Johannesburg - In today's challenging market environment it is likely to take more time, hard work and serious thought to grow a successful business.
This is according to Cris Dillon, who operates private equity business Coast2Coast.
He said that one of the most important aspects of running a company is understanding the information generated by your business: "Acquiring and analysing the correct information is vital. This applies to both internal and external info."
Understanding the financial ratios in your business is something Dillon believes is imperative: "Key ratios such as return on investment and return on assets are vital to acquiring a realistic view of what your company is worth.
"If your return on investment is less than 10%, you may have to face the harsh reality that your business is wasting your time and money."
This was a theme also encouraged by Allon Raiz, another entrepreneur recently interviewed by My Business. He felt it was vital for entrepreneurs to plan properly and understand the way money moved around their business.
Raiz was critical of entrepreneurs who blamed their business partners for "defrauding" them or "running off with the money", adding that he checks the finances of his own business every few days and queries any unusual banking transactions.
"When choosing investments, we always look for businesses which passionately apply principles that allow them to thrive.
"We strongly believe that anyone who sets the course of his or her business according to the following practices will have a far greater chance of success," said Dillon, whose company is actively looking for fast-moving consumer goods businesses in which to invest.
Get your hands on good information
Acquiring and analysing the correct information is critical. This applies to both internal and external criteria. Internally, make sure you produce accurate financial statements as quickly as possible so you can adjust rapidly to issues emerging from the numbers.
Set targets and measure your performance against these regularly. Externally, make sure you keep a close watch on your competition, changes in your industry and your customers' habits, peak seasons, sales and stock-taking activities.
Get your pricing right
This has been a problem identified by many entrepreneurs interviewed by Fin24.com. They fail to correctly price their product or service, often opting to under-price their offering to make themselves more competitive.
Dillon said: "A common mistake is to work out how much it takes to produce a product and to mark it up by a fixed percentage. But in doing so, they can undercut themselves because this method doesn't take aspects such as brand perception and product quality into account."
According to Dillon, brand consultants often recommend that companies raise their prices dramatically - and unit sales may even go up as result.
Manage working capital and growth efficiently
Dillon said it is crucial to manage working capital correctly. This means making sure customers pay on time by keeping debtors on payment terms below 45 days. Also keep optimal stock levels and rotate stock at least every 30 days.
He said: "Make clever use of supplier credit to grow your business and make sure all your assets are sweating for you, because low-capacity utilisation is a key business inefficiency."
Assemble a quality team
Successful entrepreneurs have highlighted the fact that one of the most important aspects of their business has been the development of a quality team.
Dillon said: "This is, perhaps, the hardest thing to get right in a business," adding: "The most critical success factor is the position of the managing director. Contrary to some opinions, the business owner is not always the right person for this job."
The MD needs to be someone with passion, leadership and people skills plus a good understanding of business principles and the industry, according to Dillon.
Find your own competitive edge
Every business should have a competitive edge. A classic example here is Microsoft. Because it cornered the market on office software, it is able to sell software CDs which probably cost about R2 to produce for R7 000 each.
"All good businesses have a strong competitive advantage; generally it is either based on differentiation from the competition or on price," said Dillon. "Decide whether you want to be the cheapest or the most innovative, and stick to this strategy to achieve success."
Develop a strong brand
Leading South African entrepreneur Johann Rupert has long emphasised the importance of having strong brands in your business stable.
Dillon said: "Build a brand with near-religious fervour - customers buy into brands, not products."
However, he cautioned that SMEs don't need to spend thousands on traditional advertising and other expensive brand-building activities, and that a good public relations campaign can be a hugely effective marketing tool.
He said: "PR can tell a brand story more effectively for far less budget than advertising."
Measure key ratios
Many entrepreneurs, particularly those in the starting phases, fail to pay attention to the financial information from their business. This often results in the fledgling business person plugging away at a failing firm.
Apart from managing return on investments and return on assets, Dillon believes small business owners should also focus on calculating and developing their net asset value.