Building Business Capacity
Capacity building is the process of obtaining, improving and retaining the facility or power of an individual or organization to produce, perform and deploy the necessary skills, knowledge, tools, and other resources needed to do their jobs competently and effectively.
Two main reasons why small businesses need to engage in capacity building:
To develop new resources to perform business activities
To put resources to the most effective use
Several factors, which change in importance as the business grows and develops, are prominent in determining ultimate success or failure. There are company related factors as well as owner related factors as seen below:
Company Related Factors
Including cash and borrowing power.
Relating to numbers, depth, and quality of people, particularly at the management and staff levels.
In terms of the degree of sophistication of both Information and planning and control systems.
Including customer relations, market share, supplier relations, manufacturing and distribution processes, technology and reputation, all of which give the company a position in its industry and market.
Owner Related Factors
Owner’s goals for themselves and the business.
Owner’s operational abilities in doing important jobs such as marketing, inventing, producing, and managing distribution.
Owner’s managerial ability and willingness to delegate responsibility and to manage the activities of others.
Owner’s strategic abilities for looking beyond the present and matching the strengths and weaknesses of the company with their goals.
My business is in the following stage:
In this stage the main problems of the business are obtaining customers and delivering the product. Among the key questions are the following:
Can we get enough customers, deliver our products, and provide services well enough to become a viable business?
Can we expand our sales base?
Do we have enough money to cover the considerable cash demands of this start-up phase?
Business Type: Companies in the Existence Stage range from newly started restaurants and retail stores to high-technology manufacturers that have yet to stabilize either production or product quality.
In reaching this stage, the business has demonstrated that it is a workable business entity. It has enough customers and satisfies them sufficiently with its products or services to keep them. The key problem thus shifts from mere existence to the relationship between revenues and expenses. The main issues are as follows:
Long Term Cash Reserve: In the short run, can we generate enough cash to break even and to cover the repair or replacement of our capital assets as they wear out?
Cash Flow: Can we, at a minimum, generate enough cash flow to stay in business and to finance growth to a size that is sufficiently large, given our industry and market niche, to earn an economic return on our assets and labor?
Business Type: The “mom and pop” stores are in this category, as are manufacturing businesses that cannot get their product or process sold as planned.
The decision facing owners at this stage is whether to exploit the company’s accomplishments and expand or keep the company stable and profitable, providing a base for alternative owner activities.
At this stage the company has attained true economic health, has sufficient size and product-market penetration to ensure economic success, and earns average or above-average profits.