7 Functional Areas of Business Management Every Entrepreneur Must Know
In this article, I will be focusing on the 7 Functional Areas of Business Management every entrepreneur must know before starting out their business journey.
After reading this article, you’ll be able to see your business in a more comprehensive way as well as manage its different functional areas with authority, knowledge, and success.
Business management refers to the process of planning, organizing, coordinating, and overseeing the activities and resources of an organization to achieve its goals and objectives.
We can consider it like a disciple in constant evolution since requirements are never the same in a business. This tests the business owner’s skills constantly requiring dedication and resilience for it to be mastered.
If we were to break down the subject we can find different aspects (indeed more than seven) but I wanted to focus on the ones I care about the most.
1. Financial Management: Building a Solid Foundation
I always go back to the ultimate aim of a business of being both sustainable and profitable.
Well, this cannot happen without proper Financial Management. This functional areas is a cornerstone for your venture success.
Managing assets and liabilities in a business is just a part of the aspects you have to consider. You will have to keep a close look on your cashflow and constantly supervise your income and expenses.
Cash will always be the king. The point is not just having available resource now for the challenges your are going through but preparing and forecast when you’ll need more money. Spending a considerable amount today might have bigger impact in the future.
As a business owner, you want to make sure there is always a right balance between what goes in and what goes out from your pockets. Here is where Realistic Sales forecasting and Budgeting comes into play. You have to learn how to allocate your economic resource strategically and effectively to maximize returns, minimize losses or downturn.
Remember money is what keeps businesses alive. Learn and read about Financial Management stories of other businesses similar to yours. There are plenty of resources online and also plenty of real cases, both positives and negatives.
Effective Financial Management
For effective Financial Management, you want to:
- Do Realistic Sales Forecasting
- Create budgets for your departments and include different scenarios
- Monitor and Forecast your Cashflow
- Understand Liquidity
- Understand your business position by reading Financial Statements like your P&L and Balance Sheet
- Strike at a good balance between Assets and Liabilities
- Track and Monitor your Finances Constantly
2. Marketing: A Focus on Sales
I always hear people saying that competition is fierce or the market is saturated. Well, it is in some cases. However, in many others is just a matter of wrong focus. Here is what I mean:
Let’s suppose you want to sell a product just because everyone is selling it.
You have envisioned a big market but you are now amongst competitors that are bigger than you and with bigger capital. Your big market is no longer a big market for you and your business especially because you don’t have any competitive advantage amongst the sellers like you.
Your clients will randomly probably shop from the most known seller which, in many cases, is either a corporate or the one spending more in advertisement.
Now let’s change the example, you have a very good and innovative product, but you fail in marketing it to the wrong audience. Same as above, you’ll never make it.
The idea of marketing I have in mind is not about “affirming your brand amongst the other”. If you think about it, this is just a consequence and will happen, eventually.
For me, good Marketing is focused on Sales. This happens when you place the right product in front of the right people. Reverse engineer the process and you’ll never find a saturated market or hard competition. Don’t focus on the product, focus on the audience and how you can target it efficiently.
3. Operations: Aim For Streamlined Processes
This is probably the most important among all the functional areas of Business.
Your venture has to Operate. I love the word “operate”, I find it very fitting. It gives a sense of action, a feeling of something alive that works efficiently, not just passively.
Every business is made of chains of operations. From finding new a lead to selling your service or product, everything in between can be classified as as a chain of linked and structured actions.
Especially at the beginning, many parts of the operations are carried out by the owner. If that’s your case, make sure to standardize and optimize your process from the very beginning.
As soon as you feel comfortable and you have enough capital, you can think of sharing the burden with other subordinates by hiring. But never give away all the work you’ve done in standardizing and streamlining your operations.
Aim for streamlined solutions for better performance. And remember to approach this subject with the eyes of an entrepreneur, not with the point of view of an employee. You are not the main worker, your are the main operator.
4. Human Resources
Human interaction is at the base of every business. When your business starts to expand, the amount of work required won’t give you any other chance than employing someone to help.
This is a common practice you don’t have to be afraid of. Focus on what your new employee can bring to the business. A new point of view, new energies, new knowledge, and learn how you can get the most out of them. Learn to trust and make them responsible for what they deliver.
Let them thrive under your guidance and let them contribute to all the hard work you have done by yourself.
As a business owner and entrepreneur, you will need to learn how to relate differently with different people. Good advice is to listen first then speak. Make sure to have recurring 1-1 with your subordinate to go through common issues as well as praise them for their hard job. Nonetheless, they are contributing to your venture’s success.
5. Strategic Planning: Your Next Move
Strategic planning is as important as the other Business Functional Areas when it comes to success.
There is a big difference between “something happened and “something planned happened”. Many entrepreneurs plan to a daily level of detail their life in a company. Whilst I am not in a position to say if planning your entire life daily is productive or not, when it comes to business you must develop a good sense of planning if you want to become a real entrepreneur.
The idea is to have short and long terms guidelines for the business to grow and keep up with challenges and market fluctuations. Align your operation to your ultimate goal and plan step by step your next move. Use data and market insights for a better landscape of opportunities and threats.
Getting good at strategic planning requires time and failure. It is impossible to plan for everything, but plan your business to run efficiently with a good dose of resilience. Don’t forget that a plan without risk mitigation is like setting off on a journey without a safety net.
Finally, remember that strategy can be applied to all areas of business management.
6. Risk Planning and Mitigation
This part comes as a consequence of Strategic Planning.
With every decision comes some risk. Whilst, you might be good at making smart calls, you are never always in a safe position. Strategic planning will highlight your path to success but also give you a chance to reflect on important aspects like risk planning and mitigation.
A smart entrepreneur will consider the three aspects of risk: probability, vulnerability, and exposition. Your ultimate goal is to analyze the chance of something going wrong (Probability), evaluate what will eventually fail (exposition), and the impact of the failure (vulnerability).
Once you know these three aspects you’ll be able to create a matrix to highlight your risk on a scale by simply multiplying these three parameters.
Whenever the risk is high, plan for risk mitigation and have your backup plan ready. You don’t want this to happen but if it happens you have to save your business.
Whenever the risk is medium or low you can either have a go or have your mitigation plan ready to serve you.
7. Technology and Innovation
The world of business is in constant evolution. You cannot stop it, you can only keep up with it. Plenty of businesses are wiped out every year as they stop to keep up with tech and innovation.
As a business owner, you cannot allow this to happen. Seek information, join conventions, and read a lot. Don’t stop at the first page, often, new innovations are hidden especially when they just come out. That’s your opportunity for success.
Many entrepreneurs either invent their technology or implement it in their early stages to boost growth. Look at what is criticized, most of the time is some sort of groundbreaking piece of tech. Do you remember the first time blockchain was mentioned? I do. And look at it now.
The same would be with AI and all its applications.
A smart entrepreneur will understand what he or she can leverage for the business and understand its application in all the other areas of business.
Finally, remember that innovations come with some degree of risk and cost. Make sure they don’t disrupt your operations.
I hope you enjoyed this article about the 7 areas of business management every entrepreneur should know.
As you grow with your business you will get more familiar with all the operations, marketing, and strategic planning aspects of your venture.
Your main focus is to oversee all these aspects (and many others) whilst not burning yourself. Creating a successful business is a long-term plan. Enjoy the journey as best as you can!