Out of the Cubicle and Into Business
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F.O.C.U.S. Resources is pleased to announce the publication of Out of the Cubicle and Into Business: 114 Questions to Answer Before You Make the Move from a Corporation or University Job into Your Own Business by Lea A. Strickland, President of F.O.C.U.S. Resources.
This book is written primarily for the person that is considering owning a business. Individuals who have a business that isn’t living up to its potential will also find this book informative and an aid to getting things on track. The format is designed to walk the reader through critical questions about the business they envision – what they think, want, and can do; what resources are needed; and what things need to happen to “open the doors”.
Answering questions from “What type of business do I want?” to “How much money do I need?” the reader is lead through a process of learning about the elements of a business, planning the business, and some of the key financial questions that need to be answered on the way to establishing a successful (profitable) business. Beyond the learning process, the book challenges the reader to think through and document what he or she believes to be true versus what they can validate as true through research, observation, and working on the business design.
This isn’t “theory”, but practical insights, questions, and information on the realities of starting your own business and laying the foundation for success. The questions presented are fundamental and proven questions that businesses need to have answers to in order to succeed. The questions are often deceptively simple, but these questions have been proven through practice to make the difference in success for new companies.
The book is currently available through the publisher for $17.95 plus tax and S&H at:
http://www.authorhouse.com/BookStore/ItemDetail.aspx?bookid=30345
It will be available through Amazon (www.amazon.com) and Barnes and Noble (www.bn.com) in March/April 2005.
Assembling the Puzzle Pieces of Your Business
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Imagine buying a thousand-piece puzzle with an intricate picture on the box. You open the box and dump out the pieces to begin assembly only to find that this is a new type of puzzle. The puzzle pieces are blank until they are assembled with other pieces. The picture emerges only as you piece the puzzle together. You have to find the right pieces to connect without the clues provided by having portions of the scene visible on each piece while trying to assemble the puzzle. Sounds challenging and fun, right?
Every day many businesses face a similar challenge. Some find they don’t have a box with a picture of the scene they are to assemble, or the picture on their box is different from the one which will ultimately appear.
Without a clear vision of where a business wants to go - a picture - and a strategy for assembling the pieces, a business can expend tremendous amounts of time and capital on trying to find the correct configuration of the puzzle pieces. If the company's leadership isn't able to provide "clues" or identify methods and guidelines for trying out various pieces, then the business struggles - it continues to burn resources searching for the solution.
Developing an approach to assemble all the elements, finding the correct puzzle pieces, then actually assembling the picture and requires a commitment of time and other resources. The business, its leaders, its managers, and other members of the team must have a clear understanding of the objective and their role in achieving it. The organization needs a core understanding of the desired outcome, various alternatives to reach that outcome, and clear roles in pursuing the objectives.
There are many different strategies for assembling a puzzle. You can find all of the "framing" pieces first - the ones with the flat outer edges which establish the parameters of the puzzle. You can randomly select a single piece and then either systematically or randomly select other pieces to see if they connect to your starting point.
Which strategy is superior? Which will consume the least resources? Which requires the most luck? What can be gathered about the pieces that will facilitate informed decision-making?
Selecting a strategy depends upon the objective you want to achieve, the starting point, and what capabilities you bring to the project. How would you approach the puzzle if it you could see parts of the picture on each piece? Most businesses do not begin the strategy puzzle with completely blank puzzle pieces. Some of the "blanks" have a familiar shape or a readily visible fit. If a business begins the strategy puzzle by establishing the parameters and by identifying recognizable and familiar pieces, then it can move on to find the pieces which fill out the rest of the picture.
What pieces can a business locate to begin the process? A business can look first to its financial results and current position to determine available resources, activities that are generating cash and profits, and activities which are consuming more than their share of the resources. From the foundation of understanding the current business state (the flat pieces or edges of the picture), there are operational and structural pieces which will also fall into place or be easy to fit into the puzzle. The structural and operational aspects will differ from company to company. These pieces are the things your organization clearly does well. They may be the product or service or technology the company provides. It may be the sales systems and team. It could be any aspect of your business.
The blank or missing pieces you need to locate are the ones that aren't going so well, you aren't good at, or simply don't have in your current business structure. To get the total picture to come together, you must have a specific, measurable objective you want to achieve and a timeframe for pursuing it. Where you want to go versus where you are today and the resources (time, people, equipment, and money) you have to get you there – these are the pieces place correctly within the context of the strategy puzzle.
NC Regional Capital Market Exchange return to top
The NC Regional Capital Market Exchange (http://www.capitalmarketexchange.com) moves its event to the Raleigh Crabtree Marriott. The Crabtree Marriott is the new venue sponsor for NCRCMX and joins F.O.C.U.S. Resources, 919 Marketing, Local Techwire (Media Sponsor) and Ascot Technologies in supporting the events organized by Tom Vass of The Corporate Investment Center. The February 22nd event begins at 5 pm with a social hour to meet the presenting companies, exhibitors, and co-hosts.
Beginning at 6 pm, VetInsite (Silver Spring, Maryland) will kick-off the presentations, followed by Legacy 2 Future Consulting Group (Cary, NC), and BioResource International (Raleigh, NC). These companies will provide investors and attendees insight into their companies.
The forum is open to everyone. Attendance fee for the event is $25 to cover wine, beer, and appetizers. We look forward to seeing you at the event!
From the e-Mailbox: Why is "Cash-Flow" the Most Important Thing in Business? return to top
Well, the answer may be self-evident and glib, but without cash your business doesn't exist. You have to have cash to pay the bills. Profit without cash doesn't pay the bills. Sales without cash receipts don’t pay the bills. Cash inflows that arrive after you need them won't enable you to pay the bills (on-time).
Cash (from operations) is a reflection of the efficiency of the business to manage the conversion cycle – expending cash for goods and services to convert into other goods and services people will buy at a price that generates a profit. Furthermore, it reflects the organization’s ability to establish policies, controls, and processes which enable collection of the price within a timeframe that preserves profitability and enables the continuation of the acquisition, conversion, and sales process.
This may be a graphic example, but a business without cash is like a heart pumping without blood. It works harder and harder, but doesn't have anything to fuel the body/business.
The cash conversion cycle is comprised of the acquisition of goods and services (inputs and inventory) from your vendors and employees, the transformation/delivery of the resulting "product" to your customer, and the exchange of the "product" for payment - cash or credit. If credit is extended, the cash conversion cycle is extended through the collection process.
If your business is on a cash basis with vendors at time of order or delivery, then your business has an increased need for cash reserves. If your business is able to obtain credit terms of net 30 days or better, then your immediate cash needs are mitigated by the possibility of converting the inputs to a saleable product and making the sale and collection before you have a need for cash to pay your vendor.
The next critical element in your cash cycle is how long it takes you to convert inputs to saleable product and how efficient your operation is in using those inputs. If it takes you more than 30 days to convert the inputs and make a sale, then you are paying for your inputs before you have the possibility of cash collection from a sale. (Note: The majority of businesses will always have to pay for labor inputs before they are able to make a sale or collect the cash from the sale.) Few companies are real-time or near real-time in collections, unless they require pre-payment or cash on delivery.
So you have purchased inputs, converted them, and made a sale. Understanding the proportion of cash, credit card, and credit term sales in your business is important to cash flow. To state the obvious, cash sales are immediate cash inflows. Credit cards are "near cash" and are reduced by transaction fees, etc. Credit sales on vendor terms require additional management, control, and analysis.
Credit terms at best delay receipt of cash in return for making sales that may not otherwise be made. They also put the organization at risk of non-collection, delayed collection, or collection of less than the full amount. The company that decides to have credit sales needs to have sound policies to determine who is eligible for credit and under what terms and conditions. With credit terms the business is delaying receipt of cash, which is essentially financing someone else.
Every business must decide what the trade-off is between extending credit to customers or being strictly cash. For many businesses the choice will be driven by industry or competitor practices. For others it will depend upon the strength of the business and its ability to accept increased risk associated with credit sales. Whatever choice the business makes, it needs to be based upon sound business reasons and that include the following:
- Impact of industry or competitor practice
- Ability of the business to “wait” for collection
- Ability of the organization to set objective criteria and apply the criteria to customers
- Need or desire to increase sales
- Increase in cost of the credit sale – borrowing or forgoing opportunities due to lack of cash flow, increased management and activity in tracking sales, potential for not being able to collect…
Positive cash flow is the lifeblood of the business. It is important to understand the cash cycle of your business and how each decision you make concerning accounts receivable, accounts payable, and inventory practices impacts the cycle. Businesses require cash to operate. Growing businesses require higher cash levels due to increased transaction levels. Be sure you know just how much cash your business needs to meet obligations and achieve the next step in your business plan.
Guest Expert: Anne Harttree on Human Resource Audits return to top
What? An HR Audit?
What on earth is an HR Audit? And equally important, why would I want one? Or – worst case scenario – could it just happen to me without planning or invitation?
Many, if not most, organizations will routinely perform an internal review or an external audit on their financial books and records. The most obvious reasons are to ensure no irregularities in the financial system and to find areas in the financial picture which need either small adjustments or a major overhaul to make the organization more effective and profitable.
Unfortunately the reverse is often true when it comes to human resource policies, practices, procedures, and outcomes – it never occurs to many, if not most, organizations to conduct an audit to determine if their policies and practices are legally defensible and/or need improvements in effectiveness to reduce costs and meet strategic objectives. There is a need to “do the right thing” when your business has only one employee. Certain regulations may not be dismissed, no matter how small or well meaning the company. As the company – whether profit or not-for-profit – grows, other requirements which depend on the number of employees come into play. If you have received a government grant or contract (congratulations on your success!) you must follow even more specific human resource guidelines established by the entity providing your dollars just as you must follow their specific accounting practices.
So – to the first question: what is an HR Audit? It is a detailed, systematic review of all areas of the human resource function, generally following a checklist which may be reused to monitor progress. An HR audit is not a test (except in cases of government compliance)! It is a developmental tool through which a company may learn its current standing and focus its resources for improvement, whether to meet strategic requirements or ensure regulatory compliance. Areas covered in a full HR Audit include these ten: Legal compliance, compensation/salary administration, employment/recruiting (including turnover), orientation, termination, training and development, employee relations, files/record maintenance/technology, policies and procedures (including the employee handbook), and communications.
The next question/answer is equally important: you want to do an audit, whether mandated or not, because this is the way to gather critical information. Are you utilizing your human resources effectively (remember the comments on financial resources?), are you complying with the myriad applicable administrative regulations, are you confident the HR function is well managed and prepared to meet potential challenges? In addition, if you are looking for potential investors/owners or need information for shareholders, it is a necessary part of your due diligence.
What may be the external cause of an HR audit? It could be a disgruntled employee raised questions with one or another government agency. It also could be that irregularities or inadequate systems/oversight in another area raised the HR issue.
Whatever the cause, no business wants to miss the benefits of a complete, thorough HR audit conducted regularly or risk the costs and negative effects of a surprise audit from a agency which has been told you are not in full compliance with applicable requirements!
Anne Harttree can be reached via e-mail at anne@AISISPA.com.
Financial Statements - The Key to Understanding What Your Business Is Truly Doing return to top
Financial statements - the balance sheet, income statement, and statement of cash flow - can provide valuable insights into what your business is doing. You may be surprised what they can tell you IF they are setup to do more than satisfy financial reporting and tax requirements.
Financial statements and accounting systems are usually setup under financial accounting rules and regulations to comply with generally accepted accounting principles and tax regulations. These definitely are important and are required for most businesses, but financial statements can be a valuable tool if they are setup to meet not only external requirements, but also to include managerial and operational needs.
Accounting and financial reporting systems that are created to generate the managerial information are also designed to generate the required external information. Where they differ from purely financial reporting is that they have more visible information at the customer, product/service, project, program, business unit, or other logical level of the organization.
For instance, having a single revenue or sales number on your reports is accurate and acceptable. But do you know where the revenues are coming from? Which product? Which customer? Which business segment?
When you are able to break out the sales by customer, product, etc., you are able to analyze and understand what aspects of your business customers are buying.
Following that same logic, you can have a single cost of sales number or you can have a cost of sales for each revenue category. Now you are able to see what gross margins are generated. Where are you breaking even, losing money, or making money.
With changes to revenue and cost of sales information, you can already begin to analyze where your efforts need to go. You may find that the customer who buys the most product from you is costing you money because of discounts and incentives given to get them to make the purchases. Some companies actually find that profitability and cash flow increase when they lose volume customers.
When you add visibility (detail) to your expense reporting, you are much more likely to detect rising costs and opportunities to prevent costs before they get established in your business. An area that becomes out of control easily is office supplies. The company may be "printing" a significant amount of materials internally. When you can see reproduction costs tracked - paper, toner, etc. - you have the chance to decide whether it is more cost effective to take large print jobs out to a commercial copier or print company.
It is easier for companies to be vigilant in preventing costs from being incurred than to take action to eliminate cost overruns and bad practices. Having the ability to see the level of activity in various expense categories enables you to make decisions about how you conduct business and how to control costs. Here are some areas in which you may want additional details:
- Computer supplies (ink, toner, etc.)
- Office supplies
- Marketing activities – advertising, press releases, etc.
- Travel and entertainment
- Insurance
These are just some of the activities where a business can lose control very quickly. Every dollar these items increase needlessly takes a dollar off the bottom-line.
There are also advantages to having detail on your balance sheet. There will be more on this in a future article, with examples of how you can determine what your business is doing on the income statement. Keeping track of assets and liabilities at more detailed level enables you to see where you are investing your money and how you are paying for it.
The “bottom-line” is that your financial statements reflect all the activities of your business. What you are doing and what you aren’t doing. Taking the time to add some detail and dimension to your financial statements will give you more control, insights, and the ability to act more quickly to make critical changes to your operations.
February 24 Featured Expert return to top
Lea Strickland will be the featured expert at two separate events on February 24. Beginning at 8 am the Small Business Technology Development Center hosts a first of its kind forum at MCNC in Research Triangle Park, NC. The Meet the Expert inaugural event will focus on Grant Accounting. The topic will be presented by Lea Strickland and address: What Is Grant Accounting, What are the Requirements, and How Does It Impact the Business. This is an invitation only event.
Wake Tech Community College Business and Industry Center's Fast Track Program has asked Ms. Strickland back to speak at 2:30 pm at the Cary, NC Campus. The question and answer session will be on the strategic business issues of launching a new business - from setting your direction to achieving profitability.
Copyright © 2005 F.O.C.U.S. Resource, Inc.
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