Posts Tagged ‘Money Management’


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.   


Work Your Biz Wednesday: 6 Tips to Better Crowdfunding

Crowdfunding is a great way to raise money for a small business. Find out how to get started from The Small Biz Lady, Melinda Emerson.


Mondays with Mike: The Four Steps of Ripple Innovation

Sand_ripplesWe’ve all been there.  You know – that period in your business when it all feels stale and tired.  When you feel like Bill Murray in Groundhog Day, waking up to the same old thing.  You know you need to shake things up, but you’re not sure where to start.  You could hire some know-it-all consultant and pay them to provide you with a band-aid that’s a temporary fix.  You could hold yet another brainstorming meeting and leave with the same five ideas you got last year.

But I suggest that you approach this revitalization project differently.  Find a problem in your business that you need to solve.  Whether it’s a need to cut costs, bring in new customers, streamline a process – whatever your challenge, articulate it and try using ripple innovation to solve your problem in a novel way.

  1. Ripple 1: Find the solution inside your company.  We’re often blind to potential solutions because we’re victims of rigid thinking.  Try applying fixes from one area of your business to another.  For example, ask your customer service reps for suggestions about how to improve they ways in which you bring in prospective clients.  Get your sales reps to share input about ways in which IT can be improved.  Share expertise among departments and you’ll come up with fresh perspectives.
  2. Ripple 2: Find the solution inside your industry.  Check out your competition.  Say you run a commercial cleaning business.  Take a look at your competitors’ ads if you’re looking to bring in new business.  Find out where other companies buy their cleaning supplies and see if you can get a better deal in exchange for a contract.  See what other companies are doing right and adapt their practices to improve your own business.
  3. Ripple 3: Find the solution in any industry.  Broaden your perspective and look at the ways in which other businesses face challenges and present solutions.  Look at companies who have all the customers they can handle and are making money hand over fist and see what you can learn from them.  The ice cream shop around the corner that always has long lines….maybe their Facebook page gives customers a heads up on new flavors and daily specials.  The automotive repair shop that has customers waiting for an appointment because of their outstanding guarantee of services….they’ve actively managed and promoted word-of-mouth by rewarding customers for referrals.  You can translate these lessons to your industry as well! 
  4. Ripple 4: Find the solution in nature.  Coming up with nothing fresh?  Take a look at the world around you, and you’ll discover that nature is the ultimate innovator and inventor.  If you’re having trouble retaining new employees despite the fact that you’re paying great wages, maybe you need to look at the ways in which animals protect their young and provide a longer, more nurturing training period so that your staff feels more confident and capable when you finally launch them on their own.

The big lesson in ripple innovation is that you’ll benefit from broadening your perspective and learning about why solutions work and how you can adapt the principles of those solutions to solve your particular problems.  


5 Ways to Boost Your Cash Flow Right Now

2014-01-13_1019During the 1992 presidential election, there was a sign that was reportedly hung by James Carville, Bill Clinton’s campaign manager in their Little Rock Office that simple stated “It’s the economy, stupid”. This was a reminder to everyone that worked there that the only thing that the national race was about was the economy. That year, I started my third business after failing in two others. This time, I made my own sign and tacked it up in my office. It read: “It’s cash flow, stupid”. It became my daily reminder and mantra. Starting out in my first business in 1980′s, I thought that the only thing that mattered was to sell my product to whoever would buy it. I reasoned that if you make sales, you eventually make money. This worked great until customers didn’t pay me on time or at the same rate as my business expenses grew. Unfortunately, even if my customers did not pay their bills when they were due, my employees and vendors still wanted to get paid on time. What I realized is that sales do not pay bills, cash does.

Collecting the cash from sales means everything. It is the gasoline that makes your business engine work. Without cash, your business literally suffocates. Most businesses fail because they run out of cash leaked through losses or other poor management practices.

How to improve your cash flow in your own business:

  1. Open the bank monthly statements. Check to see if you have more or less cash when comparing the beginning month and end of month balances. If the end of the month cash balance is higher, the company is cash flow positive. If the end of month balance is lower than at the beginning of the month, the company is cash flow negative.
  2. Learn to read the cash flow statements. Don’t outsource the math. By definition, cash flow is typically your monthly profit, plus the change in accounts payable, the change in accounts receivable, and the change in inventory. The higher this number is monthly, the healthier your company will be.
  3. Collect accounts receivable faster. The sooner a customer pays, the higher the cash flow. The Days Sales Outstanding (DSO) for your business should never be more than 133% of your invoice terms. Don’t extend credit to a customer that has not proven they can pay in a timely fashion. Remember that credit is a privilege, not a right. Better yet, get your customers to pay with credit card or prepay your services.
  4. Get longer terms from vendors. Extended credit from your vendors will boost your cash. Always pay within the agreed period of time. However, if you have 30 day terms, try to get 45 days by building up a reliable track record.
  5. Selling inventory faster and keeping your inventory levels lower.  Buying inventory only to sit for months on your shelf waiting for customer orders can take a lot of cash out of the business. Track your inventory carefully. Know what sells quickly and what never moves off the shelf. Know how long your customers will wait for a product and still be satisfied. This will determine the setting of reorder points (when a product is reordered to be put into inventory) and the reorder quantities (how much is reordered).

What have you done in your business to boost your cash?


Nextiva Tuesday Tip: Getting Organized Using Project Management Software

91c5acd957b95442_Organize_Your_Desk.previewWas one of your New Year’s resolutions to be more organized in your business? If you work with a lot of freelancers, outside contractors and vendors in addition to your in-house employees, you know that managing all of the deadlines, data and scheduling involved can get confusing. Project management software can help you get it all under control.

Basecamp and Zoho Projects are two project management tools I’ve used and like, but there are plenty of others out there to investigate as well. Begin by figuring out what you need from a project management tool and whether you want to replace, or simply augment, your existing systems. For example, do you need to schedule and assign tasks, then track completion? Do you need to collaborate on documents and projects online? Do you need to track employees’ or freelancers’ time and billable hours? There are tools that can do some or all of this.

As you research different project management tools, keep these factors in mind:

Size: How many people will be using the tool, including both in-house staff and outside contractors, vendors or clients? Choose something that can grow with your business, but isn’t too big or cumbersome for your current needs.

Ease of use: Some tools are very simple while others are more complex and allow for a greater level of detail. If a tool is too complex for you and your team to learn easily, you probably won’t use it—so be realistic.

Cost: Most project management tools are either free, offer free trials or have free versions with lesser options. Don’t assume you can get away with a free option, though—if you need more than the free tools provide, make room for it in your budget.

Security: Sharing company data can get risky, so make sure the project management tool you select has the controls you need for security, such as enabling you to set different levels of access or permission. You don’t want a client viewing sensitive internal documents by accident.

Of course, the most important step in making project management work is getting everyone trained on the tool and ensuring they actually use it. Don’t let people slip back to old ways or do a mish-mosh of old and new. Set an example by using the new tool yourself and getting everyone on board. 


What is Your Small Business Health Score?

This is a good time of year to assess the health of your company. Review these 10 elements and score your business to find out where you stand.

  1. Cash flow. Having a cash flow positive company is critical for success. This means the business has more cash at the end of the month than the beginning. How to score: Add 2 points for cash flow positive. Subtract 2 points for cash flow negative (less cash at the end of the month).
  2. Quick ratio. This simple balance sheet formula divides current assets minus current liabilities.  Ratios greater than one mean the company has enough current assets to pay its current bills. How to score: Add 2 points if the company's quick radio is above one. Subtract 2 points if it is below one. Note that a healthy quick ratio number will vary by industry.
  3. Customer annuities. This means repeat customers pay the company automatically every month. How to score: Add 2 points if this is true. Subtract 1 point if the company needs to recreate its revenue and find new customers every month.
  4. Fixed overhead expenses. High fixed overhead expenses do not give companies flexibility as sales and profit changes. How to score: Add 1 point if most of the company's expenses are variable. Subtract 1 point if most expenses are fixed or they are high compared to sales.
  5. Management team. Strong companies are not about their owners, but their team leaders. How to score: Add 2 points for a truly collaborative organization. Subtract 1 point if the CEO makes all the top down decisions.
  6. Employee turnover. Loyal employees generate more profit for companies than those with high turnover. How to score: Add 2 points if the company retains employees for at least 5 years. Add 1 point for 3-5 years. Subtract 1 point if employees stay 2 years or less.
  7. Strategic and focused plan. Companies that have a written plan about where they are going and employees that are clear about the company's direction succeed. How to score: Add 1 point if every company employee can articulate the plan. Subtract 1 point if they can't.
  8. keyboard_stethoscopeSystematic sales and marketing plan. Many small businesses only market when they have no sales, but immediately stop when they do. How to score: Add 2 points if the company has an ongoing systematic plan including social media. Subtract 2 points if sales and marketing is mostly improvisational.
  9. Infrastructure. Growing companies need to have an infrastructure that supports them. Nextiva uses the integration of tool from Marketo, SalesForce, and NuviApp (social) to deliver reliable communications solutions to their business clients. How to score: Add 1 point if the company has integrated systems that can be effectively  used by employees and customers. Subtract 2 points if each system is independent from each other or does work effectively.
  10. Outside advisors. Small business owners need to ask for help. How to score: Add 1 point if the owner has a formal advisory board. Subtract 1 point if the owner is insulated and never asks anyone outside the company for advice.

Scoring totals:

Above 10:  Congratulations! Your small business is healthy and well positioned for 2014. Look at improving any area where the score was negative to increase your strength.

0 to 9: At risk! Key parts of your small business need to be improved in 2014. You are vulnerably to changes inside and outside the company. Pay attention to the elements  where your score was negative.

Below 0: Danger! Too many parts of your business are unhealthy and your company risks going bankrupt this year. Seek help immediately!

What is your score?




 
Nextiva Logo

phone-icon(800) 799-0600 Sales phone-icon(800) 285-7995 Support
Nextiva is the leader in Business VoIP Services. Copyright 2014 Nextiva, All Rights Reserved,
Terms and Conditions, Privacy Policy, Patents, Sitemap