Be an Ethical Entrepreneur, Marketer, and Business Builder

How to fix your business FAST – Part 3 – Cut Costs and Improve Productivity

On the face of it, cutting costs sounds pretty simple. In reality, if you know your numbers, it is rather simple.

Here are some ideas to evaluate for potential cost-savings in any business:

  1. Insurance – whether it’s commercial, auto, or health insurance, if you haven’t shopped around in a few years, you need to. This area alone has saved my small business $9,000 over the past 2 premiums with slightly better coverage. Granted, it took a lot of time and energy to get to that point, but how can you argure with that level of savings?
  2. Telephones – cell phones and land lines can both be EXTREMELY over-priced if you don’t shop around. Make sure you have the best group or individual or combination of the 2 for all of your cell phones. For land lines, if your internet is reliable enough, you seriously need to consider VOIP. VOIP stands for Voice Over Internet Protocol and simply means using internet data lines instead of phone lines for your phones. In my business this would save us about $250/month IF we had reliable internet. Our internet is very spotty, has little competition, and relatively slow so we’ve tested with VOIP several times and just can’t make it work. :-/
  3. Vendors – When was the last time you renegotiated with current vendors OR shopped around to make sure you’re getting the best rates? Through buying in bulk, group purchases (with similar businesses), shopping around, and good old fashioned renegotiating (particularly on things like fuel charges and freight expenses) you should shoot to save 5-10% on all of your purchases. While your at it, double-check your retail price list and make sure your mark-ups are sufficient. We found a handful of items on our price list going for little to no mark-up as we performed this exercise.
  4. Pre-payment discounts – While you’re calling to renegotiate prices with your vendors, be sure to find out if they offer pre-payment discounts. Those are simply discounts for paying early which could be within 10 days, or 10 days after the end of the month, or whatever their terms are. If you consider those discounts can range from 1% to 5% this can be VERY significant. If your business buys $200,000 in products each year, at 1% you would save $2,000 year or$167/month just by paying a few days earlier!
  5. Meals & Entertainment – and all other “discretionary” spending. Are those meals, trips, expensive hotels, etc. etc. etc. really necessary? If they’re an integral part of your business recruitment strategy then fine. But make sure your deducted-meals are actually legit. Meals are only allowed for documented business purposes (i.e. names, place, and business discussed all have to be available to the IRS) and overnight travel. Even then, only a portion of those meals can be deducted. The upper-management of Walmart and Sam’s Club are still required to fly coach and book modest rental cars when traveling just like their founder always did.
  6. Shop around for cheaper services – Every business needs the help of other businesses to get things done. This could be your IT firm, your accountant, lawyer, bottled water delivery company, tire and oil change business, uniform company, or even your payroll company. I’m well aware that it’s very hard and expensive to find a lawyer you trust, so if that’s something you already have, I’d leave that one alone, however the others can be done with relative simplicity. Just changing our payroll from Paychex to Quickbooks has saved us over $100/month (though QB prices have just gone up slightly so the gap is lessening).
  7. Improve Efficiency and Productivity – This is probably the most important of all of them which is why I put them as a separate step in a separate category for fixing your business. This all boils down to basically 1 thing: Paying people for the results they deliver.

In a nutshell, that’s what an efficient, productive business will consistently do. It will pay people for their work. What a novel concept, huh? Now you need to determine if your business is a better model for a Results Oriented Working Environment (ROWE) like I discuss in my blog on Intrapreneurship and Entrepreneurship or whether your business simply needs to get away from paying everyone an hourly wage with no incentives.

Here are the steps to take to increase productivity for every employee in your business:

  1. Make job descriptions – If your people don’t know exactly what their duties are, you as a leader aren’t even giving them a chance to succeed. Everyone needs a job description and possibly even a daily, weekly, and/or monthly checklist to make sure they’re taking care of all of their responsibilities.
  2. Create processes, procedures, scripts, and checklists – This goes hand-in-hand with a job description. If you don’t have scripts to teach people how to handle customer inquiries, procedures for how to track those inquiries, and checklists to make sure nothing has gotten missed you will never ensure a consistent customer experience. Making this fundamental throughout your business is the key to successful franchising. If you want a successful, universally applicable, consistent business, this is your foundation. This will also help you determine who on the team needs to stay and who needs to go.
  3. Know your numbers – My last blog dealt with this in detail so to just make the point quickly… If you don’t know the income and profit per person on your team it’s very hard to develop benchmarks, set goals, and recruit new people who you believe can achieve those goals.
  4. Remove temptations to “cheat the system” – In my business this comes in 2 major forms. No temptation to play on the internet for the office people, and no temptation to take extra long lunches or sneak home early for our service guys. The first is temptation is removed but letting everyone know their internet usage is tracked and will result in dismissal if internet use is inappropriate. GPS systems on our service trucks take care of the latter temptation. Very rarely do I ever analyze either item. Basically it’s just there in case a problem develops.
  5. Incentivize and create healthy competition – I still credit the doubling of our profit/day/technician in large part to converting a portion of technicians’ income to commissions. Find ways to incentivize everyone on your team to do their best.
  6. Get rid of those who don’t stack up – If you’re the kind of guy who hates to let people go and so cuts everyone’s pay instead of just letting the weakest link go, you need to change your practice immediately! There is nothing worse for morale then to have everyone “punished” with lower pay when the low-hanging fruit needs to go (and everyone but you knows that). If you really feel that bad about letting an unproductive employee go, cut your income first before any one else’. To keep costs down, review my blog on how to let someone go without paying unemployment.

Keep in mind, that the more drastic the situation the more drastic the cost-cutting measures required. Act quickly and decisively and move on. If you make a mistake in that process, learn from it.

To your cost-cutting success, Bryan

How to fix your business FAST – Part 1

A friend of mine asked me today about what I would do with a business that isn’t doing very well in this economy. Actually with 5 different businesses in 5 different industries… So I told her. My blog about how I doubled the profits in my business in the first year covers much of what this and the succeeding blogs will, however these will have much more detail and be much more specific.

Firstly, by “fixing” I simply mean increasing profits and cashflow (yes, they’re different). The bottom line is that the number one goal of business, and its reason for existing, is to make a profit (and a healthy one at that).

Secondly, you need to determine the time frame for your fixing. In other words, do you need cash by next week or month to make payroll and pay bills OR are you simply looking to increase the value of your business to sell in a year OR are you looking for a way to have your business provide the income and freedom that you desire for the next 40? Granted, some solutions will overlap but the plan of attack may be different. Since she was looking for IMMEDIATE solutions to improve the business we’ll look at that first.

Before we go any farther, though, as a business owner and/or leader you need to get 2 things situated right away

  1. Work on the Business – If you’re a plumber and you’re out plumbing while your business is going down the tubes, it’s a lost cause. Of course I’m assuming you have a team and aren’t a one-man operation. The point is, if you have a team to take care of the work of the business, your work needs to BE the business. If it’s not, then the business will never improve. Make the commitment to spend time daily on improving your business.
  2. Make a list – Actually, lots of them. I’ve done enough consulting to know that if your goals aren’t in writing, they get forgotten and pushed into oblivion. Don’t fall into that rut. If your business needs to change, you need to change. As we go through these blogs, make a prioritized list of the improvements you’re going to start and don’t stop working on the list until it’s done! Personally, I’m still working on a list of 10 things that I made at a conference in February 2009. Currently, 7 out of 10 are checked off, but the list won’t be thrown away until 10 of 10 are taken care of.

Again, our goal is near immediate improvement so here’s what you can do:

  1. Know your numbers – In my experience this is the biggest mistake business owners make. They know things like their gross and net profit margins, number of customers, and total revenue, but have no idea how or why those things are down. Customers, revenue, and profits are not answers to problems, they’re simply questions. All they can do is tell you what question to ask but you have to dig deeper to find the answer. If you stop digging there, you’ll never locate the problem or come up with a way to devise a fix. Some of these numbers were covered in my blog on weathering the economy.
  2. Cut Costs – If a business exists to make a profit, it’s breath of life is cashflow. Assuming you have sales and customers already, the quickest way to increase profits and put cash in the bank is to cut costs. You cut $1,000 in costs and you add $1,000 to the bottom line. Don’t ever forget that.
  3. Improve Efficiency and Productivity – You already have a team, though if money is tight you may have to start cutting. Before you do that, you need to do some simple analysis to determine the effectiveness and productivity of each person in your organization. Again, you need to know your numbers. If you don’t know your daily break-even per income-generating job position AND for the entire business, you’re shooting in the dark. If you can go back to the “good old days” and compare your profit per person back then to now, you’ll quickly know if you have to cut positions.
  4. Improve Marketing and Sales – There is a reason this is so far down. If you need immediate cash, this is often the slowest response. You have to develop marketing, you have to get your marketing out and wait for a response. You then have to review your process for acquiring, handling, and converting leads to customers. You need to track the effectiveness of each marketing campaign because the first one might not be successful and determine, through testing and measuring, what marketing provides the best Return On Investment. This is obviously important long-term, but generally can not immediately get you cash. That being said, this should be done concurrently with the items above.
  5. Build recurring revenue – This one is often most challenging because it can require a cash investment up-front.  Cash that you obviously don’t have if you’re business is not doing well. Then again, there are ways to generate immediate and recurring cash with no up-front investment and you’d do well to develop some of these in your business.

That’s the 5-step process for fixing a business quickly. Now that I’ve reviewed this list, there are only a few things I would change if you’re looking long-term versus short-term.

  1. If you’re making money and not looking to sell any time soon, the costs are less important. Obviously $1,000 saved is a $1,000 more in profit. However, if you’re happy with your income and perks and those provided for your team, then this doesn’t become an IMMEDIATE necessity even though it’s ALWAYS beneficial.
  2. If you’re looking to sell soon, cutting costs to increase profits is extremely beneficial as it will increase the value of your business. Any “perk” you can’t reasonably classify as an ownership perk, and therefore a seller add-back, should be cut immediately. For instance, if you have a lot of meals and entertainment expenses and tried to do a seller add-back on those and I’m buying your business, I’d argue all day long that if they weren’t necessary for business you wouldn’t have them on your books and I won’t accept them as an add-back.
  3. Knowing your numbers, efficiency, productivity, sales, and marketing are as important today as they will be in 40 years so work on them constantly. For the long-term owner, these systems and numbers are what will allow you to manage your business remotely and with minimal input.
  4. Recurring revenue can either require up-front cash or not. Recurring revenue that costs nothing up-front (or is break-even very quickly) is well worth the investment short-term as it will produce cash and increase your business’ value. Recurring revenue that requires an up-front investment in sales, marketing, equipment, and installation/service is not a good short-term plan but can be an amazing long-term one so don’t neglect it.

So there’s the quick and dirty overview… In the next few parts to fixing your business I’ll dissect each of the 5 pieces and provide real-world examples, suggestions, and solutions for each.

To your business-fixing success, Bryan

I have a great idea for a business. Now what?

A friend recently contacted me with the idea of starting a topless hair salon wondering what my thoughts were on the project. Granted that’s not the style of business I would ever own or start, however I realized my thoughts on, and more importantly my process for evaluating his business idea are the same that I would apply to any business. If you came to me asking if your idea is a good one and if you should start a business I’d answer in almost the exact same way. Since you may have to evaluate dozens of businesses before you find a great one, it’s important that you train yourself to think the same way. So here are my thoughts…

  1. I don’t recall ever seeing one in the 40+ states I’ve visited but I could have driven right by one and just not realized it.
  2. Sounds like it has business potential and I’m a big fan of owning businesses vs. working for them.
  3. It’s almost always better to buy vs. start a business since they already have a location, customers, equipment, cashflow etc. etc. In this instance I’m not sure that’s the case since the customer base may change drastically and the current employees may not be interested in your changes. Maybe take over a lease from one that’s going out of business so that all the equipment is there but the employees and customers are not… Have you been able to find one of these businesses yet? It’s always easier to steal ideas from other established businesses than come up with all of them on your own.
  4. If you’re really interested in buying/starting a business there’s a LOT more to it than coming up with an idea so you’ll really need to work on educating yourself. Check out my blog and particularly the Recommended Reading section. It gives a lot of good resources for you to learn what it takes to start/buy a business. Particularly since it chronicles a lot of what was involved with me doing the same.
  5. Las Vegas is in Carson County which currently has the highest unemployment rate by county in the US at about 12.5%. In the last year over 10,000 have left that county (for the first time in like 20 years the population has stopped increasing). Major hotel and building projects have been cancelled and thousands have been laid off. On the plus side, you can probably find cheap space to lease for a business. On the negative side, it may not be as easy to get an extra $20 out of someone for a haircut… This was in essence my target market evaluation. He mentioned starting the business in Sin City for obvious reasons so don’t you think information on the current economy in Las Vegas might be pertinent? Notice how I didn’t discount the idea altogether. A year or 2 ago when things were booming the upfront costs themselves may have made this idea completely cost prohibitive. The down turn in the economy in Vegas may just provide the perfect opportunity for a lease takeover and recruitment of team members at reasonable wages. That’s the beauty of buying and selling businesses. No matter what the economy is doing some businesses will always be available.
  6. Once you educate yourself a bit about the questions you need to ask about buying/starting a business,  call one that’s already established and ask them about marketing, growth, pricing, how the community reacted, how they recruit talent, etc. If they don’t see you as competition a lot of times business owners/managers are willing to lend a hand by answering questions. This is very true. We entrepreneurs are a tough lot who work hard to get where we are. However we tend to appreciate and respect those trying to accomplish the same thing and so don’t mind helping out a little bit when we can. Obviously you can’t abuse the privilege of talking with someone who’s been there and done that. The best thing to do is to build up a long list of business contacts so that when you have questions you can always find an answer without bugging the same person every time.

Can you answer those questions about your business idea in the affirmative? If you can, the next step is determining your break-even point, your potential market, and your marketing plan. Starting with the break-even, if you can risk the money it’s going to take to get you to the break-even point go for it. What do you have to lose? Just be aware that over 90% of businesses fail within the first 5 years so if you don’t want that to be you, over prepare.

To your business starting success, Bryan

Buying a business – Step 2 – The Broker

When buying a business for the first or even second or third time there are a few things to keep in mind to help you a long the way…

The first step is obviously finding a business. I’ve blogged before how I’ve found several offers to buy or otherwise acquire businesses in a short amount of time and even blogged about finding a business for little to no money down. In addition to those few examples, I mentioned 2 other great resources are:

Bizbuysell.com

Bizquest.com

Both have some easy to use tools to find the exact business you’re looking for. Keep in mind that the best businesses have a great Cashflow to Asking Price ratio. In other words, if a business has a cashflow of $100,000 you should want to pay as close to $100,000 (or less) as possible. Ideally you’ll pay less than 1 times Cashflow plus assets. So in our example with $100,000 in cashflow if they also have $200,000 in assets a price less than $300,000 would be quite a deal. 🙂  Convincing the seller and a business broker of that might be a little more tricky so be prepared to justify your valuation. Keep in mind that business valuations can be quite subjective. In my experience, a broker can either be your best friend or worst enemy. If you are able to convince him you’re the man for the job, he’ll do his best to convince the seller you’re price should be accepted. Even though he represents the seller, he only gets paid if someone actually buys a business. It’s important to keep that in mind and use it to your advantage. Now how do you do that?

The game plan is rather simple. The trick (like usual) lies in how well you’re able to communicate it. 😉

  1. Make sure he likes you. – This is important because he’s the gate keeper. Heck, he may even be “screening” potential buyers ahead of time. Without his blessing, you don’t see a Non-Disclosure Agreement or ever meet with the sellers. Be comfortable but confident in your discussions and if you find common ground, certainly use that to build rapport. If you get along well with most people and can speak coherently (even under pressure) this becomes second nature and not a step that even requires planning. Check out How to Win Friends and Influence People and Persuasion: The Art of Getting What You Want for more details.
  2. Make sure he thinks you can do the job. -If he doesn’t think you have the ability to run the business being sold you’re not going to make it very far. Be prepared for questions like “Do you have any experience in this type of business?” (he’s making sure you can actually get the job done), “Are you looking at any other types of businesses for purchase” (he’s determining your commitment and passion to this field), and “Do you have management experience?” (he’s assessing whether you can take over and lead a team effectively especially with the nuances of a new owner/leader). I’ve spoken with enough of these guys that I generally have preplanned stories in mind to respond. Always remember that stories that illustrate your capabilities are the best way to get your point across. If this is your first business purchase and you want to sound like an expert, read my blog, the Best 6 books to teach you how to generate wealth, and practice “interviewing” a few business owners to learn how they implement “book lessons” in the real world. Explanations for leadership styles based on books generally do pretty well with business brokers since they’re in effect consultants themselves. They get to look at and evaluate businesses every day without getting involved with what’s needed day-to-day so the perfect answers that you read in books are what they want to hear. For instance, when a broker asked me if I had any management experience I explained my philosophy on being a Team Leader instead of General Manager. He immediately interrupted me and said it sounded like I was a big fan of the Deming philosophy and Six Sigma and I had a great leadership philosophy. Now that he was on my side I shot back “So do you think my style would work well in this business?” – obviously looking for additional details that could help me in my negotiating.  His response was that for liability reasons he couldn’t respond specifically about how my philosophy would work however “it’s a proven philosophy that would do well in any business.” You think he liked me and thought I could do the job after that? 😉
  3. Make sure he agrees with your valuation. – You always save this step for absolutely last. If the broker and owner trust you, thinks you’re capable, and you’ve done your preliminary due diligence and you still want to proceed you start working on explaining why you think the business is worth less than they do. This is possibly the toughest part, but it doesn’t have to be. In one business I was evaluating the owner didn’t have any cashflow or even profit and loss statements. For that reason it was very hard for me to value the business. Obviously it made it even harder for the broker to value the business which was something that rather annoyed him. So he recommended to myself and the seller that this should be an asset only transaction. The transaction never materialized however it was kinda nice to not have to do much negotiating that time since my goal would have been an asset only purchase as well. 🙂  You won’t always get that lucky, so you need to spend a bit of time educating yourself on proper business valuation models so you can “talk-the-talk”. Check out my blog on why banks don’t know what your business is worth and my other one on EBITDA for more information. Simply low-balling with no justification or explanation is a bad idea. If you’re dealing with an individual who is selling on their own, chances are they have no idea how to truly value a business and so will be more apt to agree with you if you know what you’re talking about. Beyond that, one broker told me there are about 12 valuation models that are “commonly accepted”. With 12 valuation models, do you think they all work out to the business being worth the same amount? Of course not. The bottom line is cashflow and assets so make sure you stick to that. Business growth potential aren’t worth anything and should never be something you pay for.

That’s your quick overview of dealing with a broker (or even seller without a broker) on a business purchase.

To your business buying success, Bryan

Buying a Business – Step 1 – Finding the right business with little to no money…

These days it seems you can buy almost anything without having any money upfront. You can buy your fridge, computer, car, and even house with no money down (ok, the house is a bit trickier now then it was in 2006). However, did you know it can be done for businesses to? Depending on the size of the business that is very reasonable option. However, the larger the business the harder this is to accomplish. If nothing else, consulting fees to your lawyer and accountant (whom you should always consult) could prevent a No-Money-Down transaction on larger (i.e. greater than $100,000 transactions).

So how do you go about finding a business to buy when you don’t have deep pockets and investors lined up?

The most important part of that is finding the right seller. The only way you can reasonably buy a business with little to no money down is to find a seller willing to finance the deal for you.  As funny as it may sound, people don’t always sell a business JUST to make money. There are actually a lot of other items that can factor into a sellers decision of whom they want to sell to and for how much. The biggest factor in getting a LOW PRICE and OWNER FINANCING is the seller’s time frame. What that means is if someone needs to sell quick, you can get a much better deal. The same is true of anything you purchase. If someone needs to sell a motorcycle because they’re joining the military and being shipped out in 2 weeks you’ll obviously get a better deal then if they have all the time in the world. When you buy a house, car, or anything from a small business the same can be true and the same is definitely true when buying a business. So what are some common “flags” that you can use for bargaining leverage?

  1. Divorce – This may be the best one. Let’s face it, when people are getting divorced they need to get rid of things quickly and sometimes for very little money if for nothing else but to not allow their spouse to get the business. I’ve heard of one instance where a business owner literally gave his business away for free just so his ex-wife wouldn’t get it. 🙂
  2. Illness – Sometimes people get sick (or someone in their family gets sick) and they can no longer adequately run their business. Often that requires them to get rid of it quickly or risk losing it completely. In one instance I looked at a business with this scenario. A month after visiting that business the owner called me back and said she’d go down on her price and finance the business for me because she just needed to stop working right away. I passed on that business even though the opportunity for a no money down purchase was there.
  3. Retirement – This is a very common reason for selling a business and one that can be a great tool for negotiating the price down or toward an owner finance package. You first need to find out if they’re an S-Corp, C-Corp or LLC. If an S-Corp that you’re willing to buy the shares of, they stand to have great tax benefits by receiving small payments over time versus one large payment. The seller may not know of those tax benefits so you can use that as leverage. Another important point with retiring sellers is that they may be tied emotionally to their business. So what does that mean for us? Well that means they are motivated by more than just cash. If the seller is also the founder they generally feel a tight connection to their customers, employees and business as a whole. They don’t just want some well heeled corporate raiders coming in to sell everything off and make a mess. They’re looking for someone who can continue their vision. And if it’s important enough to them, they may even consider the buyer who is perfect in every way, except they don’t have the ability to come up with cash. From their perspective if their business is taken care of and they are still getting as much or more per month than when they were working why not take the deal?
  4. Cashflow/Bankruptcy – What I mean by this is someone who’s going to lose their house because they can’t make payments may be willing to sell their business quickly and cheaply. Obviously the strength of a business whose owner is broke should be in question, however keep in mind that the best businesses to buy are the ones that have problems that you can quickly fix. The owner with cashflow issues may need money upfront or may just need X amount a month to cover some bills.

So when you’re evaluating businesses to buy, it’s always important to ask “Why are you selling?” A lot of websites, like Bizbuysell.com and Bizquest.com, even list the reason for selling right in the description so you can more easily cherry-pick the right ones.

Here are a few other important questions to start narrowing down your business choices:

  1. Why are you selling?
  2. Is the seller also the founder?
  3. Is he involved in the business day-to-day? If so, in what capacity?
  4. Is an individual or investment company selling?
  5. What’s your time frame for the transaction?
  6. What’s the annual cashflow or profit?
  7. Is the business a S-corp, C-corp, or LLC?
  8. How many full-time sales personnel?
  9. Marketing budget?
  10. Current marketing projects?
  11. Is real estate included? If not does the seller own it and plan to continue leasing? (This can tell you a bit more about the sellers total monthly income without a business)

It can take quite a while to find the right business so start searching now. I’ll continue to walk you through the lessons I learn as I continue to work on business acquisitions.

To your business buying success, Bryan

How to create (consistent) recurring revenue in any business

As any business owner knows, Cash is King and when you can develop a method of repeatable, consistent, monthly cash then you’re on top. Let’s face it, the more fixed expenses you can cover with a fixed cashflow the better your business will run for several reasons:

  1. You have more free time – to devote to things other than “Where are we getting the money for payroll this week?” – In other words, you’re more free to work on your business instead of just in it. Or take a vacation and know money will still be coming in when you get back.
  2. You can sell your business for more – any business that has consistent recurring revenue is always worth more than a business that does not. Go look at the going rates of laundry mats and car washes. Often they go for many times earnings and even more than 1 times annual revenue.
  3. You can go that extra mile for your customers – this one is often overlooked, but when you NEED that next big check to pay this week’s bills you might just skip other things that were of higher priority but pay less to get that fat check. Beyond that, you can sometimes do services for customers for free or at a discounted rate to go that extra mile even though it’s a month past warranty simply because you can afford to.
  4. You can sleep more easily – When you don’t know how you’re going to pay that next bill it can get a bit nerve-racking for any of us. It’s a lot easier when you know you have X amount of billing going out every week or month.

The list can go on and on. If it’s not obvious yet, then just take my word for it, every business wants recurring revenue. Before moving further, I’ll provide my definition of recurring revenue as “Consistent, repeated income from the same customer in a predictable time frame.” In other words, if you have an oil change business, I don’t consider oil changes recurring revenue unless your customer is tied into some sort of maintenance plan or agreement. That’s not recurring revenue because in 3 months, they can go somewhere else to get their oil changed very easily.

Recurring revenue can be broken down to 3 main areas:

  1. Renting/Leasing Products – In this category would be automobiles, motorcycles and other gas powered vehicles along with any product designed to be very reliable for a long time. The top 2 that come to mind are copier machines and water softeners. Every city has a copier salesman with a lease program “perfectly tailored” to your business needs… We also all have the Culligan man. His business philosophy since 1936 has been “Rent one, Sell one.” What he’s renting and selling are water softeners and the reason he does that is to have cash by selling a softener to cover his costs for renting the next one. He rents the next one to build up reliable consistent recurring revenue that can continue for literally decades.
  2. Services – The simplest way to think of this is subscriptions – magazines, newspapers, Netflix, Cable TV, internet, cell phones, insurance premiums – All those bills you have to pay each and every month.
  3. Rent-to-own/Payment Plans – These are just like the “rent/lease” products above except eventually the customer will own them AND they generally don’t last as long. Think of “Rent-to-Own” stores like Rent-a-Center and Aarons. The products they rent-to-own have a relatively short shelf-life. In other words, 5 years from now we all want a bigger TV, newer computer, upgraded furniture, the latest gaming system, and the most advanced new sound system. So guess what the rent to own businesses try to do? They start renting you a new X when the rent-to-own plan for the last one is up so you’re always making a monthly payment. And the second time around it’s a much easier sale because the consumer already has that dollar amount budgeted every month.

Now it’s time to get creative, how can you incorporate those into your business?

If your business sells a product then you can easily incorporate 1,2 and/or 3. You just have to decide which ones will work best. Is your product prone to frequent and regular updates that your customers are going to want to replace in a few years? Every major electronics and computer store now has a price and a monthly payment next to each product. Those are rent-to-own or finance programs. There are subtle difference between finance plans and rent-to-own plans that normally come down to how the interest is calculated. Either one can be effective. Off the top of my head, I can only think of a few items that you would want to simply rent without your customer ever owning the product. Basically any major appliance in your home could fit into that category – Hot water heaters, air conditioning units, heat pumps…  All the things people only think about when they don’t work. Why rent those in addition to selling them? The benefit to the consumer is that with a rental, since your business technically owns the product, it’s your responsibility to fix it when it’s broke. In other words, the customer will never have to pay any bill except their monthly rental payment. The benefit to you is the recurring income.

Honestly, I’m not at all familiar with those home appliances so it may make a lot more sense to simply sell the customer a new unit along with an extended warranty/maintenance program. That way you can get the up-front sale to cover cash flow and recurring revenue from the service plan forever. After all, if you sell them the plan up-front and get them used to an annual “plumbing inspection” or “air conditioning” maintenance they’re much more likely to continue that every year instead of waiting till 3 or 5 years down the road for maintenance. My last blog was all about creating, selling, and pricing these extended warranties to create another profit stream for your business so check it out for more details.

In my business we’ve incorporated all 3. We have rental options, rent-to-own options (we don’t call it financing for legal reasons), and Platinum Care Plans. Of course we also simply sell our product which is still the preferred method for most clients.

If your business simply provides a service such as computer support, accounting, legal advice, consulting, etc. etc. etc. the same rules still apply. For the computer company you may be able to lease/rent equipment (maybe even consider adding a copier lease division since those are so tied to computers with built-in network printers and scanners these days) or simply setup a monthly service fee where you verify backups, scan for viruses, maintain drives (i.e. defrags, scan disks, space requirements), and help spec out new equipment as needed for a flat monthly fee. Lawyers now provide pre-paid legal services (just google it) and most accountants still have a lot of monthly or quarterly services to supplement the April tax return cash influx. The point is, no matter what your business does, there’s a way to get people to come back again and again. Find those opportunities and in the next recession you’ll be in a much better position than today.

To your recurring success, Bryan

Create IMMEDIATE cashflow without spending any money…

What I’m talking about are Maintenance Agreements, Privilege Programs, Preferred or Platinum Care Packages, etc. etc. Call them whatever you like, but if you want to get paid now for what you might have to pay for later you need to start these at your business. First let’s talk about the benefits so you’re fully convinced you need to do this right away.

  1. Immediate Cash – That’s right, increase your average dollar sale immediately and put more cash in the bank with virtually no expense (you will have to do some marketing, training, and have agreements to sign).
  2. Recurring Income – Depending on how you set it up, you can bill your customer for the whole package all at once or every month, quarter, semi-annually, or annually. Whatever works into your game plan. (More on this below)
  3. Your customer wants it! – When the economy is down, consumers rethink their purchases. One thing that they hate when they aren’t sure where their next check is coming from is large surprise repair bills. Whether that bill is for a refrigerator, computer, or pickup truck. There’s nothing worse than getting hit with an unexpected bill when your income is slow. Most will much prefer to trade a small monthly payment and the security that no other bills will come up, for the possibility of that “surprise bill” down the road.
  4. It’s simple – I’m in the middle of this project right now and though I’m consulting dozens of colleagues, the vast majority have never done this so I’m figuring out a lot as I go and so far there isn’t a whole lot to it.

Do you really need any more reasons then that? If you were going to implement any new program can you think of 4 better reasons than those? Me neither…

So what are the pieces to a good Maintenance Program. First let’s consider some common versions of these and who’s using them…  Best Buy, Circuit City, and just about every electronics company offers them now and you pay for them all right up front and for a terms from 1-3 years. Dell computer does the same thing with various time frames and various levels of coverage. When you go to buy a couch you can even get an extended warranty plan that covers rips, tears, stains, etc. etc. etc.  All of these require an upfront payment for the full amount. So asking for that payment up front isn’t too uncommon and is actually the norm.  Car companies do the same thing except they wrap that additional “investment” into your monthly payment. The pitch goes, “for an extra $24 per month if your $4000 transmission fails it’s all completely covered and we give you a rental car while it’s in the shop.” Now can I see a show of hands from the people who believe that all of these major organizations are implementing these programs and losing money in the process. My point is that if your business isn’t doing this you’re missing out on additional revenue and more importantly additional profit.

So what do I recommend?

  1. Keep it simple! Dell and the car companies have a complicated assortment of options from their basic to most advanced plan and they have dozens of people dedicated to creating, marketing, and tracking just those things. At your local car dealership they have a “business manager” who’s sole job is to sell you these add-ons. That’s a lot of complication. To start off simplify. This doesn’t mean that later on you can’t add more options to make sure you get every dollar, but keep in mind the more options, the more paperwork, the more training, the more tracking etc. etc. etc. To get started, keep it simple!
  2. Make it a “no-brainer” My marketing even says just that. That it’s a “no-brainer” that shouldn’t be passed up. Why? Because I priced my Privilege Program to cost LESS than the cost if they just paid for service/maintenance as needed. Why? Because some times people forget when it’s time for service and when we remind them they could put it off for weeks or months. When people have already paid for something they tend to not forget to get it. 🙂 Also, my costs for tracking people down for regular service and scheduling them become much less because now they are expecting (and wanting) to hear from us.
  3. Have an easy way to track it. Without the ability to simply manage, the progam can cost way more than it can make. Is your billing software setup for monthly, quarterly, or annual billing? (Quickbooks honestly is not very good at this) Do your work orders have a way to let your service tech’s know it’s a Privilege Customer? Can your customer service people tell they’re a Privilege Customer? Can your business manager easily track progress, related Profit and Loss, implement price changes, and even track the reasons why someone is canceling? If not, look into software for your industry that can or consider hiring a programmer to write you a custom database.
  4. Try for an up-front payment but have other options available. If you determine your Maintenance Agreement for your computer store, plumbing business, or bicycle repair shop is going to be $120 per year then allow them to pay $12/month (with a minimum term if necessary) or $35/quarter. Note that the further ahead they pay, the more discount the receive. Obviously only offer these options if your computer system can handle that kind of billing. After all, $12/month is better than $0/month. 🙂
  5. Incentivize for your team. I’m a big fan of employee incentives so throw in an extra few bucks for each one they sign up. At the very least, tie their job description and performance to signing up X agreements per day or week.
  6. Train your team (over and over again). One lesson I’ve learned from running a business is that your team members don’t quite retain everything or take it real seriously the first time around. You have to bring it up again, and again, and again. That’s OK. That is your job after all. Granted if you have an incentive program tied to each employee signing up these agreements you might not have to repeat it so many times. 😉

There’s your maintenance program outline. Get started today and start making more money tomorrow while making your customer’s happier than ever.

To your “increased profits during a recession” success, Bryan

How to fire someone… The right way…

As I mentioned in my last blog (yes, I know it’s been a long time but with restructuring our team I’ve been busy), after reviewing how I doubled profits in a year, I was going to review all that I did wrong. Actually, that would require a book not a blog so let’s start with the biggest problem.

My biggest mistake in my first year of business ownership was my avoidance with letting people go.  There were 2 reasons for that:

  1. The worst thing you have to do as a business owner is to let someone go. It’s not fun and if you have any heart it’s actually very emotional. Beyond that, while you’re training his or her replacement guess who gets to pick up the slack? That’s right, the owner or leader in charge of that position.
  2. I prefer to believe people are better than they actually are. I tend to believe I can educate, train, and help someone learn “anything”. After all, if it’s easy for me then how hard could it possibly be to teach someone else?  Unfortunately that’s just not how the real world works. People with the greatest intentions just may not have the talent or intellectual capacity to do what’s needed. For a great reference on that topic, read First, Break All the Rules: What the World’s Greatest Managers Do Differently by Marcus Buckingham

Ironically, in the six stages of business that Brad Sugars teaches, building your team is the fourth step. In the next year, as I build my team so to replace me, I’ll let you know how that works. At this point it seems it would have been a lot easier to get the right people in the right places first… We’ll just have to see.

So I’m much more cognizant of my weakness at letting people go who need to be let go and in the process have learned the “proper” method to do so.

If you fire someone correctly, a few things will occur:

  1. You’ll maintain a positive relationship. In my experience several people asked for their jobs back a few months after I let them go so obviously they didn’t completely hate me. 🙂
  2. He won’t file for unemployment. It affects your unemployment insurance rates for years to come so it’s worth fighting and preventing.

Firing someone is actually MUCH easier if you plan and prepare properly. Here’s what I suggest:

  1. Make up your mind! If you’re not 100% sure that it’s the proper thing to do, then you probably shouldn’t do it. You don’t want to get in an emotional situation where they talk you out of it. Make up your mind and stick to it.
  2. Gather performance information. Particularly related to poor performance. The reason for this is because if you “fire” someone with reason, they aren’t eligible for unemployment in many states (I’m not a lawyer so consult one if you’re unsure). Otherwise it may be considered laying them off in which case they can claim unemployment. The second reason for this is that when you sit down with them, if they feel indignant and question everything, you have all of your notes and information in front of you to stick to your guns.
  3. Don’t use the negative performance information more than you need to. In other words, you’re already ruining their day, no need to rub it in. Most people know they’re underperforming. At least 3 people I let go didn’t offer any resistance whatsoever and because it was obvious by their performance that they knew it was coming.
  4. Don’t ever use the words “fire” or “quit”. Those are harsh words. Instead use the terms “let you go” or “resign.” Review my blog on NLP if you don’t feel proper word choice is important.
  5. Offer them a choice. If they just aren’t capable of doing the job you need them to, but they otherwise work hard, show up on time, etc. and you feel comfortable doing so, offer to let them choose to resign or you’ll have to let them go. Emphasize that it’s tough to get a job if they can’t use you as a reference. Moreover you can’t lie, so if someone calls to ask why they no longer work for you, you’ll be obligated to tell them they were let go and why. All 4 people I offered this option to decided to resign. Consult a lawyer on this point as this may not be accepted as a legal resignation.
  6. Get any business items immediately. Whether its keys, tools, company credit cards, cell phones etc. Get them all immediately. It may be against the law in your state to hold someone’s paycheck, but if your handbook says so, you can charge them back for any equipment they don’t turn in before their paycheck is ready.
  7. Offer to let them put in their 2 weeks notice. If you don’t have a gross negligence issue and you can completely trust that the individual won’t sabotage you and your business for their final 2 weeks, offer to let them work their last 2 weeks while they search for a new job. Make it clear that you don’t want to regret that decision and that you’d be willing to be flexible on their schedule if they have interviews. As an Ethical Business Builder, in instances where the person just can’t keep up with their work I prefer making this option available. In my business I only made it available to my office personnel and never to service personnel who have my trucks fully stocked with tools and parts to slowly sell off or steal with little oversight in their last 2 weeks.

That’s it. So far I’ve had to let 4 people go and haven’t had a single one apply for unemployment. Two have asked for their jobs back and I hired a another’s father to work with me with no hard feelings (and he’s a GREAT addition to our team).

Properly preparing for this horrible part of being a business owner actually does make it easier and a lot more palatable. It’s eventually going to happen, so don’t put off letting someone go when you know it’ll will be better for your business, customers, other team members, and ultimately the individual.

To your team re-building success, Bryan

How I nearly doubled profits the first year of my first business…

My primary business was purchased April 7th, 2008. My goal was quite agressive in that I planned to double the business in year 1 and starting “buying back my time” in year 2. In other words, in year 2 I want to figure out how to keep growing the business, supporting myself, and not having to work 60+ hours per week. To be more specific, year 2 goal is to eliminate myself from the business almost entirely… I’ll keep you up-to-date on how to make that happen but for now let’s look at the year 1 summary…

Increase in gross revenue of 17% due mostly to a mid-year acquisition of another bordering franchise. Not quite  what I had in mind, however my unaudited books are showing an increase in net profit of around 95%!

Better than I expected on the profit side even if the revenue side was a bit lower than expected. Overall, a doubling of gross revenue maintaining profit margins or a doubling of profit put the same amount of money in my pocket and increase the value of the business the same amount so you can’t argue with that. 🙂

So there are now 2 questions to answer:

  1. How did I manage to increase profits 95% in my first year?
  2. What would I do differently next time?

For this blog we’ll address how I managed to increase net profit 95%.

  1. I knew and watched the numbers. A few of the numbers I watch were listed in my blog on weathering the economy. Possibly the most important number at my business was the average revenue generated per day per technician. Nearly doubling that number has increased our profits a lot with zero increase in overhead.
  2. Converted our revenue generating team members to partial commissions. So the question that comes to mind is why aren’t they full commission? Because our small business can’t allow each team member to “specialize” enough to just generate revenue and I haven’t taken the time to figure out a better more “incentive-based” method of compensating.
  3. Cut overhead. We had 4 different phone companies and am still working on getting that down to 1. With Quickbooks we’ve been able to cut our accounting expenses a few hundred dollars per month. Started using Quickbooks Payroll to save about $100/month over Paychex or ADP with much more flexibility and control. Adjusted payroll to more accurately reflect work. In other words a few pay decreases were warranted.
  4. Cut costs of goods sold. We compiled a computerized list of all of the parts we sell and use (still a work-in-progress) to track who we purchase them from and have started shopping around for the best combination of price and quality for the parts we sell.
  5. Acquired another business to leverage economies of scale. The business was acquired cheaply with non-standard financing in a territory that had been underutilized and never marketed for a long time. We converted the Payables, Receivables, and Customer-service into our current location with minimal increases in overhead compared to a separate office and staff just for that small business.
  6. Cut personnel to only what’s necessary to be profitable. This will also be on my lists of things I would change. By nature I’m a “nice” guy so letting someone go is tough. However when it’s necessary it needs to be done quickly and decisively. The easy way to know if it’s being done is if you provide benchmarks, procedures, and responsibility lists and a team member isn’t holding up his or her end of the bargain it’s time to move on. This is also paramount if you want your business to run on its own.
  7. Created processes, procedures, responsibility lists and checklists. You can’t increase productivity and you can’t determine if your paycheck-for-work trade is worthwhile if you and your team members don’t have exactly what’s expected of each team member in writing. It seems sad that the team members who just go the extra mile without prompting are few and far between.
  8. Sold more to existing customers. We simply increased our marketing to current customers for upgrades and recurring service.
  9. Tracked marketing and started cutting out the bad. The cuts, yellow pages for instance, have just started since it takes some time to gather that data so in 2009 we should be leveraging our marketing even more. We also started using lead-tracking software to make sure no leads were getting forgotten or missed.
  10. Integrated real-time GPS units into service vehicles. “Inspect what you expect” is how one business owner phrases it. If you expect people to work 8 hours per day and not stop off for multiple lunch breaks or go home, it’s best not to temp them with “no one will ever know” opportunities.

Obviously a lot more things have been done – like integrating weekly team meetings and simply having management at the business every day – however those were the 10 that most quickly came to mind as I started reviewing the last year.

Beyond that, the absolute most important part of buying a business you’re going to grow rapidly is to wait for the business that needs a similar list of things to fix. If you buy a business that’s already “perfect”, which mine certainly is not and we’ll address that in the next blog, what choices do you have for growth? Your only options then become to increase prices, sell to more customers, or sell more products to current customers. And that stuff is hard work! 😛

In summary, if you’ve read through my blogs for the last year, you realize that last year has probably been the most educational year of my life. The nice part about that, compared with my years getting an engineering degree, is that I learned a lot and got paid to do it. 😀

To your success, Bryan

Skip business school, buy your first business, and make it a franchise…

If you’ve never run a business before, no matter how many blogs or books you read, or seminars or classes you attend, you have a lot to learn. There are just too many things to deal with to pick it all up without actually doing it. For that reason, the first business you own should be purchasing an already established franchise.

Until I owned a franchise business I never quite understood why this is so important. Firstly, I’m assuming you’re buying the business to rapidly build it (less than 2 years) and either sell it or keep it for cashflow with minimal input from you, the owner. If you prefer the hardwork and pride of building your own business from the ground up over 20,30, or 40 years, then by all means do that. Based on that assumption, let’s break up your “building” efforts into 2 basic categories: Front-End and Back-End

  1. Front-End – This simply means your sales and marketing. What are you doing to generate leads, convert those leads to customers, increase the amount each customer spends with you, increase the number of times those customers come back, and get those customers to tell their friends? That’s a quick summary of the front-end of any business.
  2. Back-End – This is talking about what you do once the sale is made. It includes inventory management, delivery of product, servicing customers, dealing with customer service issues, paying billings, billing customers, collecting payments, leading your service team and everything else that isn’t directly associated with your sales efforts.

So when looking for a business to buy, the ideal situation would be to find one with a strong “Back-end” system but weak “Front-End” system. That means when they make a sale they do so consistently, accurately, and predictably. Every customer knows what to expect. Their inventory is managed well, bills are paid on time, customers are billed accurately, and money is collected efficiently. However the business is not real good at creating or closing leads. It’s even worse at taking advantage of referrals and letting customers know all of the goods and services they offer. They have a great, well-maintained, database of current customers, however they fail to know how to utilize it. Why is this the ideal situation? Because if you’re developing guarantees, Unique Selling Propositions, and other direct and specific marketing to set you apart from your competition, you better be able to back it up. For that reason, if you have a weak back-end that MUST be addressed first. If however you have a strong back-end, the only thing left to do is grow the business through improvements in your front-end sales machine. You can put in less effort building the front-end then the back and reap 2-3 times the reward in less time. It’s very difficult to grow a business while improving the back-end, however the whole point of improving the front-end is to increase sales and profits.

Ok, so let’s get back to a franchise. Why is it helpful to cut your teeth on business with a franchise? Well the reality of business is that it’s impossible to only work on back-end or front-end alone. You’re constantly working on improving both and that’s where a franchise comes in. Generally a franchise, through much testing and measuring, will tell you how to run your back-end very precisely. They’ll tell you what to say, what to wear, how to produce, order, install, and/or service your product. You’ll have a large support system of people to help you address problems when they arise. In other words, most of your back-end is already setup.

Moreover, a good franchise, is also providing the necessary resources for the front-end. They provide marketing materials such as radio and TV ads along with direct mail pieces or newspaper ads. They’ll tell you what to put on sale when and while you’re too busy working on your business to come up with new ideas they’re producing new and exciting products for you to present to your customers. Sure you may pay 2%, 4%, 6%, 8% or more in gross revenue to your franchisor but in most instances that investment in learning is well worth it. And that’s exactly how I would view it – an investment in your education. Where else can you make good money and learn all the ins and outs of a well run organization? In fact, if I had the choice between attending business school or just using that money to buy a well-managed franchised business, I’d buy the business every day of the week. They’ll provide me with the tools and certainly the experiences I need to learn about business. After 4 years of running a business do you think you’d be more prepared for the “real-world” than your counterparts with a business degree?

Obviously, that was a rhetorical question. Their is one last important reason to make your first (and maybe second and third) business(es) franchises – Name Recognition. As Brad Sugars says, the most expensive thing in business is buying your customers. That’s right, your marketing dollars are simply you buying customers. If you’re buying a franchise, someone has already been marketing to your future customers for 10, 20, 40, or 60 years. They know and recognize the name. If you’re buying an established franchise in your area (versus bringing one in for the first time) that investment of someone else into your customers and area will ultimately make your cost for acquiring new customers less. Does that make sense? All well-established, professionaly run franchises will provide that benefit. Don’t underestimate it’s power. In my personal situation, without that name recognition my business would be a LOT smaller then it currently is.

To your success, Bryan