Be an Ethical Entrepreneur, Marketer, and Business Builder

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.Β  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

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 quiteΒ  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. πŸ™‚

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! πŸ˜›

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. πŸ˜€

To your success, Bryan