By Tony Hall,2014-05-19 00:51
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    A practical guide for local small businesses

     Survey your business

     Evaluate Strengths & Weaknesses

     Develop a plan of action to make your business better

     Focus on needed skills


    Small businesses often fail because owners are unaware of the many elements that can prevent the business from growing and being successful. Often, small businesses are organized around the manager's specific area of expertise, such as marketing, accounting or production. This specialized expertise often prevents the business owner from recognizing problems that may arise in other parts of the business.

    By doing an audit of key areas of the business, you can determine strengths and weaknesses, and work on making improvements. This should include seven critical business functions: basic planning, general bookkeeping and accounting practices, financial planning and loan proposals, sales and marketing, advertising and promotion, personnel, and production. In the healthy and financially sound small business, these seven functional areas are in balance. In many cases, one cannot work on all seven areas at once. The manager must decide which area to concentrate on based on past practices and the needs of the business. Regular use of this audit instrument can help make the small business manager more efficient.

    This publication will provide the small business entrepreneur with the essentials for con- ducting a comprehensive search for existing or potential problems. The audit was

    designed with small businesses in mind and addresses their unique problems and



    As the first step in determining what small business owner-managers need to know, the audit creators analyzed 900 Small Business Institute (SBI) student counselors' case reports. This analysis showed that the small businesses used consultants to help them obtain essential information for conducting many of their business affairs, such as basic planning, general business practice, accounting, finance and loan procurement,

    advertising and promotion, market research, feasibility studies and operations.

Next, 50 Small Business Development Center (SBDC) client cases were selected at

    random 5 to 6 cases from each SBDC for an in-depth probe. The SBDC’s provide,

    through paid staff and faculty coordinators, in-depth counseling to small businesses. Like the SBI program, SBDC’s generate a client case report that details the current operations of the business and recommendations for improvement. The authors have combined case

    evidence, logical procedures, expert advice and systematic thinking to create a management audit for small businesses. This instrument is not exhaustive, i.e., the business owner/manager still must rely on personal judgment and past experience. However, it does provide a systematic framework to ensure that critical areas have been addressed before action is taken. The audit is a tool, not a replacement for good management skill. Audits and handbooks cannot do the consultant's job; however, effectively designed instruments, such as this audit, can save valuable time for the seasoned as well as the novice small business manager.

    In their review of management literature the authors did not find an audit instrument that addressed the needs of small businesses. They studied actual SBI and SBDC case reports to find out what management practices were being used by small business, and used that information to create this audit.

    SBDCs are sponsored by the SBA in partnership with state and local governments, the educational community and the private sector. They provide assistance, counseling and training to prospective and existing business owners. There are more than 1,000 SBDC service locations in all 50 states.


    In order to gain maximum effectiveness from this audit, the small business manager should answer all questions in the audit, with an affirmative answer indicating no problem and a negative answer indicating the presence of a problem in a specific area.

    After completing the audit, the manager can review the analysis of each section of the

     audit that follows (in the management audit analysis section) to determine what action is most appropriate. The audit analysis provides an overview of how the various elements of the audit are related. The authors have linked the seven critical business functions, basic planning, general bookkeeping and accounting practices, financial planning and loan proposals, sales and marketing, advertising and promotion, personnel and production under three major audits: the management audit, the operations audit and the financial audit.

    In the healthy and financially sound small business, these seven functional areas are in balance. In many cases, one cannot work on all seven areas at once. The manager must decide which area to concentrate on based on past practices and the needs of the business. Regular use of this audit instrument can help make the small business manager more efficient.


I. Basic Planning ( yesno)

     A. The company has a clearly defined mission. ----- -----

     1. There is a written mission statement. ----- -----

     2. Company is carrying out the mission. ----- -----

     3. Mission statement is modified when

     necessary. ----- -----

     4. Employees understand and share in the

     mission. ----- -----

     B. The company has a written sales plan. ----- -----

     1. Market niche has been identified. ----- -----

     2. New product lines are developed when

     appropriate. ----- -----

     3. Targeted customers are being reached. ----- -----

     4. Sales are increasing. ----- -----

     C. The company has an annual budget. ----- -----

     1. Budget is used as a flexible guide. ----- -----

     2. Budget is used as a control device. ----- -----

     budgeted expenditures. —— —— 3. Actual expenditures are compared against

     4. Corrective action is taken when expenses

     are over budget. ----- -----

     5. Owner prepares budget. ----- -----

     6. The budget is realist ----- -----

     D. The company has a pricing policy. ----- -----

     1. Products or services are

     competitively priced. ----- -----

     2. Business provides volume discounts. ----- -----

     3. Prices are increased when warranted. ----- -----

     4. There is a relationship between pricing

     changes and sales volume. ----- -----

     5. New prices are placed on last-in goods when

     the price on old stock gets changed. ----- -----

    II. Personnel

     A. Employees know what is expected of them. ----- -----

     1. Each employee has only one supervisor.---- -----

     2. Supervisors have authority commensurate

     3. Employees volunteer critical information to with responsibility. ---- -----

     their supervisor. ----- -----

     4. Employees are using their skills on the job ----- -----

     5. Employees feel adequately trained. ----- -----

     B. Each employee has a job description. ----- -----

     1. Employees can accurately describe

     what they do. ----- -----

     2. Employees do what is expected. ----- -----

     3. Work load is distributed equitably. ----- -----

     4. Employees receive feedback on

     performance. ----- -----

     5. Employees are rewarded for good

     performance. ----- -----

     6. Employees are familiar with company

     policies. ----- -----

     7. There is a concise policy manual. ----- -----

     C. Preventive discipline is used when appropriate. ----- -----

     1. Employees are informed when

     performance is below standard ----- -----

     immediately. ----- ----- 2. Unexcused absences are dealt with

     3. Theft prevention measures are in place. ----- -----

     D. Regular employee meetings are conducted. ----- -----

     1. Employees' ideas are solicited at meetings. ----- -----

     2. An agenda is given to employees prior to

     the meeting. ----- -----


I. Production

     A. The company has a good relationship with

     suppliers. ----- -----

     1. A well-documented plan addresses how to

     deal with suppliers. ----- -----

     2. Inventory delivery times are specified. ----- -----

     3. Levels of quality of materials and

     services are specified. ----- -----

     4. Payment terms are documented. ----- -----

     5. Contingency plans are provided. ----- -----

     6. Regular contact is made with suppliers. ----- -----

     B. The company provides for good inventory control. ----- -----

     1. Company has an inventory control formula

     to provide for optimum inventory levels. ----- -----

     2. Company has a policy on securing inventory

     in a timely fashion. ----- -----

     C. The company conducts incoming inventory

     inspections. ----- -----

     1. Company has a written policy on incoming

     inspection. ----- -----

     2. Incoming inspection is being performed. ----- -----

     3. Incoming inspection levels of quality

     are documented. ----- -----

     D. The company has alternate sources of

     raw materials. ----- -----

     1. Two or more suppliers are identified

     for each product needed. ----- -----

     2. Majority of raw material requirements

     are divided equally between two major

     suppliers with a third source receiving

     lesser but consistent orders. ----- ----- E. The company has a routine maintenance program. ----- -----

     1. A routine maintenance program is docu-

     mented and communicated to all main-

     tenance personnel. ----- -----

     2. Every major piece of equipment has a

     maintenance log positioned in an obvious

     place. ----- -----

     3. Preventive maintenance is a regular

     occurrence. ----- -----

     F. The company has a formal operator

     training program. ----- -----

     1. Company has a written operator training

     manual. ----- -----

     2. A progressive training process is in

     place. ----- -----

     3. Accomplished operators are identified to

     answer questions from trainees. ----- -----

     4. Constructive feedback on training progress

     is provided in a non-intimidating

     fashion. ----- -----

     G. The company meets Occupational Safety and

     Health Administration (OSHA) standards. ----- -----

     1. Company is aware of OSHA standards per taining to the business. ----- -----

     2. Company conducts regular meetings with

     employees concerning OSHA standards.----- -----

     3. All safety records and lost time accidents

     are documented. ----- -----

     H. The company has a well-documented

     processing procedure. ----- -----

     1. A scheduling process enables orders to be

     grouped for more efficient processing. ----- -----

     2. A scheduling chart allowing instantaneous

     recognition of production status is in an

     obvious place. ----- -----

     3. Subassemblies are manufactured in suffi-

     cient quantities on a timely basis. ----- -----

     4. Finished stock is safely transported to

     a clean and dry area. ----- -----

     5. Adequate controls are provided to preclude

     excessive inventory buildups that could

     result in finished stock spoilage or ob-

     solescence. ----- -----

     I. The company has an environmental aware-

     ness policy. ----- -----

     1. A policy pertaining to the disposition

     of hazardous waste materials is fully

     documented and communicated to all pertinent

     parties. ----- -----

     2. Attempts are made to stay current with all

     existing regulations pertaining to the

     environment. ----- -----

     3. Regular meetings are conducted to determine

     better methods of dealing with

     J. The company attempts to stay current with technological advances. by-products. ----- -----

     ----- -----

     1. Company representatives attend trade shows

     on a regular basis. ----- -----

     2. Company subscribes to trade

     publications. ----- -----

     3. A formal employee suggestion program is

     in place. ----- -----

     4. Company conducts regular technology

     advancement brainstorming sessions involving

     the employees. ----- -----

     5. Company is involved in the community's

     extended learning programs. ----- -----

     II. Sales and Marketing

     A. The owner knows exactly what the business is. ----- -----

     1. The owner knows exactly who the

     customer is. ----- -----

     2. Potential customers know about the

     business. ----- -----

     3. Location is appropriate for the business.----- -----

     4. The market is clearly defined. ----- -----

     B. The owner knows competitors and their location. ----- -----

     1. The owner knows how his or her prices compare

     with the competitions'. ----- -----

     2. The owner knows how the competition is

     regarded. ----- -----

     3. Census data are used for strategic

     marketing. ----- -----

     4. The owner knows the county sales

     patterns. ----- ----- 1. The owner and employees treat customers C. The owner and employees focus on customer needs. ----- ----- courteously. ----- -----

     2. The customer's concerns, complaints and

     suggestions are listened to carefully. ----- -----

     3. Customers are provided with quick,

     reliable service. ----- -----

     4. The owner is considered knowledgeable

     by customers. ----- -----

     5. Appropriate housekeeping procedures for

     the business are followed. ----- -----

     D. The owner is aware of customer needs. ----- -----

     1. Feedback is requested from customers. ----- -----

     2. Sales receipts are monitored. ----- -----

     3. Sales receipts are compared to those

     from previous years. ----- -----

     4. Seasonal variations are taken into account.----- -----

     E. The company needs to increase sales volume. ----- -----

     1. There is a sales plan in effect. ----- -----

     2. Sales goals are being met. ----- -----

     3. Effective sales presentations are being

     made to potential customers. ----- -----

     4. Names of prospects are kept in a follow-up

     file. ----- -----

     5. Sales are closed effectively. ----- ----- III. Advertising and Promotion

     A. The owner has an advertising and

     promotion plan. ----- -----

     The business

     1. Has an advertising budget. ----- -----

     2. Advertises monthly. ----- -----

     3. Advertises weekly. ----- -----

     4. Has a promotional calendar. ----- -----

     B. The owner uses effective advertising

     and promotion. ----- -----

     The owner

     1. Advertises in the Yellow Pages. ----- -----

     2. Uses newspapers and "shoppers." ----- -----

     3. Uses radio and television advertising.----- -----

     4. Obtains no-cost or low-cost media

     coverage. ----- -----

     C. The owner uses effective merchandising techniques ----- -----

     The owner

     1. Relates display space to sales potential. ----- -----

     2. Uses vendor promotional aids. ----- -----

     3. Knows traffic flow patterns of

     customers. ----- -----

     4. Keeps facilities clean. ----- -----

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