Nine Things Business Owners Would Do Differently If Only...
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The saying that hindsight is twenty/twenty is as fitting in business as it is in our personal lives. No matter how experienced, every business owner learns lessons in every business venture; there are always things to be learned. If you haven’t had to learn the hard lessons from experiencing these nine items, perhaps you can learn from the experience of others:
- Maintain complete accounting records
- Follow a budget or spending plan
- Hire skill sets not bodies
- Establish credit criteria for customers
- Understand the difference between sales and marketing
- Be cautious in selecting vendors
- Understand the potential issues of shared ownership
- Distinguish between your role as an owner and your role as an employee
- Have a clear line between what is "the business" and what is "personal"
Now let's go item by item and discuss the underlying issues and lessons:
Maintain Complete Accounting Records
Without evidence of the transaction to support your position - that the cost was incurred, the item was paid, and so on - you are less likely to "win". You file your business income taxes on time. You mail the payment and the signed forms. Two weeks after mailing you receive a notice from the state saying you didn't file. What do you do? You provide a copy of your tax forms, as well as a copy of the canceled check or on-line receipt for payment (bank or the Department of Revenue confirmation). Another example, you take a business trip and reimburse your travel expenses - you don't have a receipt for your airline ticket or for parking. What can you substitute for them? You may be able to use the original credit card statement if it is available and you have established it as a valid document for reimbursement (Caution: If your company receives federal, state, or local government funds, you may be required to have the actual airline boarding passes as verification that someone actually traveled - not just that a ticket was charged.)
Follow a Budget or Spending Plan
A budget doesn't have to be an elaborate process or document. If you can invest in a comprehensive budget process which requires you to think through your financial plan - how much you will spend and take in - then you will be much more cognizant of the relationships between actions and dollars. If you don't want to or can’t invest the resources in a full-blown budget process, then at least take a copy of your financial statements for last year and the current year and use them as a guide for establishing expenditure levels for each category.
Simply print out or export your profit and loss statement (income statement) and your balance sheet as your starting points. Look at the differences between last year and this year. Look at the individual accounts and ask yourself if those expenditures paid off - made you more competitive or generated more revenues? Look for expenses that are getting out of control - travel, supplies, catering, and so on.
A budget doesn't necessarily mean you will stop spending at the budgeted amount, but when used as a comparator or yardstick, you will be able to monitor your spending decisions and question what the best use of funds is as they are committed! Budgets are there to keep you on track with your plan. You may decide to change the plan. But you will be doing it knowingly, as a conscious choice, not unknowingly. Actual results are generated monthly in most businesses, so take the time monthly to check results for the month and year-to-date against the budget. You can't stay on track if the budget sits in the top drawer of your desk or on the shelf collecting dust!
Hire Skill Sets, Not Bodies
It is common for businesses to equate adding another person to the organization to increasing productivity and capacity. In too many instances, the person added does not have the skill set needed. If your business needs additional capability and capacity, focus on determining just what is needed:
- Do you need more administrative support?
- Do you need more sales people and results?
- Has the business grown or increased in complexity, requiring more accounting and financial support?
- Has your organization grown to 10, 25, 50, 75 or 100 people or more?
- Are your purchases increasing in size (dollars and quantity), frequency, or complexity?
These are some of the areas that many businesses view as activities anyone can do. Perhaps anyone could complete the activities, but are they done correctly, efficiently, and to the benefit of the company overall. For example, many businesses allow the purchasing activity to take place by anyone in the company at any time. This usually translates to too many small buys that, if consolidated, could result in reduced cost - price of merchandise as well as shipping and handling charges. Furthermore, on larger ticket items like computers and equipment (manufacturing or otherwise), trained procurement experts understands how to negotiate reduced price, early payment discounts, extended terms, and other protections for your company; they also tend to know how to make sure you don't pay unnecessary sales and use taxes by understanding the rules and regulations.
Establish Credit Criteria for Customers
Unfortunately not all customers are created equal. The large company making a significant purchase from you may require extended purchasing terms. They may pay late even on those extended terms, because they know they can. This increases the cost to your business because you are essentially lending money to your customer. The same can be said for many smaller customers.
Because there are different types and levels of risk associated with customers, it is important to understand what type of customer you are taking on. This doesn't mean you won't accept the customer, but it does mean you know the "full cost" to your business when you decide to make the sale. For instance, a customer who requires extended terms, but pays on time is predictable and reliable within the terms extended. A customer who accepts terms (extended or normal) and then pays late burdens your business with the uncertainty of when the payment will be received.
Non-payment is double jeopardy - you have spent money to acquire the "product" and haven't yet recovered the cost. You are, however, also no longer able to sell the "merchandise" to someone else. Through the use of a credit application this customer may be screened out or put on cash only terms.
Customers who make partial payment may be the most difficult to address because the customer is making payments of some amount, but not the full amount. This is the "I live in hope" client, not completely good, not completely bad. This also is the type of prospect you hope to screen out or provide cash-only terms.
Understand the Difference between Sales and Marketing
Many companies do not distinguish between sales and marketing. The distinction can best be made by thinking of sales as specific activities directed to specific customers or groups of customers. Marketing is more general and directed at the broader "market". Both are essential to your business success.
Marketing generates awareness, interest, and "buzz" about your business - its products, services, and/or technology. Marketing gets potential customers to contact you, walk in your front door, and "shop".
Sales activities convert the interest shown by the prospect into purchases. Sales involves relating your offerings to solving the problem or need the customer has and convincing him/her that your "product" will be the cure.
Be Careful in Selecting Vendors
The one mandatory step is to get and check the references for the vendor. Check the references before you start shopping! Use references not as a confirmation of a decision already made, but as a means to identify your options. Ask for references from companies of similar size and market power to your company. Getting references for comparable size companies will provide a better picture of how the vendor will act toward your company. References from large companies often reflect the “power” the larger company has in the relationship.
You want references which verify the quality of the merchandise, reliability of delivery, willingness to address service or product issues, and business stability (they will be around in the future). Keep in mind that the size of the transactions you intend to do will also impact the ability of the vendor to do business with you reliably.
When dealing with new vendors, starting small and growing the size of transactions as you get more experience with the vendor is a good strategy. Not only does it test the vendor, it also enables both sides to build the relationship. As the relationship grows, you can signal to the vendor that you want to increase your business with them, giving them time and incentive to increase capacity if necessary.
Another strategy is to avoid sole sourcing, use more than one vendor on your “critical purchases”, so that if something should go wrong with one vendor, you have another alternative. Sole sourcing is often used as a means of getting significant concessions on terms, this may leave you vulnerable to changes in terms in subsequent agreements (unfavorably) and if your supplier has issues - financial, quality, delivery, and so on - your business feels the effect.
Understand the Potential Issues of Shared Ownership
When you form your business, plan for the potential issues - how decisions will be made (as owners and as employees in the business); what happens when someone wants to exit; what is each party responsible for contributing - cash, assets, time, intellectual property, and so on; what happens when one party doesn't uphold the terms of the agreement; how does someone exit; and so on. The type of legal entity formed is a significant factor on how each of the items plays out.
Understand that the type of business entity (corporation, LLC, LLP, partnership, not-for-profit, etc.) impacts how each of the potential issues needs to be addressed. Separating the elements of ownership from employment and the personal relationships is important for to enable a business to continue beyond its original formation and to limit the potential liability and issues that can result when relationships change or fail.
Distinguish between Your Role as an Owner and Employee
As mentioned above, when there is more than one owner and the owners run the business, there needs to be a distinction between roles. It is critical during the setup of the business to spell out the roles of all owners and what decisions are made at that level. At the same time the employee role of each owner should also be established and the job description spelled out. The roles of president, vice president of sales, and chief financial officer are each of well-defined roles in most companies. The types of decisions each make are somewhat known, as are the reporting relationships. How performance is measured for each of these "employees" needs to be consistent with any other employee - performance expectations and how to address performance issues of an owner in his/her employee role must be defined. You may not anticipate issues, but it is better to be prepared than to risk the viability of your business and investment if problems should materialize.
Have a Clear Line between Business and Personal Factors and Decisions
The business is the business. You may be the sole owner, but business decisions need to be first and foremost about the business. After you have made a decision based upon the business needs, then the impact of that decision on you personally can be determined. It may ultimately change your decision for the business or you may need to adapt what happens personally. Putting the elements of a decision on business terms first then understanding the personal implications increases the viability of the business. Ultimately a business which viable for the long term generates better personal return, so making decisions based on business factors first achieves a long term perspective. Of course, to get to long term success, individuals must sustain short term viability. Establishing wise trade-offs and understanding both the business and personal impact of decision making will ultimately contribute to your business' success.
Every business owner will learn his or her own lessons. When you can examine and learn from what others have already experienced, then you are ahead of the game. If your automatic response is “It won't happen to me”, then chances are it will. Reality is that there are very few things completely out of the realm of possibility. Whether it is a vendor, customer, employee, or business partner, someone will disappoint, betray, or fail to live up to your expectations. The exact nature of what will occur is unknown, but making an effort to prepare for what you believe unlikely or improbable will ultimately improve your business' chances.
Entrepreneur Magazine
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Lea Strickland, President of F.O.C.U.S. Resources, was interviewed by Entrepreneur Magazine for the September 2005 issue. She was asked to discuss the pros and cons of the various ways to go into business - from starting from scratch to buying an existing business. Look for her perspectives in the Be Your Own Boss special issue on newsstands September 6.
Out of the Cubicle and Into Business - Doing Well return to top
The Out of the Cubicle and Into Business book sales are taking off with requests for related articles and workshops. Reader reactions include:
"The book has it all and puts it together in a wonderful format."
"I've looked for a book that is realistic and positive for use with my clients and in my workshops. Now I have it! Thanks."
To get your copy (or copies), follow this link:
http://www.authorhouse.com/BookStore/ItemDetail.aspx?bookid=30345
AuthorHouse price is $17.95 for the soft cover workbook or $11.95 for the e-book.
The book is also available from Amazon.com, BN.com, and local retail bookstores with a retail price of $19.95.
June 30 Four Elements of Establishing a Successful Business return to top
Lea Strickland will be speaking at the Durham/Chapel Hill meeting of the eWomen Network on the Four Elements of Establishing a Successful Business. She will discuss:
- Clear vision
- Executable strategy
- Sound structure
- Specific results
The meeting will be held at the Chapel Hill Country Club, Chapel Hill, NC. Informal networking begins at 11 am and the formal accelerated networking begins at 11:30 am.
To register go to:
http://www.ewomennetwork.com/event/registration/event.phtml?eid=2423
or contact: Joyce Loebsack
Managing Director loebsack@eWomenNetwork.com
919-403-8256
Business Management Systems - Critical to Long-term Success return to top
What Are Business Management Systems?
Business management systems (BMS) are all the policies, procedures, internal controls, and tools - manual and computerized - used in conducting business and measuring the results. BMS encompasses all functional activities -- from accounting to sales and marketing to product development and research to general administrative tasks.
A strong BMS infrastructure enables a business to do more with less demand on its resource. Wisely designed systems which are adapted or customized to fit the operational structures, strategies, and financial capabilities mean that an organization can capture results of past and decisions and facilitate future decisions by understanding cause and result relationships.
Any organization that has strong business management systems has a competitive advantage through its ability to understand profitability and cost drivers, as well as mechanisms for measuring results at various operational points (product, business line, market, and so on). Information is critical - timely, relevant, reliable information is a competitive difference.
What elements make up a business management system?
- Accurate and complete historical accounting and financial statement information
- Performance management processes
- Strategic planning
- Budget and forecast mechanism
- Capital expenditure analysis, budgets, and management
- Cash flow management
- Established priorities that align operations
- Coordinated functional activities
- Infrastructure that facilitates activity and doesn't constrain operations
- Business risk analysis and management programs
If your organization has yet to formalize any of its management processes, then the list above can seem intimidating. It isn't, however, an all-or-nothing list. The typical business starts with a few elements, learns to do them well and then implements additional tools.
If you are starting from scratch, the best place to begin is in getting reliable accounting data on your past and current performance. Underlying every other aspect of BMS is the ability to generate information on your actions. That information is quantified in your financial reporting.
Once you have comprehensive accounting information, then it is time to develop analytical tools that provide signals and meaning to the information. These tools enable you to know where your business is effective -- making money, and where it is not being effective -- draining your organization of cash. One of these primary tools is cash flow analysis. This tool is the dashboard for managing your cash - being able to meet your immediate and near - term payment obligations.
Taking your accounting information from historical to future is the next step; this begins with establishing budgets for the business as whole and for the components. The budget then serves as a comparison for forecasting. The business establishes a plan for what money is expected and how it will be used. Normally, the budget and forecasting processes are integrated into the strategic planning process and establishing a strategic plan would precede any forecast or budget process.
Many times you will see forecasting and budgeting as interchangeable terms. There are distinct differences. Budgets are control mechanisms used to demonstrate a plan of allocation of resources across projects, departments, and activities. These plans evolve from the strategic plan and the specific organizational objectives identified to quantify the overall desired outcome. Since strategic plans are multiple year plans (typically three to five years), these plans are quantified by forecasting economic conditions, pricing, size of markets, market share, pricing, volumes, and the infrastructure (people, equipment, and so on) that will be needed to pursue the objectives.
Forecasting is about orienting the business to future performance and estimating based on reasonable assumptions, economic factors, past performance, competitive information, and many other factors. Forecasting is about the expected outcomes the business will be able to achieve pursuing its market strategies and executing day-to-day and near term tactics. Budgeting converts the first year of a strategic forecast into a tool for managing performance and assessing how things are going. Once a budget period (typically an operating cycle, fiscal, or calendar year) is underway, actual performance is compared to expectation and the variance between expected results and actual are reported and analyzed for cause. A business may then choose to incorporate the new information learned from actual performance and generate a new forecast for the budget year, thus moving the performance targets. The business then has two comparators – the original budget and the rolling forecast. (A third comparator is often used – historical results for the prior comparable timeframe.)
Businesses without strategic planning experience often find beginning a budget and forecast cycle for the current business financial year beneficial before making the move to strategic planning. The benefit stems from gaining an understanding of the variables that impact the business – internally and externally, before they try to identify and select new strategies and objectives. Knowing where they are and where they have come from enables the organization to assess realistically the business potential and the possible strategies the business is capable of executing, the resources that will be needed, and the “typical” results based upon the current structure and planned changes in the organization.
The best strategic plans, budgets, and forecasts do nothing for an organization which does not require results and performance. Requiring results and performance demands accountability throughout the organization. Accountability requires that members must understand the role, activities, priorities, and measurable objectives/results they are expected to deliver. This means the organization must have a means to identify, set, communicate, and measure specific results across all levels of the organization – individually and as a whole. The rewards and consequences of underperforming must also be clear and consistently applied. Organizations often become caught in the trap of setting performance standards, then not
- Enforcing them
- Rewarding correct behaviors
- Extinguishing incorrect behaviors
- Relating results to rewards
- Matching the actions (correct or incorrect) to the rewards or consequences at the time of occurrence – waiting too long to communicate
- Viewing corrective actions and consequences as “cold” and “impersonal”
- Avoiding dealing with performance issues
- Burdening good performers with an unequal share of the load by not dealing with underperformers
Establishing an objective performance measurement system enables your organization to succeed.
Finally, if you are in business there are risks. There can be risks to tangible assets, property, or equipment; there can be risks of infringement on intellectual property rights; there can be risks from manmade and natural disasters. If you lack a well-designed human resource process, there can be risks associated with employment practices – recruiting, promotions, compensation, and so on. There are liabilities associated with making and delivering a product or service. Every business has risks. Some are common to most businesses; others may be unique to an industry, geographic area, or other factors.
Some risks can be reduced through processes, procedures, and policies. Some cannot. Some risks can be reduced by diversifying the business operations. Other risks can be reduced by segregating operations and activities.
There will however always be some degree of risk that a business cannot eliminate. These risks can be addressed in part through insurance. A business’ risk analysis should encompass physical assets, transportation activities (travel, commercial vehicles, etc.), financial risks (business interruption, investment, and so on), and transactional losses (inventory, tax liability, fraud, theft, etc.). A comprehensive understanding of your source of risk enables you to make strategic and tactical decisions regarding the amount of protection needed and how to insure against those potential disasters. Commercial insurance policies range from general liability to business interruption and many, many others. Talking to an insurance professional is time well spent in understanding the insurance products, limitations, and options available. You still won’t be 100% covered against risk – that is an unattainable goal, but you can hedge against risk with the operational and financial controls coupled with the right mix of insurance products.
Business management systems are all about the business – its structures, resources, opportunities, tools, and people. Every aspect of business activity falls within the scope of a true “system.” It isn’t about automation or technology (although it can include both). It is about integrating and aligning the activities and infrastructure to be used to the greatest result.
On a Bad Day I Take Action return to top
Whether business owner, manager, or employee, everyone experiences days when things just don't seem that optimistic. You don't get the "big" sale. Your competitors (and everyone else) seem to be doing everything better and achieving more success than you. When everyone else seems to be like the Six Million Dollar Man - better, stronger, faster - it is time to take action, pick up the phone, write an e-mail, get in your car and visit a client or prospect, call a colleague, do something that creates potential and opportunity.
Taking action is the best medicine for those pessimistic ills. Call qualified prospects - companies that you "know" are the best place to start. Pick up the phone or get in your car and go. Just taking action has a positive effect.
Don't know any "qualified" prospects? Call your existing customers and see if they have everything they need AND ask them if they know a colleague, client, or vendor who needs what you do or have! If they do, act right then and follow up with a call AND your client's permission to use their name to make contact. Call your vendors and do the same thing - ask them for referrals.
Here is a caveat - don't make this a one-way street. Ask your colleagues, clients, and vendors what type of clients do they need? Are they looking for certain products or services you don't provide but know a quality vendor who does? Make the connection and build the positive relationships between you and your circle of business allies.
The best way to results is action. The days you just want to hibernate in your office (or, even worse, stay in bed under the covers) are actually the best days for getting your momentum back. Before you make your first phone call, mentally picture most successful sale or "deal." This will get you in the right mind frame and put confidence in your voice and demeanor.
The only thing you have to lose by taking action is inertia. By making calls and reaching out to business allies, you generate activity for the coming weeks. Taking action creates opportunity and who knows, you may even get some business today!
If you aren't in an active sales role, that doesn't mean you can't reach out or take action to make things happen. For instance, you can sign up for an on-line training class, contact a peer in another organization, or any number of things to change your perspective.
Whatever your role, you can change your perspective by taking action. The hardest step is getting started. So here are ten suggestions on how to be prepared for those inevitable "down" days:
- Maintain a list of people you would like to meet - the "list" can simply be a file folder of articles or announcements that you clip from newspapers and magazines.
- Make it a practice or habit to stay aware of what is happening with your client's businesses and identify contacts you have made who may be good prospects for them - again you can keep it simple by having a file for your notes or use your customer relationship management system to note potential connections.
- Establish a few solid colleagues (not in your company or organization) who you can call any time to get you back on track (remember to reciprocate and be there for them too!).
- Consider an executive (personal) coach who can act as a sounding board and help with your personal goals.
- Have a plan for your business which includes specific tactics and things to do each day and stick to the plan. For example,
- Make five phone calls a day to current customers, vendors, prospects, or colleagues to stay in touch
- Send out 10 note cards a week to say thank you for your business (write the cards and address the envelopes by hand – make it “personal” by taking the time to write them instead of e-mail or typing a note)
- Go to at least one networking event per week AND make it a point to talk to people you DON’T know (especially those who are standing alone) and ask them about themselves – don’t try to sell, just get to know these people and see who they are wanting to meet – then make some introductions
- Build someone else’s confidence or business – this may sound like a waste of time and you may not see what is in it for you at first, but – when you focus on helping someone else you get your mind off of your issues and gain new perspective on where you are – getting new ideas AND they usually reciprocate – but don’t do it expecting them to reciprocate – it is good for you and your business in the long run whether or not reciprocation occurs.
- Take time out – “mental health moments” – and re-energize your mind by going to a bookstore and browsing the business section or a magazine to see what others are doing.
- Take yourself out for coffee – going alone to any of the coffee shops which have wireless access (or not) creates an opportunity to meet other people hanging out there and doing business – keep your business cards handy – you never know when opportunity will strike!
- Start your own business group to get to know 5 to 10 people who share the same target market, but don’t compete with you…look for opportunities and ways to cross-market
- Take the day off - sometimes you just have to have a “mental health day”… take the family out, go walk the dog, hike, ride a bike, do something fun and active and get perspective…AND commit to a better day tomorrow.
Business - No Limit Texas Hold'em Style return to top
Businesses today seem to think that going "all in" is a sound business strategy regardless of the cards they hold. For those of you unfamiliar with the game of No Limit Texas Hold'em, players are able to make any size bet at any time on the hand they hold. "All-in" means betting everything you have on the cards you hold and the belief that your hand is "best" - whether it is because of the cards you hold, OR because of your reputation, or because of the "odds".
Players may bet "blind" without looking at the two cards in their hand, or they may bet as the community cards are dealt. They use the cards they hold and the community cards to make the "best" five-card hand.
As each round of cards is dealt, the players make decisions with "imperfect" information - meaning they know the cards in their own hand and the cards on the table; they don't, however, know what cards other players hold. As play progresses around the table, each player must decide whether to bet or fold. They also must decide as they bet whether they believe they have the best hand or if they can bluff and convince the other players they truly hold the best hand.
Poker is a pretty good analogy for business - they share common characteristics:
- Imperfect information
- Changing variables
- Influx of new information that may or may not be correct or relevant
- Knowledge of your capabilities but uncertainty about your competition
- Need to "price" to beat the competition without underbidding
- Need to get a solid return for the risk taken
- Changing pool of competitors
- Different levels of experience
- Ability to take calculated risks
- Need to "read" the competition and respond appropriately
- Ability to conceal weak position
- Willingness to compete with less than the "best" cards
When companies make decisions, they need to understand the risk/reward trade-off. It they don’t, it is like playing going all in without looking at all your cards. For instance, if your business is worth $500,000 and you have an opportunity that will take $500,000 to pursue with a guaranteed payoff of $1,000,000, then the reward is not worth the risk. If the risk succeeds, you "breakeven;" if it fails you lose it all.
Not all opportunities are created equal. Taking gambles on "opportunities" which don't reward the degree of risk is like an inexperienced card player who can't conceal the quality of his/her hand going up against a pro who holds the best cards. Understanding the elements of the game and how it is played enables you to make the right moves - bet big with the winning hand and fold when it is in the cards.
It is important to note that the “best hand” doesn’t always to turn out to be the one with the best cards. Knowing how to play the cards you are dealt – making the most of what your business is capable of doing – can win hands against the odds. It isn’t a matter of bluffing – it is a matter of “presentation,” the confidence in your ability to take the cards which are dealt and back them up with expertise, experience, and reputation.
In both business and poker, bluffing is dangerous. You just can’t know for sure what your opponents (competitors) have. Sometimes they have more chips (resources) and can take bigger gambles, bet more with lower odds. Sometimes, they have better hole cards from the beginning.
In business, all the cards are never on the table for you to see. Your experience, instincts, and what information you do have must be pulled together, the risks and rewards calculated. A less experienced player (competitor) may hold the cards which can not only create opportunity but also undercut your position against other players.
Keep in mind that two players can have the same cards and play them very differently. It is the knowledge, experience, and the underlying “abilities” of the players which make the difference. Also, a hand which has won before isn’t a guaranteed winning hand next time. Variables are always changing. Each hand is a different round in the business game.
Before each round it is important to understand your strategy for playing the game. You may have more than one strategy depending upon your opponent(s), how many and what cards you hold, and how big the pile of chips in front of you. Have a plan you can follow. You may deviate from the plan, but having one can keep you on track and in control.
Know the odds and how you play. As your experience grows and you learn more about your competition, you increase your odds of winning. Information will never be perfect. Your competitors may change their tactics and take bigger risks. Use that information. Calculate the risk/reward payoffs and play the cards you are dealt.
Copyright © 2005 F.O.C.U.S. Resource, Inc.
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