Are You Ready to Try To Take Over the World?

          Before you hire a business coach, you've got to be able to answer one question: 
Are you ready to make a change?
          If you want to leave a legacy, you have to be prepared to answer the tough questions.  Maybe you already own a business, maybe you are just getting one started, or maybe you have an idea for a business cradled in your thoughts.  The first thing I ask when I look at a business plan, or hear an elevator speech, or talk to an owner about their business is:  

"What are you going to do that's different from what you are doing right now?"

          You have a choice, my friend.   You can continue to run your business the same way, with the same tools, and the same people.  Do not make the mistake of expecting different results.  This can be a very comfortable business, with adequate returns and satisfaction with a job well done at the end of each day.  You may even excel at Steady Eddy, and win all sorts of Steady Eddy awards (Best Place to Work, e.g.).    

          Or, you can brace yourself for opportunity, and follow in the footsteps of the Brain, from the cartoon series Pinky and the Brain.  Given the opportunity, the Brain will take a chance, risk everything, and go for broke.  The Brain's entire business model is simple:  Try To Take Over The World.
          If finding yourself in the same place, doing the same thing year after year is not what you want, then be prepared to get hurt, be prepared to be ridiculed, be prepared to give it everything you've got and then, you guessed it, Fail.  
          If you truly want to Try To Take Over The World, you will have to change what you are doing.  You may have to change everything you are doing.  You may have to fire your best employee.  You may have to fire yourself.  You might fire your best employee, then yourself, then discover that the two of you were the only ones keeping your business afloat.  You may have to discontinue production of your favorite, best-selling product.  
          Are you ready to do that?  You might not just lose money, you might run your business right into the ground.  But you will have learned some things.  You will know what not to do next time.  Because you have to want this bad enough to give this answer after failure:  

          The first step is to find someone who is business-savvy, and willing to take the gloves off in evaluating your business.  Face it, the business world is brutal, and mean, and it doesn't care if you tried your best.  Excuses don't feed to the bottom line, results do.  When you find that person, let them in to your business, show them everything, then have them write a Management Letter.  I'm not talking about the letter the auditors give you once a year that kindly mentions "deficiencies" and suggests areas for improvement.  I'm talking about an in-your-face, brutally honest evaluation of your business strengths and weaknesses.
          After you've read the letter, pick yourself up, dust yourself off, wipe the blood off your face; and ask yourself again, are you ready to make a change?  What is your capacity for change?  Are you prepared to get beat up, knocked down, and laughed at?  Are you prepared to sacrifice the very things that you think make you successful (such as your position as leader of your business)?  If your answer is yes - emphatically "yes!"  Then you are ready to transform your business into something more than a living.

"The Brain: Pinky, are you pondering what I'm pondering? 

Pinky: I think so, Brain, but this time, you put the trousers on the chimp."

KPI's for Your Business (and QuickBooks' Company Snapshot)

Running a small business is all about the details.  So much that you can lose sight of the direction your business is taking.  Key Performance Indices (KPI) are a great way for you to see the big picture.  
          Although there are standard KPI's out there for you to use, they can be just about anything, customized to your business.  The trick to making the KPI's significant to you is easy, just follow these steps in making your choice:

1. Use your vision or business plan to focus.  Is customer service your mission?  Choose KPI's that relate to responsiveness, timeliness, and quality of service.
2. Choose 5 or less KPI's to keep an eye on.  Make sure you have one for revenue, one for profitability, and one for cash. 
3. Look at these first, before you look at the rest of your financial statements.  The summary will give you a direction for your review, and you can find answers to your questions.

Quickbooks' Company Snapshot is a ready-made tool that does just that.  Unfortunately, your choices are limited, but there are some good ones in there.  You can program the Snapshot to open on your desktop when you open Quickbooks, which is a good way to get in the habit of checking your company's big picture.

• Open the Company Snapshot (in the bar next to your Home button).  To add content, click the "Add Content" link on the upper left hand side.  You can scroll through the Quickbooks options to select five that work best for you.  
•  I recommend that you use the Income/Expense chart, the A/R Aging report, the Account Balances list, the Vendors to Pay list, and either the Top Customers by Sales or Top Product Sales.  You can arrange these on your desktop by dragging.
• To remove graphs or reports, click the upper right hand "X" and Quickbooks will delete it from your desktop.
• To program Quickbooks to open this report every time you start Quickbooks, with the Company Snapshot open (and no other windows), go to Edit/Preferences/Desktop View and select the Save Current Desktop option.  Click the Save button and you are done!
• There's also a Payments tab at the top of the Snapshot that will take you to another summary screen that is oriented towards receiving customer payments and making vendor payments.  This can be customized similar to the Company page.

There are three other KPI's that I would highly recommend you include at least in your monthly reporting:  Cash Gap, Expenses Per $ Revenue, and Product Margins.

Why Is Growth So Hard?

         Bottlenecks.  We've all encountered them:  in line at the grocery store, waiting to turn left onto a busy street,  at the end of a long day when we just can't get the beer in fast enough.  Even in today's Now-Now-Now environment, these limiters to action are pervasive.   Failing to account for them in business growth planning would be a mistake.

Courtesy of geograph.org.uk via Creative Commons

         Most operations people are familiar with bottlenecks in processes, and with identifying and unblocking them.  However, another place that bottlenecks show up is in growth planning.  As you prepare your company for the new year and you begin developing your goals, be aware that sneaky bottlenecks may limit you.  Look for them in the following places to ensure that you haven't overestimated your growth capacity:

• Suppliers - make sure that your suppliers can support your proposed growth.  If not, make sure that you can find secondary or even tertiary suppliers.
• Customers - evaluate your current customers, and understand their business.  What are your customers' plans for the next year?  What is the market doing, in general and in your specific industry?  You may know intuitively that new business is out there, but how are you going to connect with that business?
• Production - go through you production process and identify the bottlenecks and at what capacity that they become limiting.  What works at this level or sales may begin to unravel at a greater level. 
• Staff - evaluate your current staff's capacity for change, ability to prioritize, and work ethic. Sometimes bottlenecks are hidden in your current staff.  Inefficiencies or inadequacies in your current staff may not surface until the pressure is on. 

         Identifying your potential bottlenecks to growth is just the first step.  Continue the process by determining how you are going to open it up and improve the flow in that area.  Brainstorm with the rest of your company not just the goals, but the path to get there.

What experiences have you had with bottlenecks?  What did you do to overcome them (or have you)?

Reading A Cash Flow Statement

          Ah, the Statement of Cash Flows.  Most out-of-the-box accounting software has one available in the report section.  You may also receive one from your bookkeeper, or your accountant.  It can seem a little cryptic (and maybe even pointless).  In fact, the Statement of Cash Flows is one of the most useful reports a small business owner can have.  While the actual statement may not have answers, it can be used to ask some telling questions.
          There are three sections of the Cash Flows:  operations, investing, and financing.  As the names suggest, each one relates to the business activities.  The SEC has a great document outlining the accounting behind all three of these, so I am not going to go into that.  The general rule is positive numbers mean cash increased in that account, and negative numbers indicate cash decreased (or was used).
          In the Operating section of the cash flows, the main points are:  operating income, or your profitability for the period; changes in receivables; changes in inventory; and changes in payables.  An increase in receivables and inventory will be a use of cash (negative number).  An increase in payables will be a source of cash (effectively, you are borrowing from your suppliers).  While reviewing the accounts, ask yourself the following questions:  

• If the operating income is a negative number, is it attributable to an event, or a trend?
• Are receivables increasing  or decreasing as a result of sales activity, or collection activity?
• Are payables increasing as a result of more purchases, increased costs, or slower payment?
• How does the activity in payables relate to receivables?  Here, you may see an increase in receivables and an increase in payables.  Effectively, your customers are borrowing from you, and you are borrowing from your vendors.
• Is the change in inventory due to quantity or price changes?  Is the change related to the change in sales?  Is the change reflected in the change in payables?

The Investing section of the cash flows primarily relates to assets you've purchased.  The main question to ask here is:  

• Are the asset purchases contributing to profitability (operating income)?

The Financing section of the cash flows relates to money borrowed to run the business.  This money can be in the form of loans, credit cards, or even your own cash (equity).  

• Are the funds used for operations or for investing?  

If the funds are being used for operations, you may want to look further into the company's profitability.  The use of cash in this section (a negative number) should be intentional, such as a loan to purchase machinery.  Unintentional financing, such as a creeping credit card balance, are signs of larger issues.

          Reviewing your Statement of Cash Flows and asking the above questions will help you get a handle on trends in your business, and how your cash is working (or not) for you.  After a few times, you will find that this report is just a meaningful as your income statement.

Mastering Your Cash Cycle - the Next Step

Okay, you have mastered the basics of the cash cycle.  You are collecting like a bunny, paying like a turtle, and sticking to your plan.  You are ready to push the envelope and actually make your money work for you.  By following the steps below, you can actually make $1 in revenue equal to more than one dollar.  This works for your business, and your personal finances.

1.)  Deposit your money as you receive it directly into an interest-bearing account.  To start with, keep it simple and use a savings account.  The interest on those isn't the greatest, but the cash is available to use as you need it.  

2.)  Pay your bills with a credit card or line-of-credit.  A line-of-credit is preferred, but a credit card with a limit equal to one month's budget is okay.  In calculating your monthly budget, subtract the bills that you have to pay for by check.  The credit card or line-of-credit provides a limit on monthly spending, and you can easily check your progress by checking your balance.


3.)  Pay off the balance on your credit card or line-of-credit monthly, before interest accrues.  This piece is key, so I will repeat:  do not allow the lending account to carry a balance.  If you spend more than you make you are starting on a downward spiral that can be very hard to overcome.

Voila, your cash earned interest in your savings account during the 30-day cycle that you borrowed from your credit card or loan.  

www.mint.com/how-it-works

A very good tool to use is the free online finance software, Mint by Intuit.  With a few easy steps, you can enter all of your accounts, which Mint will update with transactions for you.  There's a budget that's very easy to use, and there's also an overview screen that shows your cash balance and budget activity at a glance.  They even have an app so you can update and check any time, anywhere.


The cash cyle is a business process that most of us don't consciously think about.  By making a plan for the flow of cash, we can take our company's cash position from a passive result of business to an active participant in profits.

Mastering Your Cash Cycle, the Basics

          Cash is an elusive small business tool.  One minute it's there, the next it's gone.  First you have none, then you have some, then someone else has yours.  The trick to keeping cash around is not what you think.  Okay, yes, putting it in savings and never, ever taking it out is a great idea, but not very practical.  Below are three (more practical) ways to keep cash working for you.

1.)  Collect like a bunny.  Collect your sales receivables at or before terms.  To do this, implement a collection process (habit) to train your customers to pay on time.  One or two months of reminders and your customers will pay on time.  A good collection process is to send a reminder (by email preferably) when the bill is 1 to 5 days past due.  A phone call at 10 to 15 days past due will motivate your customers to pay on time in the future.

Courtesy of flickr.com via Creative Commons

2.)  Pay like a turtle.  Pay your suppliers and vendors as far after terms as possible.  Unless you receive a discount for paying early or there's a penalty for paying late, never pay early or on time.  If possible, negotiate with your vendors to provide an early payment discount and terms that are longer than the ones you extend your customers.

3.)  Plan your spending, then stick to it.  Sit down and review your budget and plan your bill payments for a minimum of three months at a time.  Do this only once a month, if possible.   By looking at your cash position once a month, you are able to see the big picture, which helps you to make smart spending decisions.  Having a plan also reduces your stress, and limits the stressful process to monthly, rather than daily.

If you follow these three steps, your cash can work for you.  You can extend your cash cycle, giving your business the opportunity to invest the money.