Business Administration - Simply Put!

Introduction

In the Marstan Guide "Introduction to Business Management", we said that good administration is vital for the smooth running, or even the survival, of an organisation.

We also said that administration is closely aligned with finance. These are activities which are not at the “front line” of customer services but which are vital to the smooth running of the organisation.

What is administration?

Administration is the handling of all general matters in the day-to-day affairs of an organisation, which cannot be grouped under another heading such as HR, Finance, Marketing or ICT.

What are the functions of administration?

The following matters must be considered as part of administration:

1. Premises and facilities management
2. Insurances
3. Purchasing
4. Management meetings
5. Business records
6. Business continuity
7. Vehicles and plant
8. Legal

Premises and facilities management

The majority of businesses have premises (shops, workshops, offices or factories) and they inevitably need some management. This is most frequently referred to as facilities management.

Acquiring premises is one of the most significant decisions made by a business; particularly in the early years. This is because it can be one of the biggest items on the budget and one for which a significant commitment is often made, such as taking a long-term lease.

Premises can be dealt with in one of the following ways:

1. Home-working - this usually applies to very small businesses or start-ups.
2. Purchase
3. Leasehold
4. Serviced premises – where commercial firms provide offices or workshops for tenants and include all heating, lighting, cleaning and IT payable by an agreed amount per square metre.

Once a business has acquired a business there are many items of administration and management that must be dealt with including:

1. Repairs and maintenance - essential to prevent expensive depreciation and deterioration.
2. Fire protection - fire extinguishers, smoke alarms and fire alarms are all essential to meet both the legal requirement and the moral responsibilities of a business. Equipment must be inspected regularly and procedures (such as fire drills) must be implemented and checked.
3. Security - the majority of businesses have plant, equipment, fittings and data which need to be protected by security. Premises have two prime considerations:
   1. Can you prevent people entering the property? This means attention should be paid to locks, signs, lighting etc.
   2. If somebody enters the premises, how quickly can you, the police or security staff be alerted to prevent theft?

   It is advisable to consult a security firm.

4. Services and Utilities - it is essential to consider the contracts and costs of services and utilities. It is often beneficial to switch providers or to arrange several different services from a single provider. Services and utilities include:
   • Gas
   • Water
   • Electricity
   • Drainage
   • Refuse disposal
5. Housekeeping - all premises have a number of requirements to ensure that people can work in them effectively. This includes:
   • Cleaning
   • Window cleaning
   • Provisions and domestic supplies

Insurances

The principle behind insurance is very simple. Individuals and Companies pay a premium to an insurance company who will pay an agreed sum of money if certain agreed events occur (e.g. premises are destroyed by fire). Effectively, the insurance company calculates the probability of such an event occurring and then sets the premiums in a way that means that people are prepared to pay each year to protect themselves financially if they are the victims of such an event.

Some insurance is required by law (e.g. motor insurance) or by contract (e.g. the provider of a home loan will require the building to be insured).

However, the majority of insurances should be taken out by a business in their own interest. Typical insurances include:

• Public Liability Insurance – to insure against injury or death of a member of the public for any cause.
• Professional Indemnity Insurance – to insure against professional error for which a customer decides to take legal action.
• Building Insurance – to insure against damage to business premises.
• Contents Insurance – to insure against damage or loss of the contents of business premises.

The terms and policies of these insurances vary considerably from company to company. It is advisable to take the advice of an insurance advisor in order to ensure that the right policy terms are included and that value for money is obtained.

Purchasing

Many small businesses have a haphazard approach to buying goods or materials. However, carried out correctly, purchasing procedures can have a significant impact on the efficiency and profitability of a business.

It is also important to keep in mind that purchasing is a two-way process, between your business and the supplier. If this relationship is developed fairly and effectively, it can have a positive impact on the reputation of your business because suppliers will always give preferential treatment to good clients.

Effective purchasing functions (even in small businesses) require the following:

1. A clear idea of the amount spent on the supply of goods and services, including a breakdown of items, volume, prices and the names of the supplier.
2. An awareness of the prices available from other suppliers; it is worth shopping around from time to time, providing you are not wasting too much management effort in order to achieve marginal savings (at the cost of supplier loyalty).
3. Clear terms and conditions; if possible, standard contracts.
4. The negotiation of discounts which are sustainable for the supplier and perhaps done in exchange for prompt payment.
5. Good communications with suppliers so that they are aware of forthcoming orders, which puts them in a better position to deliver on time.
6. Clear internal controls and authorities to minimise purchasing mistakes, unwise purchases or poor value for money.
7. Quality to control so that the business can obtain value for money; not just lowest price for an inferior product or service.
8. Alternative suppliers to maintain continuity of service and some healthy competition.

Management meetings

It is unwise for any business to concentrate on day-to-day activities at the expense of reviewing whether the business is being successful.

The purpose of management meetings is to allocate time to carry out such a review and to bring together the people who can provide the necessary information or make decisions.

The length of the meetings, their duration and the amount of detail should be tailored to suit the size and complexity of the business. However, as a rule of thumb, the minimum amount of time for most businesses should be 2 hours each month, which is likely to be a good investment if it helps the business to manage carefully and make good decisions.

Meetings should be properly recorded and stored (preferably electronically). A standard agenda is useful to ensure that key points are not missed. This will include items such as health and safety which is essential for the protection of the people in the business and the legal protection of the business itself. It is not enough to be taking action; you should provide proof that you are running the business soundly. You will never know when this will become important, such as when you are applying for a loan or an overdraft.

If the business is very small and does not have enough people for a meeting, it is recommended that the Owner/Manager books the time with his or herself and works through an agenda.

Business records

Inevitably, running a business creates a large volume of documents or electronic records.

It is not sufficient to use such documents and immediately dispose of them, for a number of reasons:

1. Customers may query something.
2. The tax authorities may ask further questions.
3. You may wish to protect the business against a claim from a customer.
4. You may wish to make a claim against a customer or supplier.

As a result, it is prudent to keep a full record of any contractual or financial transactions carried out by the business. For contracts which are signed, a good rule of thumb is to keep records for 6 years. (For contracts under seal, records should be kept for 12 years).

The important things to consider when keeping records are as follows:

1. Before you begin, make a list of the records you intend to keep.
2. Decide whether they will be kept as paper or electronic records.
3. Create a system or space for storing the records.
4. Arrange security for the records; in the case of paper records they need to be protected against fire, theft or flood; in the case of electronic records, there should be a back-up stored in a different place from the originals.

The best way of dealing with business records is to file them on a regular basis and to prevent a backlog building up as it is difficult to subsequently keep on top of the process.

Business continuity

According to the British Insurance Brokers Association, 45% of businesses have no, or at best very rough, plans for business continuity.

The reasons for this are presumably because most businesses consider that the risks of any major disruptive event happening are minimal and/or that a business continuity plan is difficult, costly and time consuming. Neither of these is true.

Setting aside major natural disasters such as earthquakes or other threats such as terrorism, there are at least three major causes of business disaster in relation to business premises alone:

1. Fire

   In 2008/2009 the UK had 27,000 fires causing major damage to commercial buildings and schools.

2. Flood

   On average 5,000 businesses are displaced in the UK each year due to flooding.

3. Theft

   Crimestoppers UK state that 75% of retailers and 50% of manufacturers experienced at least one crime this year.

Currently the most significant crime which affects business premises is the theft of computer systems.

A business continuity plan is necessary to:

1. Give due thought to the risks.
2. Prepare simple plans for reducing these risks.
3. Ensure that a business can cope with a major disaster without permanent damage to the business.

In its simplest form, a business continuity plan will:

1. Identify who will lead the communications to ensure that all employees know what to do and where to go if there is a major, disruptive event.
2. Pre-agree what actions are needed to get the business up and running (e.g. buying new computers, restoring data or obtaining temporary premises).
3. Ensure that customers are advised to reduce the continuing disruption.

This means that lists of people and telephone numbers, with a written procedure are essential. Simplicity is the key factor.

Vehicles and plant

Vehicles and plant have both a practical impact and a legal impact on a business, due to the health and safety implications. The first step is to ensure that there is somebody in the business with responsibility for dealing with vehicles and plant.

The administrative issues to be dealt with include:

1. Purchasing
2. Repairs and maintenance
3. Operational manuals
4. Insurance
5. Training
6. Finance issues such as depreciation

Legal

All businesses need to comply with the law and it is important to protect the business against any inadvertent breaches of the law.

In addition, there are often some legal requirements in the formation of a company.

It is prudent for every business to appoint a lawyer in order that they can seek advice when they need it. Many lawyers will give a free consultation to see whether a business is taking the appropriate action to comply with the law and avoid situations which might lead to legal action against them.