Be an Ethical Entrepreneur, Marketer, and Business Builder

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

November 14, 2009 by Leave a Comment

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

Filed Under: General Business, Team Building Tagged With: , , , , , ,

How to fix your business FAST – Part 2 – Know your numbers!

November 11, 2009 by 2 Comments

The world lives and dies by numbers. Granted I am an engineer by education so I may be a little bias…

Even more importantly, the world gets answers to questions by the correct numbers. If you’re looking at the wrong numbers, you’re never getting answers to your questions. Let me give you a quick analogy. In the world of internal combustion engine building we’re all looking for a few major numbers – namely horsepower and torque. So we hook an engine up to a dynamometer (a device that measures the power output of an engine) and now we know the horsepower and torque numbers. So what? How do I improve those? Well to do that you have to look at a lot of other numbers such as bore and stroke, number of cylinders, 2 or 4-strokes per cycle, manifold pressure, air-to-fuel ratios, cam lift and duration, ignition timing… And the list goes on and on and on… Without knowing how that engine is currently configured, I can’t possibly tell you what to “fix” to help it make more power.

Your business has 3 “big” numbers, they are # of customers, revenue and profit.  Those are your horsepower and torque. All they tell you is where you’re at right at this moment. They don’t tell me how we got there or how we’re going to make more power (profit) the next time around. Even if you don’t know a single thing about engines, I’m hoping that analogy makes sense. The bottom line is, you have to know your numbers and they have to be the CORRECT numbers.

Let’s break your numbers down into a few basic categories (you’ll notice these are the same as I reference when talking about the 3 leaders every business needs):

  1. Finance/Accounting
  2. Sales/Marketing
  3. Service/Operations

Finance/Accounting – These are the numbers you get from your bookkeeper.

  1. Profit & Loss
  2. Balance Sheet
  3. Current Receivables (along with the aging)
  4. Current Payables (along with the aging)
  5. Cash in the bank

These are the numbers that provide questions, but no answers. Your bookkeeper only knows enough to start asking a few questions. Things like,

  • “I see you spent $40,000 last year on marketing, what was your return on that?”
  • “Your cell phone bills average $115/person, have you shopped around for a cheaper plan?”
  • “You have $6,000/year in Meals & Entertainment, is that necessary or can that be cut back?”
  • “It appears that sales are down 20% but costs are only down 10%, why is that?”
  • “15% of your receivables are more than 60 days past due, what are you doing to collect money?”

As you can see, none of the reports under Finance/Accounting provide any answers except maybe to the question, “Do we have enough money to cover next payroll?” That doesn’t mean we don’t look at these numbers because this is where we measure the results. If we add a turbocharger to an engine, ultimately we want to see that reflected in higher horsepower and torque. The same is true for your business.

To start answering the questions about why your business has less customers, less revenues, and less profits, you need to use Brad Sugar’s business chassis. Buy his book Instant Cashflow, learn the chassis, and use it. You can also learn about the business chassis on Brad’s blog.

Sales/Marketing – Now we’re getting into the fun stuff. Here’s a quick list of the numbers you should know in this realm:

  1. Number of New Leads (daily or weekly, though some establishments will even look at this by the hour of day)
  2. Conversion Rate (i.e. the % of leads who become customers)
  3. Number of New Customers (how many people have bought from you?)
  4. Average Dollar Sale (revenue/total # of transactions)
  5. Average # of Times a Customer Purchases from you Each Year (total # of transactions/total number of customers)
  6. Cost per Lead (for each marketing project)
  7. Cost per Sale (for each marketing project)

Do you see where we’re going with this? If our sales are down, now I can pinpoint if it’s because we’re getting less leads, converting less leads to customers, selling a lower dollar amount per transaction, and/or because our customers aren’t coming back as often. Now we’re getting somewhere! With these numbers you’ll even be able to pinpoint that you’re getting less leads because that radio ad you started 6 months ago is no longer making the phone ring. In the next few blogs, when I get to the step about Improving Marketing and Sales, we’ll look at specific ways to improve each of the numbers above.

Service/Operations – This is your back-end. Once you’ve sold a product, this is how you deliver it, service it, restock inventory, order more inventory, schedule service, and everything else that’s in essence “behind the scenes”. The important numbers for Service/Operations can vary quite a bit from industry to industry however the concepts are the same so make the proper adjustments for your industry.

  1. Profit per income generating person – this could be per plumber, electrician, waitress, sales associate, barista or anything else. If a person on your team has the ability to generate income, you need to know this number.
  2. Income per income generating person – this is important because often these individuals have more control over the income they generate than the costs they incur. That doesn’t mean their choices don’t affect the costs of the business, I’m just saying that a plumber can’t much affect the cost of gas or the distance to his job or the markup for parts or the hourly rate.
  3. Turn-over – how long does it take between buying something for inventory and selling it. Car dealerships look at “average days on lot”, retail stores look at “average day on shelves”, service-based businesses might look at “number of days from inquiry to finished service.”
  4. Profit-margins – In other words, the mark-up of each product or service. If you’re a service-based business you need to determine the cost/hour for your billable people to determine your profit-margins.
  5. Customer Complaints – You might be surprised how close your customer complaints as a % of customers served mimics your net profits.
  6. Uncompleted Work – For retail or restaurant style businesses you don’t really have an equivalent for this. People walk into your business, they buy something, you provide it immediately, and your work is done. For service-based businesses, however, this information is crucial. If work isn’t getting done, or you’re getting behind, or customers aren’t being notified of delays, you’re going to have problems. You need to know how many outstanding work orders, quotes, and return phone calls are out there so they don’t ever slip through the cracks.
  7. Free Work – This means you screwed up an order and gave someone a free meal, or a free hour of labor, or a free part, or a free legal consultation, or you had to go back to their home or business to fix a problem you didn’t fix the first time. You screwed up and had to make amends and the cheapest way to do so was to do it for free.
  8. Daily, Weekly, and Monthly Break-Even – In other words, do you know exactly how much you need to sell today, this week, and this month to break-even. Some businesses will even break this down to per shift if there are multiple shifts within a day.
  9. Lost Customers – Since my blogs have talked quite a bit about recurring revenue, you need to have a very close watch over your recurring revenue customers. If one of them calls to cancel services, you better have someone trained to try and save that account. This is almost impossible to track if you have a retail style business.

Those are your numbers. Obviously there can be more, however those are the most universal and the ones I’d look at for just about every business from a law firm to a candy store to a hospital.

To your “number-knowing” success, Bryan

P.S. If you’re wondering how you track all of these numbers, the simple answer is with industry-specific software. If you don’t have any, make it a priority to purchase or lease some right away.

Filed Under: Business Accounting, Business Books, Business Buying/Selling Tagged With: , , , , , ,

How to fix your business FAST – Part 1

November 10, 2009 by Leave a Comment

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

Filed Under: Business Buying/Selling, General Business Tagged With: , , ,

Nearly half of Americans think 2008 will go down as one of the worst years in American history…

December 13, 2008 by 2 Comments

Wow. Were the past 12 months that bad for you?

As I was reading the Wall Street Journal on my Kindle this week I came across an article that references a Wall Street Journal/NBC news poll indicating that nearly half of the people surveyed think 2008 will go down as one of the worst years in US history. Since 90% of the respondents indicated that the economy has gotten worse in the last 12 months I’m going to assume that’s the primary reason everyone hates 2008. I must say, as a young entrepreneur who has put everything on the line to buy a small business and move across the country 8 months ago, I’m a bit shocked…

Here’s why I’m a bit shocked that people think things are so horrible:

  • I sold my house in Pennsylvania in about 3 months at a profit when I’d only purchased it 24 months earlier.
  • I easily got financing (at 95%) for my new place in New Mexico.
  • I’ve secured several commercial bank loans and still have access to low interest credit.
  • My business is about to have the highest grossing year of revenue in its 60 year history.
  • We’ve hired 3 new people this year and anticipate more growth in the next 12 months.
  • I bought and resold a motorcycle in less than 2 months at 30% profit this summer.
  • My personal net worth has increased more in the last 8 months then it has during the previous 25 years of my life.

Now the news isn’t all rosy:

  • At last count my stocks, mutual funds, etc. are down about 33% this year. However that doesn’t really bother me since most of my money is invested in other areas. Now I have an amazing opportunity to increase my stock holdings and take advantage of severely discounted businesses on the stock exchange.
  • I haven’t been able to sell my sports car. It’s a 2006 G35 coupe. Bright red. Not exactly the vehicle people “hunkering down” for a depression would be buying.
  • My debt has increased more in the last 8 months then it has during the previous 25 years of my life. However, the right kind of debt isn’t bad as long as it’s used for assets and they are appreciating.

So what does this all mean to you? It’s very simple, are you bracing for a recession, depression, or worse? OR are you finding the opportunities that are now greater than ever out there.

Right now you can buy businesses, houses, stocks and mutual funds cheaper than probably in the last 20 years. Particularly with the housing market, if you have good credit, with the tightening restrictions on lending, guess what’s going to happen? More people are going to have to rent. Housing prices are down and rental prices are going to start going up (rental rates don’t seem to have changed much in my area yet). Is there a more perfect formula for residual income and profiting from rental properties then that???

As Brad Sugars pointed out recently – In Las Vegas, where the housing market has been particularly hard hit, he talked to a realtor who said he’s getting killed because no one is buying anything. Shortly thereafter he spoke with another realtor who said he has more work then he knows what to do with. With all of the foreclosures, banks are scrambling for good realtors to sell for them.

Which guy or gal are you? Is it all doom and gloom or are you picking out the opportunities that are abound?

The possibilities that are created in 2008 may be the ones that allows you and I to create more wealth more quickly than ever before. And what’s the worst that can happen? You could buy a business and fail? You could buy a stock that goes bankrupt and lose your investment? You could buy a rental property that doesn’t get rented out? Well, here are a few quick ways to minimize the chance of any of those things happening.

  1. Buy a business – Make sure it’s a staple that everyone will need no matter what’s going on in the economy. If you have few or no competitors, even better. If you already own your business, buy your competitors and/or complementary businesses that can benefit from your current facilities and customer list to spread overhead between several entities keeping costs low. What’s your company’s niche??? The most important part is the PURCHASE PRICE. Buy it cheap. Make sure you tell the seller that the economy is horrible and they better take your offer while it’s still on the table. 😉
  2. Buy a house – If you’re looking for a rental property and you’re not too worried about tax deductions, single-family dwellings are always the best to start out with. Young families and couples are abound so there’s always a need. And with the current credit markets those people will need to rent. Keep in mind, just like with a business, what’s unique about your property that will make people want to stay there? Again, the purchase price is the most important part. If you can keep your costs down with a low mortgage then your profits will be that much better. Make sure you tell the seller that the economy is horrible and they better take your offer while it’s still on the table. 😉
  3. Buy stocks – I’m not a big fan of mutual funds. I bought my first one when I was 14 and never had great success. In essence you’re paying extra to have someone pick stocks for you and put them in a nice, neat little package. Do your homework. Learn about the stock market and particularly business valuation. Read The Warren Buffett Way. Buy stocks that have more cash on hand then their current market capitalization and also have strong cashflow. If you want to be even safer, invest in ones that are still paying a dividend. Historically they generally fair the best.

Consider this for a minute – retail sales after Thanksgiving this year are up 7% over last year! That’s right, last year when the stock market was soaring and everyone was making money and unemployment was low we bought less stuff at Christmas sales then we did in this recessed year of 2008…  Hmmm… are you seeing the opportunities yet?

Don’t be that guy who remembers when Buffalo Wild Wings and Netflix were trading for $21/share and if you’d have only put a few bucks into those stocks you’d be rich now… If you still think I’m a bit “off”, since the sky is obviously falling, check out what the greatest investor in the world, Warren Buffet, thinks about the economy.

To your success in making 2009 your most profitable year yet, Bryan

Filed Under: General Business Tagged With: , , , , , , , ,