Posts Tagged ‘Finance’


Are You Keeping Score?

Stocksy_txp79d51f4dtW4000_Small_126195Some business people want to prevent losing by not keeping score, by ignoring the results, or by constantly moving the targets.

When my sons were introduced to baseball as small boys, the league prohibited officials from keeping score because they did not want the children to become too competitive at such an early age. League leaders wanted to emphasize the spirit of playing the game and having fun over winning or losing.

This did not work out the way the league planned. All the children on the team who knew how to count were keeping their own score. They knew who was winning! More importantly, they understood that a key part of the game is knowing how to win and to lose.

In winning, you can celebrate with your team members. You are elated because your hard work achieved the goal. In losing, you console yourself along with the team. The next steps are to learn what to do better, shake it off, and vow to return the next time to try again.

It’s important to know the score and declare winners and losers. A recent Ohio High School Hockey championship game was halted after seven overtimes and a 1-1 tie. State officials declared co-champions which angered a lot of players and fans. There was no postgame trophy ceremony because there was only one set of championship hardware. The players took turns posing for pictures with the lone trophy. In ended in a totally unsatisfying experience for both teams.

Many small business owners move their stated targets and goals so they don’t have to admit defeat. This happens during the budgeting process. The company will set a financial goal for the year, but when they start to miss this target, they change the budget. They hate to be wrong so they move the goal to a place they can make it. Similar, objectives are established for employee bonus pay, but when the target is missed, some companies award them anyways because of effort.

Both these examples defeat the purpose of setting a budget or establishing a bonus. Business people learn quickly that winning is a lot more fun and profitable. Learning what it feels like to lose is critical because that will incent everyone involved not to repeat it.

If your company never loses, how can they really appreciate winning?


Mondays with Mike: Secret Short Cuts – Legal Aid

What’s the difference between a bad lawyer and a good lawyer?  A bad lawyer can drag a case out for years.  A good lawyer can make it last even longer.

All kidding aside, legal fees aren’t necessarily the first thing entrepreneurs think of when they’re adding up the costs of doing business.  As litigious as society is, though, you’re foolish if you don’t engage an attorney to ensure that you’re legit and covered in case of legal action.  Don’t have the $350/hour lying around to consult a lawyer?  Keep reading.

Here’s my secret for low (or no) cost legal aid.  Head to a local university and talk to the head of the legal department.  Offer your business up for use by students (under the professors’ supervision, of course) as a real-life example.  Your business and its legal needs become coursework for up-and-coming attorneys.  There aren’t many situations in business that are truly win-win, but this is one of them.  Students benefit from concrete experience, rather than boring hypotheticals, and you get your legal work done for free.  Professors love it; students benefit; you save big bucks.

????????????????????????????????????????????????Rather than trying to do it yourself with old legal documents that you dug up online (and which might be completely outdated,) you’re going to get cutting edge, custom work.  Students can draw up your incorporation paperwork, make sure your legal disclaimers are airtight, draft your employment contracts, and basically ensure that you’re covered and are in a position to head off most legal problems that could arise.

You’ll literally get thousands of dollars of work for free, and I strongly recommend thanking the classes who work on your case with pizza or coffee from time to time.

One final benefit from offering your business up to a college department is that you get a preview of the talent that’s emerging from your local universities.  In fact, one of the times that I approached the head of the legal department at my local college, the professor recommended that I work with his best student who was about to graduate.  The student prepared my contract, and the process served as a great extended interview.  I hired him after he graduated, and he ended up being one of my most valuable employees.

Now think a little bit bigger…let’s see how this little secret can work in other areas as well.  Are there marketing students in your area?  Students of web design, graphic design?  Think about all of the exciting, creative work you can cash in on while at the same time providing local students with exciting, valuable real-life experience – experience that they can use to get an edge on the fierce competition they’ll face once they’re out looking for work.  Don’t pass up a chance to get a great deal on the services your business requires, while fostering closer ties to your community and helping better prepare the workforce of the future.


How to Keep the Rule of 3 from Ruling your Business

Even with the best laid plans, it has become clear to me that every business project follows the “Rule of 3”: it takes three times longer, costs three times as much and is three times as difficult as it should be.  This is a universal truth, so if you can accept it and even embrace it, you can put yourself on a path toward a more successful future for your business.

Here are some ways to battle some of the Rule of 3 issues that have been frustrating business owners since the beginning of time.

Everything Takes Longer, but You Can Get There

Setting your expectations too high is often the cause of this phenomenon.  Once you align yourself with realistic goals, you can head for longer term success.  Consider the following situations:

  • Getting the big order from a new client:  New customers may want to test the waters by initially offering smaller jobs.  When you impress them by providing high-quality work on time or before deadlines, the large order will come.
  • Getting a new product to market:  Even with extensive planning, Murphy’s Law accurately predicts that something will inevitably go wrong.  Perhaps a vital part is not delivered, manufacturing becomes halted, or your entire software development team gets the flu a week prior to scheduled delivery.  One way to deal with this issue is to develop an accurate delivery date up front — and then, multiply it by three or at least add some padding to the date. The worst case scenario is that you end up delivering early.
  • Providing on-site support for clients:  The moment you lose control over the place where your work is performed or your product is installed, any number of things can go wrong.  If you need to rely on a client’s computer, you might get a defective one.  Or you may set out to install 220 volt equipment in a building with only 120 volt outlets. Make sure that your contract provides detailed requirement specs and estimates the resulting time delays if those requirements are not met.

Of course, time delays can also amount to income delays.  So, make sure that you have enough capital to ride out the extra time.

Creativity and Planning Helps Handle Extra Expense

Stocksy_txp31123075Gu3000_Small_81280Even the big business players want to bring projects in on budget, but additional expenses do not generally bring their operations to a screeching halt.  As a small business owner, you do not have the luxury of overspending, but there are some ways to help avoid — or at least deal with — financial surprises.

Just as you need to add a buffer when planning the timing for an undertaking, you have to do the same when it comes to budgeting.  After a careful analysis tells you that your new widget will cost $5,000 from design to final production, you need to plan for what you will do if the actual expenses turn out to be $15,000.  Even if you don’t have the cash on-hand to deal with the additional costs, create a Plan B so that you have a pre-approved bank loan in place or someone waiting in the wings to help.

You may also be able to manage the additional costs with some creative strategies.  For example, a vendor might be willing to barter its product in exchange for one of your products or services.  If you think bartering is not a viable way to conduct business, I recently heard of a web designer who conducts all business within a “gift economy.”  He designs and builds websites as gifts for his customers, trusting them to gift back based on what they believe is fair value for his work.  While he reports this business model has worked well for him, I’m not recommending — or even suggesting — that you take such an extreme approach to your cash flow.  But entering into a barter agreement can be valuable in a pinch.

It May be Difficult, but You Don’t Have to Go it Alone

There is nothing better than the power of people.  Every small business owner should find a support group of other business owners that they can use as sounding boards for business challenges.  The Web offers many ready-made groups that you can turn to, or you can form your own group.  Often, the experience of expressing your concerns out loud is enough to help you find solutions.  And the chances are that others in your group have worked through the same issues and have found successful solutions.   At a minimum, they can provide you with some comfort when things are inevitably more difficult than you expect them to be.

Dealing with the Rule of 3 can be one of the most frustrating aspects of running any business, but you can lessen its effects with creative thinking and a few good friends. And for those times when you feel overwhelmed by these issues, remember — there’s always ice cream.


How to Get In Bed with Your Banker

Stocksy_txpf799c772Ea3000_Small_104560Most small businesses still need banks. They provide valuable financial services daily for companies. Banks can still be a major source of capital for the promising business. How do you make sure that they are there when you need them? Get your business in bed with your banker! While this many not conjure up a pleasant image, it must be part of the strategy. Getting the banker to know your company’s capital requirements must be established far in advance of when you may need them. Here is what to do and why it works:

Establish yourself as a customer. Open checking and money market accounts at the bank. Use their merchant, ACH and wire services. Pay fees to use their services. Why it works: Bank employees are trained to help customers and you want to part of that group as soon as possible.

Go into the bank weekly. Be seen at the bank and get to know the branch manager and key staff. Visit at least a few times a month. Talk to them about the bank, their family and your business. Why it works: People do business with other people they know, like, and trust.

Participate in common community events. Go to the events that the banks sponsors locally. Show support for their causes. Get on joint committees. Why it works: You can demonstrate what it is like to work with you and share a common goal.

Share the progress of your company. Sit down with loan officers before capital is needed. Show them your sales and profit projections. Impress them with your knowledge of the financial statements. Revisit them when you make progress toward your goals. Why it works: Numbers are power. They are easy to take to a loan committee. Bankers trust business people that understand them.

Get a small loan. This may be a home equity loan (or similar secured asset) to be used by your company. Pay the loan back on time and then try to increase it. Why it works: This builds a reputable track record the bank can reference.

Keep your personal credit score high (as well and Dunn and Bradstreet number). Bankers like numbers that increase. Why it works: A high credit score will show that you can be trusted to borrow money. They believe that past performance predicts the future.

Bring more customers to the bank. Everyone loves referrals. Be responsible in helping the bank grow their business. Why it works: If you help them, they are more likely to help you.

Go for the big ask: It’s time to apply for the bigger loan for your company. This can be a term note or line of credit. Why it works: Because the bank now trusts you and your company.

How have you got a banker in bed with you to get a loan?


3 Ways to Sink the Sale of Your Company

??????????????????????????????????????Many small business owners dream of selling their company for a huge profit. After many years of hard work, they finally found the right buyer to acquire their company. After negotiating business terms, they signed the letter of intent (LOI). Now comes the tough part: collecting all the due diligence information and having the lawyers on both sides negotiate a final purchase agreement.

Here are the three ways that sink the sale of any company:

1. Pressure from external parties. This can be from overly aggressive lawyers arguing over largely irrelevant legal terms on the purchase agreement. One lawyer in a deal I was involved wanted to know what the seller’s responsibility would be if “the sun exploded”. Remember, in the sale of most small businesses, the only terms that really matter are the upfront sale price, sale payment schedule, representations and warranties. Many times, the seller’s accountant insists on charging added fees to give financial statements to the perspective buyer. One accountant even wanted a lump sum “research fee” for the client to collect all their historical records. It is common for the landlord to approve the transfer of any leases. They sometimes charge a steep “transfer fee” for their approval. Regulatory agencies with licensing requirements can also mean a delay of months. The remedy: Make sure that to have a lawyer that is familiar with small sale transactions. Collect all the information from the accountant up front for due diligence. Seek outside regulatory agency approval far in advance of the completion of any transaction.

2. Inconsistent financial numbers or other changing “facts”. All financial statements tell the company’s story. If during due diligence, this story changes, and then it will raise questions from the buyer.  Weaker numbers (specifically profitability) that differ from those provided in the LOI will always result in a price reduction. Additionally, changing “facts” may get the buyer nervous. This can be in the form of profiles of customer concentrations, revenue trends or employee status. The remedy: The small business owner always needs to know what story they are telling with every fact disclosed and explain any difference in the narrative.

3. Sellers or Buyers changing their mind. This happens very often. The seller decides that they don’t want to sell their company. The reason they give now is the sale is not enough money. More than likely, they are afraid what they will do with their time a day after the sale. The buyer sometimes has a change of heart on how the new business will fit into their company or “what they thought was true now isn’t”. The remedy: As a seller, the small business owner must determine what they will do the day after the sale of the company before they decide to sell it.

Barry Moltz helps small businesses get unstuck. His new book, “How to Get Unstuck: 25 Ways to Get Your Business Growing Again” is available in March. Barry can be found at www.barrymoltz.com


Mondays with Mike: The Sure-Fire Plan For Killing Your Business

2014-02-27_1405I’m sure you’re wondering if I’ve lost my mind.  Why on earth would you want to read an article telling you exactly how to kill the business that you’ve worked so hard to build, nurture, and grow?  The answer is that it’s useful to take a step back from all the hard work we do to make sure we’re not inadvertently doing things that damage our companies.  Here’s a look at what not to do:

  1. Turn your hobby into a business.  Just because your friends tell you that your spicy barbecue sauce is the best they’ve ever tasted, that doesn’t mean you have to find a way to profit from it.  There’s a difference between a hobby – something you do to relax and release energy – and a passion – something you do to create energy.  While successful businesses thrive on passion, they can also destroy the pleasure that we take in our hobbies.  Not everything you enjoy needs a business plan.
  2. Get rich quick.  You may be thinking, “Isn’t that the point?”  The fact of the matter is that the best way to get rich is by investing your time and energy in your passion and organically growing your business, rather than chasing what you think is the next trend in an attempt to cash in and get out.  Isolate your passion and nurture it, rather than trying to work in a field just because you think it’s the next big thing.
  3. If things are going south, work harder.  By the time most businesses fail, the entrepreneurs who started them are absolutely exhausted.  Instead of trying to add hours to the day or taking time away from family and friends, spend you time finding ways to work more efficiently.  If you can automate aspects of your business, you’ll be working smarter, rather than harder, leaving you time to enjoy the fruits of your labor. 
  4. Nurture the weak.  I’m constantly amazed by how many companies cater to the least lucrative (and most difficult) clients, at the expense of building business with the big customers – you know, the ones who keep the lights on.  Rather than trying to squeeze an extra few bucks from the reluctant spenders, commit to cultivating your heavy hitters and providing them with excellent service.  You can’t please everyone.  Why not please the ones who are the most valuable?
  5. Measure revenue from the top line.  Yes, it’s essential to bring money into your business, but that’s only part of the equation.  You could land a million dollar contract tomorrow, but if your expenses eat up $990,000 of it, your bottom line is only $10K.  Focus on what’s left after you’ve paid your staff, covered your other expenses, and paid yourself.  That’s what you’re really earning.
  6. Focus on your wallet.  When you realize that every single business decision you’re making is based on money, it’s time to take a step back.  Successful businesses make money, but they do it by working with passion and ensuring that their customers are satisfied.  Steve Jobs didn’t build innovative products just to make money (though he certainly did profit.)  He wanted to introduce elegant, functional solutions for everyday problems.  Remember why you started your business and work to leave a positive impression on your community.

There will never be a shortage of businesses in trouble, and savvy entrepreneurs will learn from the mistakes of others.  Make sure you’re not sabotaging your own success.   


Mondays with Mike: Boost Your Revenue with Recurring Fees

While some of us derive great satisfaction from the role our business plays in the community, the services we offer our clients, and the rewards of having built a successful business from scratch, we’re all – at the end of the day – concerned about growing our company’s revenue.   In order to keep the lights on and pay the staff, we have to bring in money, and it seems like we need a little more if it each year.   One of the most effective methods I’ve found for managing and increasing revenue is by converting customers to a recurring fee plan. 

Here’s how it works:

Say you’re in the office equipment repair business.  Your average visit costs $200, and you visit each of your customers an average of twice per year, for a total of about $400 annual revenue per client per year.  If you were to offer an annual service plan, billed at $40 per month, you would be providing a solution that benefits both your company and your clients.  You give your clients predictable expenses, alleviating the stress of funding the entire cost of a repair all at once.  You get the benefit of predictable revenue.  You can count on the monthly payment and bridge the gap that slow months can create, and at the end of the year, you’ve brought in $480 per client, increasing your overall revenue. 

Makes sense, right?  Now here’s why it works:

In addition to establishing consistent expenses and income, there’s another key benefit.  Once you’re no longer billing for the service itself, you have new motivation to operate as efficiently as possible.  Your new goal won’t be increasing billable hours, but will be doing every job quickly and properly.  You know that poor quality work will end up costing you more in the long run, so you provide the best service possible the first time.

Stocksy_txpd093e56ePf2000_Small_27507Skeptical about your customers’ willingness to commit to a contract?  Think about gym memberships.  Millions of people pay $29 monthly for a gym membership they seldom use.  They sign up (usually in January,) go regularly for a little while, and by the time they stop using the gym, they’re so used to the monthly debit that they don’t even notice it.  Sure, some members will cancel, but others will not.  Once your clients are used to the monthly premium, they will cease to think about it.  You’ve gotten them accustomed to a steady-as-she-goes expense that lands in your bank account each month.

Think that your business won’t support a recurring fee structure?   Think again!  Nearly every business has an aspect that can be transformed into a regular fee cycle.  If you own a candy shop, you can sell monthly subscriptions with seasonal offerings available exclusively to your subscribers.  They get special treats, and you get regular revenue.  Own a bookstore?  Offer an annual reader rewards card with a modest fee that entitles customers to exclusive events and special discounts.  Challenging yourself to find ways to reward customers for committing to you in the form of a recurring fee can – if managed properly – yield both steady income and consumer loyalty: a magical combination.


Mondays with Mike: The Tier Method for Increasing Revenue

A disclaimer of sorts:  This method of boosting revenue is intended for entrepreneurs who own businesses that are already making a little money.  This strategy can help you look down the road if you’re just getting your business up and running, but the method I describe in this article is intended for established businesses, rather than those just starting out.

More money.  It’s an appealing prospect, but it’s not always easy to achieve.  One of the most versatile solutions I’ve ever found is the tier method, and it’s successful because it’s such an elegant and simple strategy. 

Here’s how it works:

Your business is established, and you have a good product, but you’re looking to increase sales.  The answer is simply to create additional, higher quality (and higher priced) offerings. 

Let’s look at some examples:

  1. ????????????????????????????????????????You own a restaurant, and you’ve found success with your weekday, prix-fixe menu.  Folks love coming in and selecting three courses for a set price.  How do you step it up?   Add on the option for wine pairings for each course (with an additional fee, of course.)  You’re adding an additional tier of services that will entice your existing customers.
  2. If you own a cleaning service and have regular customers, but need a way to get more from them, create tiers of service.  Your existing contracts – let’s call that your Silver Service – is offered at the current price.  You add Gold Service with additional services – periodic window cleaning or carpet shampooing, as well as Platinum Service – where you clean everything that doesn’t move.   You’ll inevitably find some clients who want to step up to a better plan, and your new clients are likely to settle for the option in the middle, so you’ll be starting them at the Gold Service – it’s your new default setting, complete with higher price tag.
  3. You sell original artwork, either online or in a brick and mortar store.  Your customers love your work, and you decide to offer additional options.  Your first tier is the watercolor painting – the work your clients know and love.  You offer one option of adding a frame, and a second option of high quality mats and a custom frame.  You’re adding tiers of service that save your clients the time they’d have to invest in selecting the perfect frame that shows off your valuable artwork.  

Why is the tier method so successful?  You’re starting with an established brand – a product or a service that your customers already trust and enjoy – and you’re offering a better version of that product.  We all want the best, and we’re conditioned to think of selecting the least expensive option as settling for less than the best.   Airlines make bank on pricier seats in first class.  People pay extra to buy iPhones with more memory than they’ll ever use.  If you offer your customers pricier options, it is inevitable that some of them will take you up on it.

The key here is to offer authentically better options.  We’re not talking about smoke and mirrors  — playing games with your clients is a tactic that can alienate loyal customers.  Rather, you want to develop tiers that are meaningful and offer additional value that’s appealing to your customers.  You’re finding a way to enhance your existing high quality offerings by creating options with added benefits to your clients and added revenue for your business. 


Mondays with Mike: The 7 Techniques for Cutting Costs with Zero Downside

coin-jar (1)The start of a fresh year is the perfect opportunity to take a look at your business and assess the ways in which you can improve your bottom line.  Cutting costs can yield benefits, but it’s important to make changes that don’t end up stifling growth or affecting your ability to bring in revenue.  Let the notion of productivity transfer – achieving the same results with alternative resources – guide your steps.

  1. Pool your resources.  Consult with other small businesses in your area to determine which products you all need to run your businesses and commit to working with one supplier exclusively for a period of time in exchange for a discount.  Your supplier will be thrilled to have guaranteed revenue, and you’ll see real savings.
  2. Hire contractors.  If you’re paying full-time staff to sit around and wait for work, then you’re not using your payroll dollars as effectively as you could be.  Find contractors, pay them a higher hourly rate for their expertise, and you and your staff will be more efficient. 
  3. Free advertising.  Ever see billboards that advertise for a business that’s closed up shop?  Call the phone company and have the phone number redirected to you. After you inform the callers that you’re ready to supply the goods or services to satisfy their needs, you have instant prospects! Why pay for advertising when you can get it for free?
  4. Cut phone costs.  So many businesses bleed enormous sums of money in their phone plans.  Check out the free and nearly free options that you have. Nextiva is one example that lets you actually improve the number and quality of services you enjoy, while slashing costs at the same time.
  5. Assess your office space.  Look at what you pay to rent your office space and take a hard look at your options.  If your staff can operate from home, you can eliminate your office rent altogether.  If your business requires a physical office, look around for other businesses that may be renting more space than they need and see if they’re willing to share some space for a reduced cost.  Also, keep in mind that landlords with vacant space may be willing to renegotiate rent if they’re anxious about keeping you as a tenant.
  6. Train your own talent.  Experienced staff is expensive, no two ways about it.  If you have positions that you can fill with inexperienced folks with great potential, you can train your staff in-house.  Accepting applications from inexperienced folks also lets you take a look at interns and people with disabilities – folks who might have trouble gaining experience, but can be gems once they’re properly trained.  Think outside your typical talent pool.
  7. Get your staff involved.  Sit down with your employees and lay it out for them:  explain that you want their expertise and suggestions for how to cut costs and make the company healthier.  You’ll get ideas that would never have occurred to you, and your staff – rather than worrying about their job security – feels like a vital part of a team.

The overall measure of success for cost cutting measures is the bottom line, and it’s important to take the time to ensure that you’re making changes that result in a leaner, healthier, and more efficient company.   




 
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