Small business was given a massive clue on successful enterprise by Leonardo da Vinci, who famously said: “Simplicity is the ultimate sophistication”.
As one who has seen how overly complex business structures and business plans can clog an enterprise, I can vouch for Leonardo’s words. But I would also like to add, perhaps less poetically, that simplicity in business is also a pathway to profitability.
Businesses with overly-complex structures – and there are many – face huge headwinds when it comes to attracting investors and seed capital, profitability and future growth. They generally have trouble keeping track of finances, tend to lose funds in “financial black holes” and often end up paying more than their share of tax.
A good starting point for avoiding this scenario is a simple business plan. That way all stakeholders are clear about the direction business is heading, its structure and goals. A good plan will often include an exit strategy even though that could be a long way off.
On the other hand, a complex business plan will leave stakeholders confused. Worse, it will often be ignored because it’s too difficult to follow, meaning that business activity can become random and unstructured.
In many ways the initial business plan tests the viability of the idea. If it doesn’t make sense now, simply, what is the idea’s chance of really being profitable?
Getting it right at this initial stage is incredibly important for attracting quality business partners and investors: One of the world’s greatest investors, Warren Buffett, has said many times that he only invests in businesses that he understands; a strategy that has paid off for investors in Berkshire Hathaway.
If the world’s greatest investor demands simplicity, how can you then justify complexity?
Many businesses – even those tangled in a complex web – can return to simplicity by concentrating on the business basics:
1. The one-page business plan: This is a discipline which clarifies thinking and can identify blockages which are hindering success – can your business plan fit on one page?
2. The elevator pitch: An extension of the one-pager. Can your business be clearly described to a stranger in a minute or less?
3. Policies, Procedures & Processes: Are they overly complicated leading to business inefficiency and bottle necks?
4. Risk minimisation: Protection of personal assets from business risk.
5. Hard questions: Thorough analysis including market testing can be vital. Never be afraid to ask questions and seek advice from impartial professionals.
Geoff Steer is a Founding Partner of Matthews Steer Chartered Accountants. Geoff’s knowledge of taxation matters combined with his financial planning skills enable him to provide a complete financial service for professional, executive and small business clients. Geoff was recently ranked one of Australia’s top 10 financial advisors by the AFR Smart Investor Magazine’s 2011 Masterclass. www.matthewssteer.com.au