A leader of a small to medium enterprise has challenges that differ greatly to a leader of a larger corporation or public enterprise.

The term owner/operator illustrates the dual roles that many enterprise leaders play. Not only are there dual roles but there are dual entities – the individual and the enterprise. And these distinctions are important to understand.

The role of the owner: it is the capital or equity invested in the enterprise that is rewarded. As such the owner does not need to play an active role in the business. The owner's rewards are twofold – share of the profits (dividends) and/or capital growth (share price). The critical point to note about capital or equity investment is that there is a risk that you will not only get a poor return but that you might lose your entire investment. The corollary of risk is return, ie. higher risks command higher returns.

That's the theory in efficient markets, but in the small business landscape investing in your business idea and enterprise might amount to nothing more than buying a ticket in your own lottery. And you need to go in with your eyes open.

Ask yourself this key question – if I invested my money elsewhere, what return on my investment might I have got from alternative investments, say real estate, sharemarket or investment in another business enterprise?

The role of the operator: it is the labour effort, generally measured in units of time, that is rewarded. Fee-for-service models are the most common and the rewards you would be familiar with are wages and salaries and perhaps performance incentives, bonuses or commissions.

Ask yourself this key question – if I worked somewhere else what sort of wages and salaries might I earn?

The most common mistake owner/operators make is rewarding their labour effort by withdrawing profits. The reward for labour is wages and salaries, whereas the reward for capital/equity investment is profit (dividends) and/or capital growth.

If you do this, and many owner/operators do, you will never know the true value of either your labour or your capital. Public accountants fudge the accounts of small businesses to make some sense out of this practice. It is an abhorrent practice.

I say abhorrent because while it may provide tax concessions, it muddies the waters of both the individual entity and the enterprise entity. They are separate. They are unique and should be treated as such.

How can you become a more effective enterprise leader?

Here I am talking about your role as operator. In bigger corporations this is the CEO role. The title is a bit of overkill for a small business, don't you think? Anyway, the challenges most SME operators face is that they are not only the one in charge but often the only one. SME operators are required to be hands on and may wear many different hats.

Because you have started the business (as the owner) you may also find yourself in it up to your ears in the CEO role, sales, marketing, strategy, operations, product development, technology, HR, etc.

So here are a few tips on how to become a more effective enterprise leader:

• Play to your strengths: being in charge means you need to make decisions and the best decision to start with is, "I don't know everything, and I don't need to know everything." Do what you love and enjoy. If you run out of juice the whole enterprise will flounder.
• You must have a handle on core functions: strategy, leadership, sales and finance. Prop yourself up with advisers and top guns but at a minimum know what questions to ask, and how to hold them accountable, ie. when you're being taken for a ride know it and act on it. You are nobody's patsy.
• Keep on top of your financials: short cycles, prompt reporting is a discipline worth drilling into your enterprise and how you run it. You should track cashflow weekly and profit and balance sheets (equity) monthly. No exceptions.
• People and performance: learn how to manage people, performance and problems. It is something that can be learned quickly and easily. This is a skill not a behaviour. You can learn new skills within days.

That should be enough to get you started. If you can distinguish the roles of owner and operator and then in turn, your personal success and the success of the enterprise, it will make it so much easier to perform at your best, identify what is working or not, and where and how to take corrective action. Don't try to do it on your own, engage professional help – you have too much at risk and potentially so much to gain.

Dennis Roberts helps small business owner/operators start, run and grow their business from conception to exit. He is available for strategic advice, business planning, one-on-one coaching/mentoring, advisory board, interim management and facilitation. Visit www.DennisRoberts.com.au.