June 30, 2020 • Business

Separation of Concerns

Separation of Concerns

When asked about your business structure, the quickest and most straightforward answer is either, sole trader, partnership or corporation. Except in the rarest case, you never describe the inner working elements within your organization, but it is these inner workings that genuinely define the structure of your business.

As you grow, each element brings some levels of complexity and the added challenge of accurately measuring results. With most things, however, dissecting this complexity into digestible chunks makes it much easier to manage.

If you can take each piece of your business and separate them into functional pieces, it will yield many benefits. But achieving this requires a deep understanding of your business to separate into functional pieces properly. In practical terms, this looks like separate bank accounts, with separate transactions, payroll for employees and products and services; each part functional but flexible and agile, allowing you to fluidly respond to changes in the market - in essence, separation of concerns.

Separation of concerns is a software architecture design pattern or principle for separating an application into distinct sections, so each section addresses a separate concern. The overall goal of separation of concerns is to establish a well-organized system where each part fulfils a meaningful and intuitive role while maximizing its ability to adapt to change.

In this article, the goal is not to show how the separation of concerns principle is used in software development, but to show how this principle can also be used in the way you structure your business. This principle is so powerful that I see it pop up regularly in just about everything I do, and have ever done.

However, this principle may not work for every kind of business. It should only be used where applicable. In computer science, we use many application architecture design principles – domain driven development, separation of concern, to name a few. This principle was designed around the core idea that various elements of the software should be operated in a single space by itself.

This was accomplished by the foundation of limits. A 'limit' is any consistent or physical imperative which depicts a given arrangement of obligations. In the programming context, these can be used as methods, objects, components, and services to define core behaviour within an application.

Although accomplishing separation of concerns frequently includes the division of responsibilities, the objective isn't to decrease into its indissoluble parts, but to organize into components of non-rehashing sets of firm obligations. As Albert Einstein stated, Make everything as simple as possible, but not simpler.

The general objective of the separation of concerns is to set up an efficient framework where each part satisfies a necessary and natural role while expanding its capacity to adjust to change.

How does this principle apply to businesses?

The concept is not different from the business entity concept, which states that transactions associated with a business must be separately recorded from those of its owners or other businesses.

The value of separation of concern, in this case, is the ability to improve and modify the different areas without knowing or changing the details in other areas.

For New Businesses

Just like oil and water, certain things do not mix – your personal finance and business finance is one of them. Separating your business and personal expenses is the easiest way to manage your finances.

Here are five (5) items task to get you started:

  1. Register your business
  2. Get a business bank card/chequing account - Limit cash at all times.
  3. Pay yourself a salary - Mark it as an expense.
  4. Track expenses - Start by looking at your spending activities. It can be as simple as paying for a few packs of razor blades for your barbershop. These activities should be recorded separately.
  5. Track when you use personal items for business - Internet, Phone, Transportation, etc.

Despite the work you do, recollect the organization is a business and ought to be dealt with professionally, even by its proprietors.

For Existing Businesses

For an existing business, it's a little similar but could be a challenge. It requires looking at your entire organization and separating them into different functional pieces.

This process can take a little while, but it will be beneficial in the long run. As stated before, this may not work for all types of business and should be used where applicable. Assess your business and get started.

Firstly, look at the area of your business that performs very well. You can start by separating your products and services into separate business entities.

Here are some guidelines:

  1. Register new business entity
  2. Add dedicated human resource - if applicable
  3. Separate your accounting:
    • Chequing account
    • Track Expenses and Income
  4. Draw the legal relationship between your first business and this new entity
  5. Establish operation guidelines

Here is a list of benefits for applying the principle of separation of concerns:

Taxation - Tax ID Number for business registration helps to keep separate records of income and expenditures, which in turn record all profits/losses to enable tax write-off. While Value Added Tax(VAT) increases the prices of good or service, with seperate business entitity, if this business does not qualify for VAT can showcase cheaper goods or services.

Liability Protection - It is important to separate property and employee insurances for businesses as this helps to keep track of claims resulting from injuries or property damage.

Transferable - It is easier to transfer shares to investors or sell a portion of the business.

Management Structure – The functionality of each area of the business should be considered a separate concern; management structure working with different ideas, yet all governed by the same policies.

Take, for example, Digicel, who operates in 33 different markets. The company brand is quite common, but underneath the hood are many parts. In recent news, Digicel Group filed for bankruptcy of one of its holding, Digicel Group One Limited. This filing does not affect the core company because of adoption of separation of concerns principle. This situation is a clear example of one of the benefits of separation of concerns.

You may also look at larger companies like Apple, who have similar setups across the world: Apple Operations International, Apple Distribution International, Apple Retail Holding, to name a few.

Facebook has also adopted this strategy. Like numerous mergers, Facebook kept the operations of WhatsApp and Instagram separate.

The concept of separation of concern is valid across most disciplines of businesses as it works in coding.

Having a separate business entity isn't for every person or business. While numerous organizations don't think they'll require the insurance of operating in the separation of concerns principle, many businesses stand to benefit from operating this way.

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