Archive for the 'Cashflow - Credit - Collections' Category

Blasingame’s Law of Sales Pipelines

Here’s a sales maxim: Selling is a numbers game. Even though there are a thousand things that could prevent a sale from being completed, it’s still your job as a small business owner to close enough sales to keep your doors open. Enter Blasingame’s Law of Sales Pipelines.

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6 steps that can make a banker your champion

At some point in your career as a business owner, you’ll need a business loan; probably from a bank, but perhaps from a non-traditional source, like a crowdfunding lending platform. Allow me to help maximize your chances of getting the loan by introducing you to the fundamental underwriting elements any lender will use when considering your loan proposal. Meet the “Six Cs Of Credit.”

1. Character – What’s the character of the borrower? To a community bank, character still means a lot. For larger banks, digital credit scoring dominates the approval process and this “C” is less compelling as an analog factor. Regardless, the appraisal of your character will always impact the loan approval process. Guard it well.

2. Capacity – What’s the ability (read: cash flow) of the company to repay the loan? A banker once told me if he could see only one loan proposal document he would ask for the projection of cash flows, because that’s where he could see if there would be enough cash to repay the loan. Remember, profit is an accounting concept. Bank payments are made with cash, not concepts.

3. Capital - Is the loan amount justified by the financial strength of the borrower? For example, sales volume, profitability, CASH FLOW, retained earnings, the underlying value of the asset being purchased, etc. If you’re unsure about your capital appraisal, take your banker to lunch and talk about it.

4. Collateral - This is the bank’s fall-back position. Collateral is whatever a banker can get you to pledge as their Plan B in case you default. But remember: Once you give a banker collateral, getting a partial released prior to payoff is like getting a she-bear to hand over her cub.

5. Coverage - Bankers are prepared to take certain risks, and the interest rate and terms are based on the level of risk with which they feel comfortable. When possible, banks look for opportunities to shed or minimize that risk, like various kinds of insurance products. Be prepared.

6. Conditions - Bankers ask themselves, “Does it work? Do we like this deal?” You can improve your chances by explaining how you’ll use the money, how it will help you grow your business, create more jobs, strengthen your market position, make more money, etc. Practice your pitch on someone before you go “live” with your banker(s). If a banker doesn’t understand your deal and how you’re going to make it work, you won’t get the loan.

The title of the shortest book in the world is “Loan Officer Courage.” Help a bank become your champion by showing you understand and support their underwriting process.

Write this on a rock … Improve your loan chances by understanding the Six Cs of Credit.

11 financial fundamentals every small business CEO must know

Regardless of the size of the business, ultimate responsibility for success lies with the CEO. If you’re a small business owner, that’s you. And the most critical CEO tasks that result in success or failure lie in the knowledge and practice of financial management fundamentals.

Statistics show that over half of small businesses fail within the first four years. Clearly that mortality could be significantly reduced if, before a business opened, the founder/CEO was required to pass a course that teaches business financial fundamentals and how to operate a business with them.

If you could use a little help in this area, allow me to identify some of the key elements that would be part of the curriculum of such a course.

-  CEOs shouldn’t do their own accounting, but successful ones learn how to manage with regular (at least quarterly) financial statements (balance sheet and profit-and-loss) that an internal and/or external accountant produced.

-  Successful CEOs know what their gross profit margin needs to be and what it is.

-  Smart CEOs track monthly sales-to-expense ratios in order to know when to adjust spending.

-  Savvy CEOs monitor inventory levels against projected sales, receivables and cash.

-  Real CEOs know how to calculate Accounts Receivable days and Accounts Payable days, understand the relationship between the two, and the impact of that relationship on cash.

-  Disciplined CEOs develop a capitalization strategy that blends retained earnings with short and long-term capital sources, like bank debt.

-  Capable CEOs identify the critical financial indicators and ratios that are revealed on the balance sheet and its relationship with the profit-and-loss statement.

-  Surviving CEOs believe and prepare for the cruel irony of how sales growth becomes dangerous when not properly funded, indeed, that you can succeed yourself out of business.

-  When a business isn’t profitable, professional CEOs identify the top impediments to profitability and deal with them quickly, decisively, and without emotion.

-  Perennially successful CEOs delegate many things well, but they stay close to the company’s cash picture from tomorrow to the next 12 months.

And finally, arguably the most important financial management CEO discipline:

-  Understand and monitor the relationship between Blasingame’s Three Clocks of Small Business: The Expense Clock, the Sales Clock and the Cash Clock.

If you already own a small business and cold sweat is popping out on your forehead right now that should motivate you to kick your financial education into high gear and become an expert on these fundamentals.

If you haven’t started your business yet, don’t until you can pass this course.

Write this on a rock … The ultimate responsibility for your business’s financial performance belongs to the CEO - that’s you.

To listen to Jim talk more about the 11 financial fundamentals for CEOs, click on one of the links below:

6 financial fundamentals every small business owner must know

5 of the 11 most important small business financial fundamentals

Poll Results: Your small business performance in 2015 and expectations for 2016

The Question:
How did your business do in 2015 and what are you expecting for 2016?

31% - We had a good 2015 and it looks like 2016 will be just as good.
24% - We had a good 2015 but are less optimistic about 2016.
24% - We did not have a good 2015 but are more optimistic about 2016.
21% - We didn’t have a good 2015, and it doesn’t look like 2016 will be better.

Jim’s Comments:
For the seventh year in a row, the yeas and the nays about the economy haven’t changed that much. It’s worth noting that we haven’t seen a double positive response at almost a third in a long time. And when the two 2016 positives are combined, that creates a 55% response, which is stronger than we’ve seen lately.

I’m attributing the slight positive increase to businesses being more financially solid than in the past. As I’ve said many times before, it would be difficult for any business to survive this long in this kind of economic environment without operating in a very parsimonious, and therefore profitable way.

For my part, I’m looking forward to an economic environment where more than 55% of small businesses are optimistic about the new year. How about you?

Thanks for your abiding support of our poll each week. To participate in this week’s poll on gas prices, click here.

Selling services? Think price not wages

Millions of small businesses sell personal services like consulting, website development, or janitorial services, instead of something tangible like a computer or a kumquat.

Unfortunately, pricing a service is not as intuitive as a tangible product. Consequently, service businesses too often don’t charge enough to sustain themselves profitably.

Recently I received a question from one of these owners about how to price the services of their new cleaning business. Perhaps my answer to them will help you.

Don’t make the professionally fatal mistake of comparing what you charge customers to deliver a service to how much you would expect to make as an employee. Doing so, to paraphrase Mark Twain, is like comparing lightning to a lightning bug. You have to think pricing, not wages. Here’s why:

1.  You’re a business now, which means you have price lists, not wage lists. And you collect revenue, which has to produce the gross profit to cover all expenses, including the salaries of the owners.

2.  If you have no employees you’ll work more hours in a month than you can bill for, like time spent on marketing, selling and administrative tasks. Consequently, your business must collect enough revenue to cover the time and expenses of performing or outsourcing those tasks.

3.  Until you have employees, you’re a 100% extension of yourself, which means your only revenue leverage is the hours you can bill multiplied by your hourly rate.

CC photo via Pixabay

CC photo via Pixabay

Use this pricing logic to get you started: Determine all monthly expenses, including paying yourself as an employee. If you’re home-based include a reasonable office overhead factor and don’t forget payroll taxes. Then, divide that total by the number of billable hours you have the capacity to perform in a month (not the hours you actually perform). That quotient is your breakeven rate.

But in order to sustain your business long-term, you have to make a profit, so the rate you charge customers is somewhere between breakeven and the impact of three more factors:

1. What the market will bear (competitive pressure)

2. How much you need the sale (badly at first)

3. The commitment a customer is making to you (customers who sign annual contracts get discounts)

This method should cover most variables you’ll face when proposing to a prospect. Plus it will help you see the negative impact when you deliver less than capacity, or the dynamic effect of adding employees.

Write this on a rock … When selling services think pricing, not wages.

Jim Blasingame is the author of the award-winning book, “The Age of the Customer: Prepare for the Moment of Relevance.”

RESULTS: How is your business tracking in the 4th quarter?

The Question:

With one month to go, how is your business tracking in the 4th quarter?

15% - Way ahead of last year’s sales or budget
46% - A little bit better that last year
18% - About the same as last year
21% - Worse that last year
Jim’s Comments:
When we asked a similar question in early September, 65% of you said things were trending well for the end of the year. As you can see, our new poll question on the economy prompted just short of that response, at 61%.  And just as we’ve seen for almost six years, about one-fifth of small businesses are still struggling.
There are two things that might be making the economy trend upward:

1. Republicans will be in control of both houses of Congress for the next two years. Most people who make payroll consider a GOP-led Congress to be an improvement if for no other reason than they’re not anti-business.

2. Gas prices are down almost a dollar from a year ago. That’s like a huge tax cut for the folks on both sides of the cash register.

Here’s hoping the winter isn’t too bad and we can carry some momentum into next year.

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