Cash Management:

“Cash is king!” I know this sounds terribly familiar. Yet, it is frighteningly clear that business after business forgets this critical admonition.

In an earlier blog I mentioned that 30% of all businesses whose income statement show them making money…go broke! Don’t ever forget that you can’t make next week’s payroll from accounts receivables or inventory.

So, what can you do to make absolutely certain you have adequate cash resources to sustain your business regardless of the economic climate?

Well, simply stated, cash resource management involves controlling the time between paying suppliers or employees and collecting payment from customers.

If, in your business, you find you’re doing either of the following 2 actions which can drain cash flow, you very well may be headed into a cash flow crunch:

1) Obtaining loans at very high interest rates

2) Using factoring on your accounts receivables

Here are 3 simple techniques you can use to improve cash flow at your business:

1) Don’t extend credit terms to your customers beyond a reasonable amount of time

2) If possible, defer payments to suppliers or staff

3) Don’t replace equipment if there is the possibility of maintenance or repair

Next Week’s Blog: 18 tactics you can use to improve cash flow:

Improve Your Chances for Bank Loans:

We all know that banks have severely tightened their loan approval processes. It used to be easy to get a credit line expansion or a favorable accounts receivable loan; not any more! During this recession, banks have become so risk averse that only a pristine balance sheet guarantees you’ll get the money you need to run and expand your business. And sometimes that’s only if the gods are on your side.

So, what can you do? Here are two strategies that will improve your chances of getting the cash:

1) Step up your auditing procedures. Sit down with your accountant at least twice a month a review every invoice not just for accuracy but for how vital the service or product you’re receiving. You may be paying for a janitorial service that could easily be done by your employees. Or, do you really need to have an outside coffee service? There are probably numerous expenses that could be trimmed. We all know that trimming expenses improves the bottom line which hopefully, improves the chances the banker won’t be so tight fisted.

2) Are you billing once a month? If so, change to billing every two weeks or better yet, weekly. Also, you may be able to change the terms of your sales to a15 day billing cycle vs. 30. And, review all accounts receivables once a month. As soon as they flop over beyond a current status, have your accountant make a phone call. If they get beyond 60 days owing, send out a letter followed up two days later with another phone call. Shortening receivables will not only improve cash flow, but you’ll also increase the look of your financials which will help your banker justify that needed loan.

These are tough times that require a disciplined approach to all financial matters. The above two suggestions may help your company get the financing you need.

Next Week’s Blog: Cash Management:

Choosing the Right Banker

What should you look for when choosing the right banker for your business?

1) Any banker that is worth his/her salt needs to have a firm understanding of your business. This knowledge includes a) having a good understanding of how you make money, b) it includes knowing who your main competitors are, c) knowing what differentiates your service or product offering from these competitors, and d) what your plans/objectives are for the future.

2) A good banker should be aware of all the services their bank offers and which ones may be of benefit to your immediate efforts. Additionally, they should make you aware of services they offer that may help you in the future.

3) They should be a strong advocate for you with their higher ups when you need a loan or easing of the bank’s credit requirements.

4) They should carefully review all of your quarterly statements that you’ve provided to them and let you know when they see potential problems with things like accounts receivables, debt to equity ratios, aging inventory, etc.

5) Finally, they need to visit your business every 3 months or so to discuss where they see the market heading and keep you apprised of any new developments at their bank. Hopefully, they’ll treat you to lunch afterwards.

A good banker can become a trusted advisor and helpmate in the successful running of your business.

Next Week’s Blog: Improve Your Chances for Bank Loans:

Resign Accounts?

Yes, you read the title of this blog correctly. You may need to resign some of your accounts. Why would that make sense? Due to the simple reason that certain accounts may cost you more than they are worth.

If you look carefully at what a customer actually costs your company, you need to take into consideration the following expenses:

1) Outside sales force. Outside sales reps may be spending their time on small accounts when they should be spending their time on accounts that are potentially far more profitable to your company. But, if you try to limit the size of accounts that the sales reps can bring in, you’ll receive resistance. Sales reps will generally go to points of least resistance and oftentimes small accounts are easier to crack than larger accounts. I faced this issue with one of my companies. When I finally bit the bullet and resigned over 30% of my company’s accounts and refused to accept new business that didn’t rise to a certain level, there was wailing and gnashing of teeth from my sales reps. However, that situation turned around within 2 months and my company’s profitability soared and my sales reps made dramatically more commissions.

2) Customer service. Customers cost money to service and generally that service cost is hard to price accurately. For example, you have employee costs, equipment costs like phones, desks, computers, etc., you have rental space costs for those incremental employees plus perhaps additional warehouse space, and finally you have managerial/supervisory costs. When you accurately add everything up, you’ll get a fair assessment as to the real customer service costs for each of your customers.

3) Strategic direction misapplication. You are President of your company. That title mandates that you, in conjunction with your senior staff, have to set the strategic direction of your company. If you’ve got numerous small accounts, no matter how you would like otherwise, you’re going to be sucked into spending time on those accounts. You’ll be involved with decisions about management, space, equipment, etc. Any strategic misapplication of your time means you’ll be spending less time on those strategic issues that have a more meaningful impact on the success of your company.

So, the upshot of this blog is look carefully at your accounts and make certain you are accurately assessing their costs. If you decide they are costing more than they are worth, then step up and resign them in a professional, well thought process. After you’ve made this difficult decision watch you revenues and profitability grow. And, isn’t that why you’re in business?

Next Week’s Blog: Choosing the Right Banker

Undercapitalization, a potential death blow to your business

Undercapitalization is without a doubt the number one reason businesses fail.

If you’re starting a business, you need to carefully make projections on anticipated revenues and anticipated expenses. And, if you’re like the vast majority of entrepreneurs you will overestimate revenues and underestimate expenses. Therefore, after having been brutally honest (and I do mean brutally) with your projections, you need to double the amount of capital your projections show you’ll need. I’ve never known a businessperson that was sorry he had too much cash on the balance sheet. However, I’ve spoken with numerous business people who rued the day when they ran short of money. And remember, approximately 30% of all businesses that go broke had income statements that showed they were making money! That’s right the books may have shown they were “profitable”, but profit doesn’t mean positive cash flow. Money tied up in inventory or accounts receivable can’t be used to make next week’s payroll.

Now if you’re presently in business and making a decent profit, congratulations. But, before you start patting yourself on the back, remember the old saying “those whom the gods will destroy, first make overconfident”. Overconfidence can seduce you into being overextended. You may take on too much debt because business is good and you’re convinced you can cut a fat hog by wildly expanding. Then, guess what happens? The economy goes south and you find yourself over-leveraged and in trouble. Most savvy bankers won’t let your debt to equity go beyond 2 ½ to 1 or at the very most 3 to 1. The sad facts in today’s lending environment are you’re lucky if your bank will loan you any money regardless of whether or not you’re profitable. Now, if you are one of the lucky businesses that can get a bank loan, don’t let your debt to equity exceed 2 to 1. It has always been true…..CASH IN BUSINESS IS KING! So, be conservative, you won’t be sorry.

Next Week’s Blog: Resign Accounts?

Another 3 techniques that help the new sales rep hit the ground running: (Part 2)

Here are 3 additional sales training techniques that adequately prepare the new sales rep to hit the ground running:

1) Have your new sales rep write two telephone and email scripts that requests an appointment. In today’s business environment, the vast majority of buyers will only see a sales rep by appointment and with voice mail it can be very challenging getting that appointment. Therefore, it is imperative that this telephone and email script be short, sweet and powerful without sounding pushy.

2) Have the new rep write answers to 4 tough telephone objections from both the prospect as well as their “gate keeper/screener”. Objections like (a) “I’m not interested”, (b) “I already buy from a competitor that I’m happy with”, (c) “Send me information in the mail”, (d) “I’ll leave a message for Mr. Jones, Smith, etc.”

3) Have your sales rep write several benefit statements to be used when making sales calls. These benefit statements need to explain to a prospect why he/she should continue listening to what your sales reps has to say. The image your sales rep should have is imagining he’s in a cage with a hungry lion and that lion is going to eat him unless he feeds him meat to chew on. That “meat” is benefits that the prospect may be interested in.

Now all of these activities (part 1, 2 & 3) will take a week to accomplish. So, you’ve lost a week of sales call activity. However, this one week loss is nothing in the overall scheme of things. Because once the rep is armed with knowledge and sales techniques, he/she will have a far greater likelihood of being successful and your company will get a lot more business from them.

Next week’s blog: Undercapitalization; a death blow to your business

3 Techniques that help the new sales rep hit the ground running: (part 1):

1) Provide your reps with a list of the strengths and weaknesses of the products or services your company sells. You need to have a training program that gives them information as to not only what your products or services do, but also why customers should part with their valuable money to buy them.

2) Provide your reps with a list of the strengths and weaknesses of your competitors. You know who your competitors are. And, you also know your competition’s strengths and weaknesses. Your sales reps need to understand this info cold! If you don’t have this info written down, have your sales reps dig out the information on their own.

3) Provide you reps with a list of your customers and the specific purchases they have made and other key information about their purchase(s). Have the reps analyze who is buying from you. This will help them identify and target other prospects in the same or similar industry. Remember in selling, a rifle shot can be far more effective than a scatter gun approach.

After one week on the job, give the new sales rep a prepared test to see if they have competent knowledge of the above 3 categories. If they don’t have this knowledge, terminate them! I know this sounds harsh, but this is precisely what we did when I was an instructor at Xerox’s International Center for Training and Management Development. If a new rep doesn’t show initial commitment to learning what he/she will need to be successful, they won’t end up being a winner for your company.

Next week’s blog: 3 Additional techniques that help the new sales rep hit the ground running: (Part 2)

Why New Businesses Fail: (Part 2)

Last week’s blog mentioned 3 reasons why new businesses fail: under capitalization, lack of knowledge about the industry and improper or incomplete financial controls. Here are 3 more:

1) Lack of sales expertise. Every business needs to sell its products or services if it plans on keeping its doors open. If you don’t have people on board who know how to successfully pitch the product, you’re doomed. By the way, this includes you because you need to be the sales leader.

2) Improper location. If you’re going to be in retail, you’d better be darned sure there is sufficient traffic to buy your products. Proper location can be just as important if transportation to and from your business is a necessary ingredient to success.

3) Lack of basic managerial skills. Unless you’re going to be a one man shop, you’re going to have people working for you. This means you and others will have to manage them. If you don’t know the first thing about how to properly handle subordinates, you’re going to run into major trouble. People won’t work for long in a company that has poor management. And excessive turnover will kill any business.

In starting your business remember the following 7 P’s adage. Proper prior preparation prevents piss poor performance.

Next week’s blog: 3 Techniques that helps the new sales rep hit the ground running:

Why New Businesses Fail: (Part 1)

The #1 reason new businesses fail is lack of managerial expertise. This lack of expertise has at least 6 aspects.

1) Under capitalization. Smart business people write a business plan before they open their doors. This business plan will help determine how much money you’ll need to operate before the business turns profitable. However, regardless of what these numbers tell you….double them! You’ll never be sorry you’ve got too much cash. But, you’ll rue the day you run out of money.

2) Lack of knowledge about the industry. If you think on-the-job training will be ok when starting a business, I’ve got a bridge in Brooklyn to sell to you. Needless to say, you’ll never know everything there is to know about your new business. But, ignorance of this industry will probably lead to bankruptcy.

3) Improper or incomplete financial controls. There is an old saying that “you may think you’re winning when in fact you’re losing if you’re not keeping score”. Keeping accurate, up-to-date financials is crucial to the success in any business. Sloppy or delayed bookkeeping generally leads to disaster.

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Next week’s blog: Why New Businesses Fail: (Part 2)

8 Key Patterns of Successful CEO’s:

Every President of their business wants to be successful. Here are 8 patterns that describe successful CEO’s:

1) A person who respects others

2) A leader that attracts top talent

3) Someone who really knows where and how their business makes money

4) A forward looking leader

5) A manager that establishes specific performance objectives

6) A leader who is sales oriented

7) One who possesses an appropriate level of detail

8) A President who attracts and listens to good outside advisors

If you employ these 8 patterns, chances are you’ll run a highly successful business.

Next week’s blog: Why New Businesses Fail:

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Don’t Be Blind to Embezzlement Signs:

Jan Quintrall of Spokane’s Better Business Bureau wrote an article in the Spokesman Review a few years ago regarding embezzlement signs. Here they are:

1) The person that reconciles bank accounts cannot be the one who writes the checks.

2) The person who opens the mail, receiving checks or processing the credit card batches should not be the person who makes the deposits

3) Do spot audits with your CPA. Honest employees won’t object.

4) Do background credits check on any employee who will be handling money or products prior to hiring.

5) Cross-train and move duties around every once in a while.

A final note: it’s almost always the “trusted, long-term employee” who embezzles. Remember, they know your system and if procedures aren’t air-tight, they know how to circumvent them.

Next week’s blog: 8 Key Patterns of Successful CEO’s:

You Need an Advisory Board:

Even a small company needs an outside advisory board. An advisory board can clarify strategic direction as well as provide diverse opinions on how to handle thorny issues. And, someone who is not an insider in the company will generally have a more dispassionate view than employees who have a vested interest in the outcome.

Yes, I know what you’re thinking. “How can I afford a board of directors when I’ve only got 8 employees?” The answer is, if done correctly, you won’t have to pay them anything other than perhaps a lunch now and then!

Get to know other President’s of small companies from different industry groups. Ask them to join you in an ad hock advisory group that will be available whenever one of you has an issue. These President’s will probably jump at the chance to have someone else’s advice because they face problems just like you do and many times they have questions on what’s the best course of action to take.

This informal group doesn’t need to have monthly meetings or any other structured arrangement. Generally speaking you will only need to get the advice from one or two of the members and it can be done over breakfast or perhaps on the golf course.

We all know that running our companies can be a lonely job. Well, this loneliness can be alleviated by having other President’s who face the same issues you do. And, guess what? You’ll probably make a few lifelong friends in the process.

Next week’s blog: Don’t Be Blind to Embezzlement Signs:

Overled & Undermanaged???

Remember the old saw that “leaders do the right thing and that managers do things right?” Well according to Henry Mintzberg in Business Week, today’s businesses are overled and undermanaged.

Strategies that end up being successful should not be conceived at the “top”. Rather they should grow throughout the organization via a kind of distributed leadership. Studies show that vital information is typically transmitted to a CEO informally, oftentimes orally, rather than in formal reports. Leaders who are removed from day to day managing aren’t going to get these messages.

Management can be messy and requires an enormous amount of work by the leaders of business. If, you as President, don’t spend the appropriate amount of time managing, don’t count on your managers to spend the necessary time managing either. A prime example would be Ken Lay at Enron. While Ken was out hobnobbing with world leaders, his President, Jeff Skilling was driving the company into bankruptcy.

According to James G. March, “Leadership involves plumbing as well as poetry”. So, remember, the best leaders are good plumbers as well.

Next week’s blog: You Need an Advisory Board:

Customer Classifications

Take a careful look at your customer list. Some of them are great customers. Some are just so-so. And, some of them may not be worth keeping.

It will help your business if you start classifying each customer in one of 4 categories:

1) Customer. This is a customer who has bought one of your products or who you performed a one-time service for.

2) Repeat customer. Here is someone who was impressed enough with your offering to buy again.

3) Referral. Here is a customer who was so satisfied with what you sell that they are willing to let you reference them to new prospects.

4) Advocate. This is the top of the food chain! This customer recommends your business to others without ever being asked to.

If you want to build a powerful business, you need to develop plans and actions that move each of the first 3 levels into level 4. Because level 4 is where your business gets the brass ring.

Next week’s blog: Overled & Undermanaged???

Why Should Anyone Follow You?

Needless to say, if you’re the leader of your business, you’ve got to have followers. So, you’d better know what it takes to lead effectively.

A Harvard Business Review article several years back lists the basic ingredients of vision, energy, authority, and strategic direction. But….if you’re going to be an inspirational leader; one whom people will want to follow, you’d better also include the following four principles:

1) You need to selectively show your weaknesses. By exposing some (and the operative word here is some) vulnerability, you’ll reveal your approachability and humanity.

2) You need to rely heavily on intuition to gauge the appropriate timing and course of your actions. “Soft” data will help you know when and how to act.

3) You need to display a “tough empathy” leadership style. Inspirational leaders empathize passionately and realistically with people. And, they care intensely about the work their employees do.

4) You need to reveal your differences. This way you’ll capitalize on what's unique about yourself.

If you employ the following principles along with basic strong management practices, you will excel at inspiring your people; in capturing their hearts, minds and souls.

Next week’s blog: Customer Classifications

Which Business Should You Start?

So, you’ve decided to go into your own business. Hopefully, you’ve taken the personal inventory test from Blog #1 and you fit the necessary personality traits that will improve your chances for success.

Now, which business will be the right one for you? Consider the following 4 basic principles:

1) A business that matches your expertise. Do you really know the ins and outs of the daily workings of the business you plan on entering? If not, on-the-job training can lead to ruin.

2) A business that has an identifiable niche. Any fool with some disposable income can start a gift shop in the mall. And, most of those fools end up broke! Before you plunk down your hard earned money, ask yourself “what is the unique selling proposition (USP) of this business? If you have an USP, you’ve got a great chance for success.

3) A business that offers sufficient margins for profitability. I’m not talking about a product that you mark up 100% and think a 50% margin must be great. Instead you need to fully understand all of your direct and indirect costs. And those costs must be less than your sales prices. This means knowing completely what all of your expenses are and whether or not you can sell enough product or service to leave you with a profit at the end of the day.

4) A business that offers the potential for recurring revenue. It’s a heck of lot easier to make money in business if you have repeat customers. Otherwise, you have to sell a very high end, expensive product or service in order to make a profit. Generally, an expensive product or service has a long sales cycle which, unless you’ve got a very rich uncle, can drain your capital and cause bankruptcy.

If your business has these 4 basic principles, you have a good chance of being successful.

Next week’s blog: Why Should Anyone Follow You?

Why Should You Go Into Your Own Business?

So you can earn a fortune? Maybe you’re stuck in a dead-end job? But, better yet you have an idea - an idea that wakes you up in the middle of the night, an itch that you just can’t scratch. Entrepreneurs have a burning desire to create, to build something. And they have confidence in themselves. Entrepreneurs may be dreamers but they are generally not wild-eyed gamblers. Instead, they take, or should take, only calculated risks.

If you’re one of those calculated risk takers, then go ahead. Cross the Rubicon and plunge in. But remember, 9 out of 10 businesses fail within the first 5 years. So, before you jump in, take the following 7 personal inventory aptitude test:

Do you…
1) Have a high energy level? Because you’ll need every bit of energy you’ve got.
2) Possess a success background? Winners have a tendency to keep winning. Losers have a tendency to keep losing. That applies to business in spades.
3) Have a high tolerance for uncertainty? There are no guarantees in business, only good judgment decisions that oftentimes works out favorably.
4) Handle enormous stress appropriately and successfully? If you can’t accept that there will be many sleepless nights, stay working for someone else.
5) Have spousal or partner support? If you come home each night with a carping partner, these negative attitudes will drag you down and hurt your chances for success.
6) Have a well thought out and written business plan? Sure, luck can be an important aspect of any successful business, but it takes a heck of lot more than luck to win.
7) Have you strong leadership skills?. You’ll be the captain of the ship and in order to navigate successfully, you’ll have to have people around you who are willing to follow your direction.

If you possess all or most of these aptitudes, you’ll have a better than even chance of building a successful business; one that will lead to personal satisfaction and the possibility significant wealth.

Next week’s blog: What Is The Right Type Of Business To Start?