Manage Your Financials Like a Pro
Bill Warner Monday, June 15, 2009
Wow, here is a great testimonial from Anita Campbell, a small business owner, about managing your financials. I wish every small business owner had this much discipline.
Cash is really king
The biggest mistake that small business owners make is not really understanding their cash flow. Unfortunately, the result is too often running out of money followed by business failure. All of this comes from properly accounting for all of your revenue, cost, expense, and other cash transactions. If you are doing this, you simply need to look at your cash flow statement to see where you are. There you can see where you stand with:
- Money that is owed to you by customers
- How much you owe others
- The effect of depreciation
- The gains from financing activities
- Implications of changes in inventory
- Cash implications on debt
If your ending cash balance is declining, you may be in trouble. Watch this metric like a hawk.
Look to the future
Equally important is your projection of cash flow for the next 6 to 12 months. I strongly urge you to develop a cash flow projection on your own or with the help of a professional financial person. You may be fine today, but the growth of your business may put particular strain on your cash position. Think ahead to see future cash crunches so you have time to find the financing that will carry you through it.
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Practice Your Elevator Pitch
Bill Warner Thursday, June 11, 2009
I can’t tell you how many entrepreneurs have told me that they cannot possibly explain their business in 45 seconds. I get the typical responses. It’s far too complex a business model. It’s hard to explain the technology. The market is too broad to get it across that quickly. My marketing and sales plan is difficult to understand. The list goes on.
Why even try
The purpose of such a presentation is simple. You will run into many situations in both your business and your social life where you have to give a brief answer to the question, “what business are you in?” This could come from people at trade show events, passengers on airplanes, people at parties, associates in business meetings, etc. Sometimes, the perso
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Mentoring Entrepreneurs
Bill Warner Tuesday, June 09, 2009
Most of our communities, especially large metropolitan areas, have hundreds of seasoned business executives. It is also true that the heart of our economy is the small business owner. If you look at the statistics concerning annual business failure you will find that almost as many businesses fail each year as are started. Why?
The cause of business failure
Of course the reason businesses fail is because they run out of money to operate. What led up to that final event is:
- Lack of understanding of the market segment being pursued
- Not clearly understanding who the buyer is and how to reach them
- Flawed marketing and sales programs
- Mismanagement of customer relationships
- Insufficient financing
- Mismanagement of cash flow
- Poor management decisions on business operations
Business mentors can solve this
I assert that if more experienced business professionals would devote a little bit of their time to mentoring emerging businesses run by inexperienced entrepreneurs, the business failure rate would considerably decline.
Imagine simply taking five hours a month to help an entrepreneur. Just by being their frequent advisor would quickly identify the potential causes of failure and keep the entrepreneur on track to success. Fewer businesses would fail as a result.
This is happening throughout America. More and more organizations are getting involved in providing business advisory services. See this article from entrepreneur.com for a further perspective.
As one of the business leaders in your community, take the opportunity to contribute to the success of others. You will feel great about it and you will be helping America’s business.
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CEO’s Need To Listen
Bill Warner Thursday, June 04, 2009
What a novel idea. You don’t need a high paid consultant to solve problems. All you have to do is listen. Sid Kemp in Entrepreneur.com expands on this.
Hands on listening channels
CEO’s need to have access to all sorts of communications channels and utilize them every day. Open communications takes the form of:
- Mangement by walking around where the CEO spends some time simply walking the halls and asking how things are going
- Eating in the cafeteria or some favorite hangouts just to talk to employees
- Having meetings in other peoples’ offices, taking the opportunity to meet more people
- Conducting one-on-one interviews with employees and managers
- Writing an executive newsletter to the company letting them know what is going on
- Always finding ways to say thank you to employees
- Cultivating some advocate relationships with people who tell the truth without fear
With more open communications, the CEO can get a much better feel for what is going on and what people really think about issues. It’s also a very good way to get new ideas.
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A New Breed of Entrepreneur
Bill Warner Thursday, June 04, 2009
We are hearing more and more about many people starting businesses because they are out of work and cannot find a job. This is really happening. It’s a different form of passion driven out of the necessity to have an income. It may be as strong as the passion any entrepeneur has for bringing a technology to market, solving an important industry problem, or changing the world in some material way. Tim Barry talks about this briefly in Entrepreneur.com.
The rules are the same
This new breed of entrepreneur is really good news for the economy, but the rules of the road are the same as for any entrepreneur. They need a well thought out business model that:
- Cites an attractive market opportunity
- Focuses on real buyers
- Is competitive
- Spells out a clear marketing and sales path to success
- Is managed effectively
- Has the necessary financing to get to a positive cash flow position
Give them support
These new entrepreneurs need our help. Give them support and advice as they try to crack into the business world. It is likely they are very concerned about how they are going to succeed at something they have never done and their support structure is pretty lean. Chances are you will get something in return down the road.
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Hedging Your Answers
Bill Warner Tuesday, May 26, 2009
I just read another interesting observation about using words that end in “ish.” These ish-words provide a way for you to hedge your commitments and bound your answers when you don’t really know.
This habit can hurt you badly
Consistently hedging your answers will create an image of you that will undermine your credibility:
- You appear less than honest
- You give the impression that you don’t know what you should know
- Your answers and commitments are not going to be understood
What will happen
Your management or board of directors will not appreciate this habit at all. You will end up getting more questions from them to narrow your answers to something specific. This takes time and energy and will frustrate them greatly. This habit can become so irksome that you could lose your job over it. If you find yourself getting endless questions following your answers, you better take a look at yourself first as the cause of it.
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Saying No The Right Way
Bill Warner Tuesday, May 26, 2009
I just saw an interesting blog on Seth Goden’s Blog about saying no. This is all easier said then done, but should be practiced by all leaders and managers.
How to say no
You certainly need to play it straight with people and not sugar coat all your answers that might hurt someone or waffle so that people don’t really understand where you stand. The secret is to turn “no’s” into “what is possible” answers. Instead of just saying no to a request, respond with:
- The conditions under which you will satisfy the request. This often explains why “no for now” is really the answer and indicates the conditions under which the answer will be yes.
- The things that you need in order to be able to say yes. This puts the ball back in the court of the asker who needs to then think about the broader picture.
- An explanation of the assumptions that are the basis for your answer as to when you will satisfy a request. This helps everyone understand the conditions for the answer being yes.
Add value in your answer
The opportunity you have in saying no the right way is transforming your answer into a collaborative problem solving conversation. All said and done, say no with professional firmness, but with a broader perspective than the asker often has. That adds value to all your relationships.
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Twitter For Marketing Reach
Bill Warner Monday, May 18, 2009
Twitter has taken mass marketing to a new level. Like I hear from many people I meet, Twitter is being viewed as a toy for people to share what they are doing right now and other assorted nonsense. “I don’t want to know that much information about people.” “Who cares that they are mowing their lawn?” “Why do I need to know when someone is going to a soccer practice?”
Twitter is more than you think
Think again. Twitter is a tool, if utilized intelligently, can produce a huge contact network of people that is actually interested in hearing from you. After all, they had to actively decide to “follow” you. The mass marketing advantage of this is that you can create a following of thousands and thousands of people. At the usual marketing hit rates of mass mailing of 1% or less, you can reach a lot of people nearly instantly and for no money. It is far better than buying an email list.
Creating followers
I am no expert at this, but in a matter of days, I was able to create over 500 followers. At this rate, I will have 10’s of thousands in a matter of weeks. I did this by simply intelligently following the people that are followed by people I know and have followed. Interesting enough, most of them decided to follow me too. Then I started to selectively send my blog notices to all those who followed me, giving them something meaningful to read. I also responded to tweets from people I was following, giving them recognition and giving me more reach that produced even more people who decided to follow me. This continues every day as more and more people decide to follow me as I feed them more content.
Yes, you have to weed out some undesirable people you are following, but followers start to respond to your tweets. Dialogs get started that all followers are watching and sometimes also participate. This whole process explodes into more and more followers as you get more and more involved.
The power of the masses
Once you have created a large enough network of followers, say 10,000 or more, you can start to exploit its marketing power by reaching out to your followers with products and services that might be of interest to them. At traditional hit rates, a network of 10,000 followers might produce 100 leads. At 100,000, that would be a 1,000 leads produced by a very inexpensive mass marketing program. Networks of this size and more are prevalent on Twitter. I started to get interest from some people even at the low level I have achieved so far.
Twitter now
It is not a lot of work to get started, but you have to grow your reach by actively following people. You do have to have some good content that would be of interest to maintain their interest. I have a tremendous amount of blog content that is serving as a basis for feeding the Twitter network. Give it a try. You do meet some interesting people and have some fun while doing it.
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Why Sell Your Business?
Bill Warner Thursday, May 14, 2009
This is a real bad time to sell your business. Valuations are falling as you can read about in Mike Handelsman’s article in Entrepreneur.com and the gruesome details at www.bizbuysell.com.
The Sales Decision Dilemma
This might not be intuitive at all. There’s a good chance your revenue growth has declined in the last couple of quarters. Your profits might be a lot smaller as a result. Your credit may be declining as banks reassess their risk. We are reading all this bad news every day. The dilemma is in deciding if you should sell now before the economy worsens, or ride it out and get a much better valuation when the economy recovers.
Should You Sell Your Business?
It seems to me that if your business has been strong then you have a good chance of pulling through this mess. Continue to manage your business with heightened discipline and come out of the economic decline even stronger. You then can sell your business at the much higher valuation it deserves. You have worked too hard to sell your business at bargain basement prices.
If your business has been weak, then it will not be an attractive purchase opportunity for any buyer. If your business is weak because there is no viable market for your products and services then you do not have a company worth buying by anyone. If your market is attractive but you are not managing your business well, you need to fix the business before you sell it. Your mismanagement will reveal itself in due diligence and you will get an even lower valuation as a result. This is because the buyer is taking much greater risk and is going to have to fix the business after the purchase. You should fix it yourself.
A Reason To Sell Your Business
The only reason to sell your business now is for personal reasons. You may just want out of the business at any price because you have lost the passion for it. You may have a dire personal situation that prevents you from paying attention to the business. You don’t have the energy or know-how to save your business from eminent failure and want to get anything you can for it.
But, if you still have the passion and the energy, keep going and weather this storm. Be one of those people that get going with the going gets tough.
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Give Your Business a Stress Test
Bill Warner Tuesday, May 12, 2009
Hey, here’s an idea. If banks can undergo a stress test, you might want to consider doing the same thing for your business. This might be worth your time if you do it with the objective of determining if you can withstand the worst of economic situations.
Determine the stress on your business
Start by making some reasonably pessimistic assumptions about your industry and market segment. Don’t be ridiculous, but make assumptions that represent the worst case you can realistically imagine. For example:
- Assume your market segment growth is flat or even down year to year; whatever is indicated by the changing trends in your industry.
- Make assumptions about the cost of goods and services, all of which will have an effect on your gross profit.
- Project what might happen to prices, especially if you see new competitors emerging or the possibilities of price reductions by your current competitors.
- Assess what will be changing about your customer’s purchasing behavior. Will the sales cycle be longer? Will the need for your products and services survive budget cuts?
- Take account of what is happening in the legislative and regulatory world. Will changes in government subsidies affect your business or your customer’s business? Will tax increases affect you or your customers.
Calculate the changes in your financial outlook
Any of these stress factors will have an effect on your ability to do business and need to be reflected in your financial forecast. Express these stress factors quantitatively so that you can reflect them as changes in your Excel spreadsheet assumptions that drive your financial forecast:
- How will marketing productivity be effected?
- What will happen to sales productivity and closure rates?
- What changes will have to be reflected in your cost of marketing and sales?
- Will there be changes in your assumptions for operating expenses?
- What changes should be made to prices over the next couple of years?
Perform what-if analysis
With your new assumptions, update your financial forecast spreadsheet and let Excel determine what will happen to your financials over the next 18-24 months.
- Will your gross profit still be viable?
- Does your expense structure still work?
- Are you profitable?
- Do you maintain a positive cash position?
Determine required actions
With your completed stress test, make some judgments as to what you need to do to assure your survival if your pessimistic assumptions become reality. You may find that you need to make certain changes now or at least determine contingency plans that could be executed if the situation requires them.
- Should you raise money to pull you through the tough times?
- Are their cost and expense actions you should be taking right now, just to strengthen your financial position?
- Will you be able to realistically cut costs and expenses further if times get tougher? Create a plan for such actions.
- Should you take preemptive action on prices now?
- Do you need to reduce staffing now?
Be totally objective
We are talking about your business, so be bluntly honest about your market situation. This is not a time for unfounded optimism. Be optimistic about your chances of survival, but be realistic about what challenges you face. If you are, you will come up with actions that will save your business. By taking action now, before a disaster hits you, you are giving yourself the maximum chance of winning.
