FIVE STEPS TO SMALL BUSINESS SUCCESS
Paul Choy
****
Published by:
Paul Choy at Smashwords
Copyright (c) 2012 by Paul Choy
****
All rights reserved. Without limiting the rights under copyright reserved above, no part of this publication may be
reproduced, stored in or introduced into a retrieval system, or transmitted, in any form, or by any means (electronic,
mechanical, photocopying, recording, or otherwise) without the prior written permission of both the copyright owner
and the above publisher of this book.
Smashwords Edition Licence Notes
This ebook is licensed for your personal enjoyment only. This ebook may not be re-sold or given away to other
people. If you would like to share this book with another person, please purchase an additional copy for each person
you share it with. If you’re reading this book and did not purchase it, or it was not purchased for your use only, then
please return to Smashwords.com and purchase your own copy.
About Snap Books
Thank you for downloading this Snap Book.
Snap Books are short and concise books across a range of subjects. They get straight to the point,
and tell you only the things you need to know.
You are viewing an eBook version of this Snap Book designed for on all major eBook readers.
This book is also available, as a free download, in PDF format suitable for reading on a desktop
computer, smartphone, or tablet.
To download this Snap Book in an alternative format, please visit www.paulchoy.com.
Five Steps To Small Business Success
Version 1.0
By Paul Choy
Copyright (c) 2012 Pachworks

Copy Editor: Heidi Stephens - www.heidistephens.co.uk
Graphic Design: Catherine Giaquinto - www.catherinegiaquinto.co.uk

essential steps to small business success.
Which of course begs the question of why so many perfectly good small businesses fail.
Honestly? It’s because businesses are run by people, and people have a tendency to mess up.
Let’s start by making some assumptions.
Firstly, let's assume that you are either the owner of, or have the responsibility for, a small
business, or are thinking about starting one up. Otherwise, why are you reading this book?
Haven’t you got anything better to do?
Next, let’s assume you have the skills required for that small business. So, if you run a sewing
machine repair shop, I’m going to assume you actually know how to repair sewing machines.
Sound reasonable? Good.
Finally, let’s assume you have customers willing to pay you.
Woah, stop right there. Not what you were expecting? OK. Let’s get something out of the way
right from the very start.
This book will not tell you how you get customers to buy your products or services. That’s up to
you. It’s not like the world is short of books on sales and marketing, is it?
In addition, this book will not tell you how you do your job. If you do indeed run a company that
repairs sewing machines, it is up to you to learn how sewing machines work.
What this book absolutely will tell you is how to make sure that, assuming you have customers
and you have the ability to do the job, you don’t screw up by failing to run your small business
properly.
A common misconception seems to be that most small businesses fail because they just can’t sell
enough of whatever product or service they offer. But in my experience (which covers 20 years
of advising small businesses, since you ask) an awful lot of them had a perfectly healthy number
of customers. They just failed at the basics of running a business. Some messed up their cash
flow forecasts and simply ran out of money. Others messed up their delivery and lost the
customers they had.
One of the main differences between small businesses and larger corporations is that small
business operators have to be a jack of all trades. Large businesses will have people who
specialise - someone who’s an expert in accounts or HR, or a specialist in quality assurance.
Small businesses operators will have to deal with all this and plenty more, and for many this

Because no cash has exchanged hands, I can be honest with you. Brutally honest sometimes,
bordering on downright rude. And being in business often requires brutal honesty. The
information I present you with in this book will sometimes be uncomfortable to read. It will often
be challenging to implement. But the five steps I outline here are absolutely essential in achieving
sustained success of a small business.
So, why should you listen to me?
Because I know what I’m talking about.
I’ve been successfully running small businesses for over two decades, and these small business
have collectively become a much larger business with a multi-million pound turnover, employing
staff halfway around the globe.
Over the course of these two decades, I have learned an awful lot about running a small business.
And I’ve also made some whopping mistakes, which I can now help you to avoid.
As well as running my own business, for many years I have been helping small businesses all
around the world deal with challenges they face. Working with these companies has shown me
something really striking - I see exactly the same mistakes being made by all sorts of small
businesses, no matter what country or language spoken.
These mistakes are human ones, not related to culture or business climate. Running a business is
the same all around the world.
I am not an accountant. I have no business qualifications. I’m not even sure I would make a very
good employee in someone else’s company. But what I’m sharing with you in this book are the
grassroots lessons I have learned through building small businesses around the world.
Mostly you should listen to me because I will tell you exactly what you need to know, without
any sugar coating, ego-stroking or jargon-laden fluff.
Opening your mind
Here is my challenge to you. If I commit to telling you what you really need to know about
running a small business, are you truly ready to open your mind to listen?
Without exception, the biggest hurdle I encounter in helping small business operators to secure
their long term business is overcoming the blinkered views of the operators themselves. They ask
for help, but don’t actually want to make any changes to what they currently do.
In this book I am going to share with you the five steps that I believe you need to follow to

these services. They simply ran out of money to take these projects to the finish line and ensure
they got paid.
The solution was obviously to get cash, and fast.
The advice I gave was to approach their current customers, offering them a discount on their
project if they would make an immediate, interim payment for the work completed so far. The
company wasn’t keen on offering a discount, but agreed there was no point being able to charge
full price if you go out of business before you can collect.
Of course there was a risk that their customers could become nervous that the company was
struggling financially, but most companies have experienced their own cash flow pressures at
one time or another, and will usually understand the need to raise money.
Generally, however, the customers were responsive. They were happy with the progress of their
projects so far, and enough of them took up the discount for the company to raise more than half
the funds they needed to meet their immediate commitments.
Armed with this cash injection, along with a simple but detailed cash flow forecast we prepared
to demonstrate how the company could manage over the next three months, the company
approached the bank again. This time the bank was more confident in the company, and provided
an overdraft facility which allowed the company to pay all their outstanding bills, including their
staff.
Now that company continues to grow, and whilst developing a new business is always
challenging, at least they are still in business.
Let me be blunt here. Get this step wrong and your business will struggle.
Learning how to maintain financial control of your small business is not complicated, but it does
require a LOT of discipline. Undoubtedly this is the area where most small businesses I work
with need help, and here’s the reason why:
Virtually all the income you receive from your customers has been spent before they even pay
you.
It never fails to amaze me how many small business operators don’t realise this, that the money
they just put into their pocket doesn’t belong to them. And because the money is just sitting there,
burning a small hole, those businesses will often spend it on other things that they don’t really
need. And then when it comes to paying their bills later on, there isn’t enough money left.

Together we are going to explore how, with these five numbers, a small business operator can
deduce almost everything they need to effectively manage the finances of their business and
make plans for the future.
But before we get into all that, let’s take a few moments to just be honest about a few things. We
all know that whilst financial business management is important, it is not exciting. Understanding
it will not make you more attractive to the opposite sex, nor will it impress your mates down the
pub. Even worse, if you are not used to financial management, this chapter is probably going to
make your brain hurt a bit.
But I promise you, if you do learn how to effectively manage your small business finances it can
have a dramatic impact on the stability of your business.
At first glance, trying to understand and interpret these magic numbers can seem confusing and
you are going to be tempted to skip this chapter. Don’t. Because although this information may
seem daunting, it isn’t. In reality learning how to use these magic numbers is very simple once
you grasp the basic concepts.
So, before we begin I want you to go and grab a big mug of tea or coffee to drink while reading
this. Go now, I’ll wait …
Now find somewhere quiet where you won’t be interrupted or distracted for the next fifteen
minutes while you read, and then re-read, this next chapter. It’s the only way you’re really going
to get to grips with the information I am about to share with you.
OK, lets get started. First we need to learn a little more about each of our magic numbers.
Reporting Period
Our first magic number is the duration of time we are measuring against. This is called Reporting
Period. This period can be anything you want, but will usually be a trading year.
As well the duration of the Reporting Period, from a planning point of view it is also useful to
know how much of that period has passed. This is called the Reporting Period to Date, and it is
expressed as a percentage.
So, if you’re three months into a twelve month period, then your Reporting Period to Date would
be 25% (3 months being 25% of 12 months). If you have yet to start your Reporting Period then
your Reporting Period to Date would be 0%, whereas if you are in the eleventh month then your
Reporting Period to date would be 92% (11 months being 92% of twelve months).

• Known upturns or downturns in the industry you operate within.
• Any forthcoming closures, such as for renovations or holidays.
Out of all the numbers relating to your business, your Expected Future Income is the only one
that is subjective (meaning you will have to make your best guess). The most important
consideration when deciding on your Expected Future Income is that it should be a realistic
estimation. I come across so many business who confuse how much they wishfully hope to
generate with how much they can realistically expect to generate.
Wishful thinking without substance is unrealistic and will lead to the rest of your magic numbers
being unreliable. A good rule of thumb when deciding on your Expected Future Income is to err
on the side of caution and only include income you are confident you can generate.
Once you have established your Actual Income to Date and your Expected Future Income
calculating your Projected Gross Income is simply a matter of adding the two together.
For example, supposing you are half way through a one year reporting period and your Actual
Income to Date for the first six months is £100,000. Assuming you will repeat the same level of
income for the second half of the year your PGI would be £200,000:
£100,000 - Actual Income to Date
£100,000 - Expected Future Income
£200,000 - Projected Gross Income
However, you might have looked at your business and decided to reduced your income estimate
for the remaining six months of your reporting period, by say £20,000. This would mean a PGI of
£180,000:
£100,000 - Actual Income to Date
£80,000 - Expected Future Income
£200,000 - Projected Gross Income
The more you work with your PGI, the more you will find that it becomes central to your
financial planning process as it will drive almost everything else.
Budget Expenditure
So having established our income numbers, it’s time to look at the expenditure side of things.
Lets start with the Budget Expenditure.
Budget Expenditure is all the routine, day-to-day spending that the business incurs over the

his income he wanted to allocate to each.
One of the items on the list was renovation, but he had left this blank. When I asked why, he told
me that he didn’t see the need to budget anything for this. He had just finished redecorating his
restaurant the month before, which had cost him in the region of £20,000. As he had only just
finished this work he saw no need to budget more for it right now.
When I asked him when the restaurant was last renovated, he told me that it had been done about
three years previously, and had cost about the same. What he hadn’t considered was that,
assuming that he may need to do similar renovations three years from now, he needed to allocate
over £500 per month to be sure the funds will be there when he needs them.
The reason for planning your Non-Budget Expenditure is often not obvious, until the day you
realise you need the funds for something out of the usual routine and you don’t have them.
***
Expenditure Ratios
As part of their financial planning, every business needs to decide how much of their income to
allocate for Budget and Non-Budget Expenditure. A business that allocates too much to their day-
to-day Budget Expenditure may find themselves in difficulty when it comes to the type of “out of
the blue” spending that Non-Budget Expenditure is for. On the other hand, allocating too much
for Non-Budget Expenditure and there may not be enough money to actually run the business.
The exact split between these two categories of expenditure is very much dependent on each
individual business, but in general a 10:1 ratio between Budget and Non-Budget works for most,
so for every £100 you allocate to Budget Expenditure you might spend £10 on Non-Budget.
Profit
OK, if you are reading this it means you’re still with me and haven’t skipped ahead to the next
chapter. Well done!
Now I know that all this talk of projections and reporting periods is not particularly interesting.
So lets discuss something that might capture your imagination: your profit.
It doesn’t matter whether you are the small business owner or a Manager employed to operate the
business on behalf of the owner. Either way you will no doubt have a vested interest in the
company’s profit.
Your profit is the income you have left after you have incurred the expenditure needed to operate

DEMOCO LTD MONTHLY FINANCIAL REPORT 30th April
Reporting Period Start: 01 January - 31 December
Starting PGI: £200,000
Actual Income to Date: £60,000
Budget Expenditure to Date: £42,000
Non-Budget Expenditure to Date: £4,000
Profit To Date £16,000
This simple financial statement can already tell us quite a lot of useful information, and as you
can see it statement contains all our magic numbers. Useful as these numbers are though, they are
they only tell us part of the story. We need more information if we are to really be able to
maintain financial control.
Fortunately what makes these numbers magic is that we can use them to unveil everything else
we need through simple deduction. Think of it like sudoku for your business!
Firstly lets work out where DemoCo Ltd is at the moment. From the financial statement we can
see that DemoCo Ltd’s Reporting Period is one year from the start of January. We can also see
that this statement was produced at the end of April, which marks four full months of the period.
We can therefore calculate that the Reporting Period to Date is 33% (4 months is 33% of 12
months). This is how much of the Reporting Period the company has completed.
Now let’s turn our attention to DemoCo’s income. We can see that they started the year with an
expected PGI of £200,000. Remember, PGI stands for Projected Gross Income, so at the start of
the year DemoCo Ltd believed that figure to be a reasonable target for the year.
Over the course of the four months that the finance report covers we know that the company
generated income of £60,000, an average of £15,000 per month. If we use this monthly average
to project this forward for the remaining months of the Reporting Period this would give an
updated PGI of £180,000:
Actual Income to Date: £60,000
Expected Future Income: £120,000 (£15,000 per month for 8 months)
Updated PGI: £180,000
So, already we can see that if DemoCo Ltd carry on performing at the rate they have been they
will not achieve their target of £200,000 by the end of the Reporting Period. But how far behind

Projected Total Shortfall: £20,000
Now that we have filled the gaps that were missing from the financial statement and have a lot
more information, what does that information actually mean for the real world? Well, there are a
few things that stand out:
1. Based on their current performance they are not on track to achieve their income target by the
end of their Reporting Period. At present they are £6,000 behind where they need to be to stay on
track for their target. It may be that this was expected due to seasonal variations in their trading
pattern, and they plan to make this up later in the year when trading increases. If not, at least they
now know that need to increase their current level of income or they will complete the period
£20,000 behind their expected target.
2. Their Budget to Non-Budget Expenditure ratio is 11:1, so for every £11 they spend on day to
day expenditure they spend £1 on non-routine expenditure. I generally advise to try and maintain
around a 10:1 ratio so this is well within reach of this standard.
3. Their current profit margin is a healthy 23%, however although they are in profit they are not
currently making as much profit as they originally anticipated.
All in all then DemoCo Ltd seems to be managing their finances reasonably well. They have a
healthy distribution of expenditure and profit, they just aren’t making as much income as they
originally planned for. They now know that they need to concentrate their efforts on increasing
their income safe in the knowledge that their expenditure levels as within acceptable levels.
Small Boxes Make A Big Difference
Thanks to our magic numbers, we now have a lot more information to guide us in taking control
of our small business finance. But control is so much more than just facts and figures - we also
need to take action.
Throughout this chapter I have been using the term financial management. But for many small
businesses operators, their finances have a tendency of managing them rather than other way
round. Income comes in, but by the time the bills start arriving there isn’t enough in the bank to
pay them, the money having slipped away like water through a leaky pipe. The reason for this is
the simple lack of discipline I mentioned at the very start of the chapter.
Often, in life as well as business, the simplest approach is the usually best. This certainly applies
to financial management. The simple approach to the leaking income problem is to allocate the

guarantee you’ll find yourself short just when you need it.
When dealing with the contents of each small box, you need to pretend that all the others small
boxes don’t even exist. Each box is for a specific purpose, and this purpose is set in stone.
Sounds simple, doesn’t it? That’s because it is. Or more truthfully, it’s simple to understand.
Finding the discipline to not take from one box when another is running short - that takes a little
more effort.
This system of using small, imaginary boxes to allocate the income we generate has a name
(albeit not a very exciting one) - it’s called Budget Setting.
Setting and managing those budgets is one of the most important financial requirements of every
business, big or small. And yet the vast majority of small businesses operate absolutely no budget
control whatsoever. Often this is because they think that managing business budgets is more
complicated than a bunch of imaginary boxes.
Instead they will simply spend when they need to spend over the course of the year, and hope
they have something left at the end as profit. What those small business operators don’t realise is
that there is one, HUGE reason why they should be using some sort of budget system. The reason
is so your can PROTECT YOUR PROFIT.
There are no money trees
If there is just one thing that I want you to take away from this book, it’s this. It is my absolute
golden rule of business is, PROTECT YOUR PROFIT.
Sounds obvious, doesn’t it? And yet so many small business operators forget and end up allowing
their business expenditure to eat into their profit, sometimes swallowing it completely.
I have lost count of how many business operators I have met who haven’t got a clue what their
current level of profit is, seemingly happy to wait until the end of the year to discover whether or
not there’s anything left in the pot. Crazy!
Think about this, would you accept a job where you are not told how much you will get paid, or
even if you would be paid at all, until the end of the year? Of course not. You would insist on
agreeing a salary at the start of the year, and under no circumstances could this be lowered on a
whim.
Running a company is absolutely no different. To effectively protect your profit, the very first
thing you need to decide is how much of the income you anticipate making is going to be put

have to prioritise what they can afford and leave the rest.
What that business must NOT do is dip into the small box allocated for profit. That box needs to
stay off limits, no matter how well intentioned you try to be, and how much you promise to put it
back as soon as you can.
I can tell you from experience, having seen many, many small business operators do exactly the
same thing, you will never put back what you have taken out. That profit will be gone, and when
you look back you will not be entirely sure where it went. It will have just leaked out on things
that you will later realise you could have managed without.
To successfully manage the finances of a small business, it is essential to learn how to to leave
each box alone. Otherwise you run the very serious risk of not having enough in each small box
for when you need it.
Right, lecture over. Let’s turn our attention to how we can use this information to make a
financial plan for the future. For that we are going to need our small boxes again.
***
Magic Number Summary
• Reporting Period - The financial period that the magic numbers refer to.
• Reporting Period to Date - The proportion of the Reporting Period that has passed, as a
percentage.
• Actual Income - The total income generated since the start of the Reporting Period.
• Expected Future Income - The income you expect to generate over the remainder of the
Reporting Period.
• Projected Gross Income (PGI) - The total income you expect to generate over the entire
reporting period, calculated by adding the Actual Income to Date to the Expected Future
Income.
• Budget Expenditure - The proportion of PGI allocated for the day to day operating costs of the
business, as a percentage.
• Non-Budget Expenditure - The proportion of PGI allocated for expenditure outside normal
operating costs, as a percentage.
• Profit Margin - The proportion of PGI allocated to the business profit.
***

routinely monitor your magic numbers, you will probably not need anything more for longer term
planning.
Rather than looking over the next three years, most small business operators will benefit much
more from looking at just the next three months concentrating their efforts on tracking the daily
cash movement.
This can be as simple as keeping a spreadsheet or similar document, and recording when during
each of the next three months you expect your income to arrive and your expenditure to leave.
You can then identify potential hotspots. For example, let’s look at an extract from a possible
forecast prepared at the beginning of the month:
You can see that the company starts the month with £400 and ends the month with £500. If they
were running a traditional monthly cash flow, they would not realise that they had a cash flow
hotspot coming heading their way on the 28th, when they are due to make their salary payments.
However, by tracking daily movement over the next 90 days, a business can easily track any
hotspots and plan accordingly. Maybe the customer due to pay on the 29th of the month can
make a slightly earlier payment? Maybe the bank, having been given confidence in your financial
awareness, could cover the payments for a day or so until the income is due?
When it comes to cash flow management, often even the most serious of problems can be
prevented before they even occur, simply by tracking upcoming hotspots and taking action
accordingly. Taking the time to plan ahead using a simple 90 days daily tracker can make the
difference between staying in control and a nasty surprise.
Step One Summary
Congratulations! You just managed to read an entire chapter dedicated to financial management,
hardly the most exciting of subjects. That in itself is an achievement. Now it is time for you to
think about putting this information into practice in your small business.
Remember, managing your finances does not need to be complicated; it just needs to be
consistent. Information is your secret weapon when it comes to keeping a firm grip on your
finances. Know your magic numbers, act on them and look out for your cash flow hotspots. Do
these things, and you will find that everything else will fall into place.
Step Two: Manage the People
Let’s be honest. If there was a single subject in the realm of human knowledge that doesn’t need

gained from managing these people has taught me many lessons about how to be an effective
manager of a small business team. This can be pretty accurately summarised with three simple
principles:
Be firm but fair.
Be friendly but not a friend.
Take control but not advantage.
Everything else beyond this is pretty much just detail. Sounds easy enough, right? Whilst
managing staff is time consuming and can sometimes be frustrating, it’s also incredibly
rewarding and DOES NOT need to be complicated. You just need to follow these three simple
principles. Let’s take a look at each in more detail.
1. Be firm but fair.
Without doubt the key to successful management is consistency. Most of us can remember a time
in our past where someone in authority, maybe a parent or teacher, has blown hot and then cold
for no apparent reason; where something you did was fine one day and unacceptable the next.
You also probably remember how confusing that was.
When it comes to the operation of a small business, confusion of any kind can directly affect the
efficiency of a team, which in turn makes that team less productive.
Managing people is no different. People find comfort in routine, in knowing what is expected of
them and the rest of the team. This comfort translates into efficiency within that team.
Consistency in itself is not enough, however. A consistently bad manager is still a bad manager,
right? Rather, consistency in this case means giving the team a clear message about the standards
expected of them. These standards should be reasonable (i.e. fair) and should be expected at all
times (i.e. firm).
Consistency is the absolute key. The moment a manager loses either their sense of fairness (by
allowing some staff to perform at a lower level than others) or firmness (maybe by varying the
standard expected of the team without notice) they lose the routine and order that leads to an
effective and efficient staff team.
2. Be friendly but not a friend.
Right, you need to prepare yourself for something that, if it hasn’t already happened, undoubtedly
will. Sooner or later, as the owner of a small business, you’re going to walk into a room occupied