – social media, tablet computing and smartphones are constantly changing the ways we can do business

There are always new opportunities and growing confidence in the economy accelerates these. Many of the most attractive are not in the UK but are international.

Innovation and new approaches can open up promising opportunities but experience tells us that when doing anything new often costs more and takes longer to implement than you first expect, so be prepared to increase your investment of time and money for those new ideas. That means doing your research to find out just how attractive an opportunity it is in the first place.

4. Money in – manage cash and break even

  • Forecast and monitor your cash flow very closely
  • Aim to maintain/increase profit margins rather than just increasing sales turnover (bottom line not top line)
  • Monitor breakeven on the business, customers, products, staff.

Beware of ‘buying’ work at cut-throat margins. Profitable businesses can fail because they run out of money, often suffering from slow payment and lack of credit. Aim to be cash-positive and you will sleep better at night. Break-even is the point at which the business, a person or a contract starts making a profit and is always an important measure.

5. Money out – manage costs and debt

  • Keep your fixed costs down: avoid costs which are not essential.
  • Aim to grow sales on a variable cost basis – borrow, rent or lease assets but don’t buy things or hire people you don’t need.
  • Keep in contact with creditors & lenders to avoid nasty surprises.

Businesses can be wasteful; you don’t need to be. Invest your money only in assets and projects which will provide a strong return. The worst time to ask a lender for more money is when you really need it. Up to date management accounts are essential and you must read them to monitor the health of the business.

6. People

  • Optimism – positive, realistic leadership with open communications
  • Set & monitor clear & realistic targets – sales, costs, project completion, debt etc.
  • Move unproductive people & customers out of the business.

At the end of the day it’s all about how you manage relationships with people. You can tell a lot about a business from the quality of interactions between its managers, employees, customers and suppliers.

The business culture, or ‘way we do things around here’, often reflects the personality of its main-man – think of Michael O’Leary, chief executive of Ryanair, a business now feeling the after-effects of his persona. What are the positive effects of your personality on the business, and what are the negative effects, or ‘shadow side’? Try asking your partner about this!

These are some learning points from my own experience from working with many businesses. The principles of running an effective business do not actually change as much as the business environment.

Feel free to share your own insights about what works for your business with me, by email to [email protected] or by twitter @warycat.

Dr David Rae is Professor of Enterprise and Head of Postgraduate Programmes at Lincoln Business School at University of Lincoln. He has over 20 years experience of working with entrepreneurs in small and growing firms, and is internationally recognised for his innovative research in Entrepreneurial Learning. His last book, ‘Entrepreneurship – from opportunity to action’, was published in 2007. He is a Fellow and former Vice-President of the Institute for Small Business & Entrepreneurship, and the Editor-in Chief, International Journal of Entrepreneurial Behaviour & Research.