We have a saying around the office: “Small businesses don’t stay small on purpose.”

If a business is small, there are two dominant causes. Either the business model or the leadership team, or both, are holding it back. Typically there is something or some things a business owner is doing, or more likely not doing, that are blocking the business from growth. These things are non-obvious, which is why they’re not being done.

Of course, this is why we like investing in small businesses. We can help an owner -- who is typically rolling forward equity with us -- to identify and solve the problem. And when that happens, value is created. There are more of these opportunities at smaller businesses, which is one reason why smaller buyouts tend to outperform larger ones.

Having said that, you don’t necessarily need Permanent Equity to buy your business in order to unblock growth. In fact, if you are thinking about selling your business now or in the future, we’re happy to share this piece -- our playbook -- and our Instant Appraisal tool to help you build your business and increase its value. Although that may seem counterintuitive, all else being equal, we are always happy to pay more for a business where hard work has been done to make it more durable because there is always something more that can be done. As long as you’re up for it, the pursuit of a bigger share of a bigger pie can go on forever.

GET STARTED UNBLOCKING

We put what we call “the business of business” in five buckets, listed here in order of importance to become a fully functioning enterprise:

1. Operations

2. Finance

3. People

4. Marketing

5. Tech

We say that these are listed in order of importance, but that is not to denigrate the financials, people, marketing or tech. Rather it’s to acknowledge that a business can run without those functions being finely tuned. It will run poorly, of course, but we’ve seen it done. A business with sound operations and finance is in a slightly better spot and on and on down the line. A great business will do all five of these things well, but we have never seen a small business that is also a great business. If they were stellar in each area, they’d grow tremendously.

What’s more there are sub-buckets within each of these buckets, which rise from the table stakes to higher level thinking. The Operational bucket, for example, consists of the core business process (i.e., the thing the business gets paid to do) then the org chart, or allocation of talent, and then planning. Finance has an accounting and cash management function, then tax, and then a finance function that includes forecasting, capital allocation and balance sheet management. When it comes to people, you have the compensation and incentives, then recruiting and retention, and finally company culture. Marketing has basic operations and assets, then strategy and spend allocation. And then technology is systems, processes, and strategy.

Here’s all of that in a checklist with some relevant questions:

Operations

1. Core business process 

   1. Do you do what you do well?

   2. Do you do it well consistently?

   3. Do you do it well consistently and profitably?

2. The org chart

   1. Do you have roles?

   2. Are those roles defined?

   3. Is there a clear decision-making framework and/or hierarchy?

3. Planning

   1. Do you have a prioritized list of what you want to do next?

   2. Do you talk to your customers on a regular basis?

   3. Can and do your customers recruit other customers?

Finance

1. Accounting

   1. Do you know how much money you do or don’t make?

   2. Do you manage your costs by category?

   3. Do you manage your cash conversion cycle?

2. Tax

   1. Are you accurately accruing for and paying them?

   2. Are you working to reduce them?

   3. Do you know what potential benefits are available to you?

3. Finance

   1. Do you have a forward-looking forecast grounded in realistic assumptions?

   2. Do you have a process for how to decide to make or not make an investment?

   3. Is your capital structure optimal?

People

1. Compensation

   1. Do you pay a fair wage that is commensurate with an employee’s workload?

   2. Do you offer competitive benefits?

   3. Do you have a thoughtful incentive plan?

2. Recruiting and retention

   1. Do you have a hiring process that attracts multiple candidates for each job opening?

   2. Do you know who is doing a good job and do they know if they are doing a good job?

   3. Do the people who do a good job tend to stick around and get increases in responsibility?

3. Culture

   1. Do your people come to work?

   2. Do your people like to come to work?

   3. Do your people actively recruit their most talented friends to come to work with them?

Marketing

1. Operations

   1. Do you have a website and working phone number?

   2. Do you rank on Google?

   3. Do you actively target potential customers?

2. Assets 

   1. Do you have a logo, brand, and high-resolution examples of your work?

   2. Do you have access to professional copywriters and designers?

   3. Are you actively running and measuring marketing tests?

3. Strategy

   1. Do you know how well your marketing is working?

   2. Can you measure the ROI of your marketing spend?

   3. Can you confidently spend more on marketing?

Technology

1. Systems

   1. Does technology facilitate your work?

   2. Is your technology up-to-date?

   3. Are you regularly updating your technology?

2. Processes

   1. Can you outline a standard business process?

   2. Do you consistently streamline and improve that standard business process?

   3. Are you actively adopting new technology to aid your business process?

3. Strategy

   1. Do you have a process for identifying gaps in your tech stack?

   2. Are you able to smoothly integrate new technology?

   3. Can you confidently spend more on technology?

Now here’s how many of the businesses we see would answer those questions (in bold):

Operations

1. Core business process 

   1. Do you do what you do well? Yes

   2. Do you do it well consistently? Yes

   3. Do you do it well consistently and profitably? Yes

2. The org chart

   1. Do you have roles? Some

   2. Are those roles defined? Some

   3. Is there a clear decision-making framework and/or hierarchy? Not Really

3. Planning

   1. Do you have a prioritized list of what you want to do next? Kind Of

   2. Do you talk to your customers on a regular basis? No

   3. Can and do your customers recruit other customers? No

Finance

1. Accounting

   1. Do you know how much money you do or don’t make? Yes

   2. Do you manage your costs by category? Some

   3. Do you manage your cash conversion cycle? No

2. Tax

   1. Are you accurately accruing for and paying them? 99% Of The Time

   2. Are you working to reduce them? Not Really

   3. Do you know what potential benefits are available to you? No

3. Finance

   1. Do you have a forward-looking forecast grounded in realistic assumptions? No

   2. Do you have a process for how to decide to make or not make an investment? No

   3. Is your capital structure optimal? Say What?

People

1. Compensation

   1. Do you pay a fair wage that is commensurate with an employee’s workload? We Try To

   2. Do you offer competitive benefits? Yes

   3. Do you have a thoughtful incentive plan? No

2. Recruiting and retention

   1. Do you have a hiring process that attracts multiple candidates for each job opening? No

   2. Do you know who is doing a good job and do they know if they are doing a good job? Not Really

   3. Do the people who do a good job tend to stick around and get increases in responsibility? Maybe

3. Culture

   1. Do your people come to work? Yes

   2. Do your people like to come to work? We Think So

   3. Do your people actively recruit their most talented friends to come to work with them? No

Marketing

1. Operations

   1. Do you have a website and working phone number? Yes, but the website could be better.

   2. Do you rank on Google? Rank?

   3. Do you actively target potential customers? We Think So

2. Assets 

   1. Do you have a logo, brand, and high-resolution examples of your work? Yes, but they could be better.

   2. Do you have access to professional copywriters and designers? No

   3. Are you actively running and measuring marketing tests? No

3. Strategy

   1. Do you know how well your marketing is working? No

   2. Can you measure the ROI of your marketing spend? No

   3. Can you confidently spend more on marketing? Why would we spend more on marketing?

Technology

1. Systems

   1. Does technology facilitate your work? Yes

   2. Is your technology up-to-date? No

   3. Are you regularly updating your technology? No

2. Processes

   1. Can you outline a standard business process? Yes

   2. Do you consistently streamline and improve that standard business process? No

   3. Are you actively adopting new technology to aid your business process? No

3. Strategy

   1. Do you have a process for identifying gaps in your tech stack? No

   2. Are you able to smoothly integrate new technology? No

   3. Can you confidently spend more on technology? Why would we spend more on technology?

That’s a lot of answers that are not a confident yes, but again, small businesses don’t stay small on purpose. Some of the non-yes answers stem from the fact that small business owners aren’t aware of questions they should be asking. Others because they’re just not a priority. Some because they don’t have access to proper talent. And still others because getting to yes can be expensive and difficult without a guaranteed return. That’s particularly true of initiatives in marketing and technology, which we find are two of the most underutilized areas in small business.

But we’ll guarantee you this: If you’re a small business owner and you take this checklist, apply it to your business, and begin getting to yes on more and more of the questions, you will (1) build a stronger, more durable enterprise and (2) substantially increase the long-term value of your business.

You don’t need to do them in order and you don’t need to do them all, but identify some zones of opportunity and get to work. That’s what we’d help do if we partnered with you.

For more actionable insights on small business operations, subscribe to our newsletter for operators, Permanent Playbook.