Starting and growing a business, while keeping costs down, is no easy feat which is why many small business owners are increasingly looking to lean business principles as a strategy for remaining self-sustaining.
But don’t think of lean as being cheap or just about cost reduction. Being lean affords small businesses the opportunity to create more value for the customer with fewer resources. By eliminating wasteful practices, business owners can then focus on the areas that make the most sense for investment, without incurring a mountain of debt.
Lean business principles are often attributed to start-ups or manufacturing businesses, but they also provide small businesses with the perfect springboard to sustainability and growth.
Here are three actionable ways to integrate and implement lean business principles into your small business.
Identify the Value-Creating Work of the Business
Here’s a smart strategy, care of John Shook, chairman and CEO of the Lean Enterprise Institute that should underpin all your “lean” activities:
Start by identifying the value-creating work of the business. Back up from there. That will uncover many steps. What is necessary to do to create value? Separate the value-creation steps from the non-value-creation steps. We want to build systems and processes so that value flows quickly and reliably to the customer. (Source: Entrepreneur Magazine, Feb 2014).
This is a fundamental of lean manufacturing – identifying work that doesn’t add value (aka “waste’).
Small businesses in many industries can benefit from lean thinking. Think about areas where you are wasting time and money. Where can those hard-earned assets and resources be better deployed, or trimmed entirely?
“Any business can look at their own processes and ask questions like, ‘Why does it take so long to close the books at the end of the month?’ or ‘Why does it take so long for customers to go through the checkout line?“ explains advisor, Dean Dela Cruz in a 2011 article for the California Small Business Development Center “As they start to identify waste, they can simplify work, remove bottlenecks and eliminate wasted effort.”
Take time each day to assess your business in this way and with time you’ll start to see improved productivity, cost savings, and a more competitive market position for your business as value is delivered more seamlessly and efficiently to the end customer.
If you are really serious about embracing lean thinking, the Lean Enterprise Institute offers a Lean Action Plan that can help you get started. And don’t forget to involve your employees, empower them to incorporate lean processes and checklists into their daily routine too.
Monitor Your Highest Small Business Expenses
For many businesses the highest expense is inventory. Inventory levels and movement can have a huge impact on your cash conversion cycle and ultimately, cash flow. Lean businesses optimize cash flow by ensuring that inventory is effectively managed so that there is sufficient to satisfy demand, but not so much that you’re left with excess stock.
Other high expenses include rent, employees, insurance, etc. Make a point of tracking your higher expenses and finding options for optimizing them if they aren’t bringing value to your business. For example, inventory management and control software such as inFlow and Inventoria can help you track your entire inventory, monitor costs, and better align supply with demand, so that money isn’t being tied up in your warehouse unnecessarily.
You could also use positive cash flow to take advantage of supplier discounts and improve inventory control. For example, instead of buying your entire pre-season inventory at once, but only a percentage of it, so that you still have cash in hand to take advantage of mid- or late-season supplier discounts and then re-stock popular lines.
The more efficient your inventory controls the better your cash flow situation will be. This cash can then be channeled back into your business to and invested in areas that need it.
Know Where to Scrimp and Where to Spend
So you’re keeping an eye on your biggest expenses and looking for ways to leanly manage these. What about keeping your operational overheads low? Again, apply lean principles as you consider whether, for example, that solid oak desk you’ve had your eye on for months really brings value to your business? Does your team really need the latest MacBook to enable their productivity?
Buying surplus office goods or reconditioned IT equipment from eBay, Craig’s List and many other outlets offer cost-effective ways to outfit your business.
Redirect the money saved into areas that bring value such as personal or team training, or hiring that accountant you always wished you had.
One area you can’t afford to scrimp on is front of house, and by that I mean both your physical and online front of house. Invest in a web designer to help polish up your website, get your credit card out and buy that smart table, chairs and coffee machine you’ve had in mind for your reception area (they are all tax deductible) – these are all smart, lean investments that don’t require a mountain of overhead.