Tag Archive for 'financial fundamentals'

Sustained small business success requires two kinds of passion

Over the years, as I’ve talked with many a budding entrepreneur about to start their business, it continues to amaze me how many haven’t conducted anywhere close to a prudent amount of research or due diligence on their baby. Indeed, they often act as if they must get their business going … right … now … or … they … will … just … POP!
This kind of impatience is dangerous.
Doing my best to talk them down off the ledge, I walk the fine line of tough love, between slowing them down to the speed of reason and smacking their entrepreneurial passion into a wall.
When would-be small business owners get that far away look in their eyes at this impetuous stage, they have plenty of passion for what the business does. They can’t wait to sell suits, manufacture plastic parts, bake bagels, or (your baby here). And passion for what they want to do is not only a good thing, it’s essential.
But without a healthy interest in - if not an attraction for - business fundamentals, passion has only slightly more value than a dream. In truth, if the balance between your baby and operating fundamentals gets out of whack, that’s when your dream becomes your nightmare. Trust me. I’ve had to make payments on one or two of my nightmares, after the thrill was gone.
This will be on the test: Success as a small business owner requires two kinds of passion:
  1. The love of what you want to do - your baby. If you haven’t been a mother, this is akin to how a mother loves her newborn, and it’s the easy kind. Spoiler alert!  It’s too easy.
  2. This kind of small business passion is less adorable, but in no way less important. This is passion for becoming an operating professional. It makes you dedicated to learning and practicing management fundamentals. If done right, you’ll actually acquire a peaceful acceptance of a return-on-investment timeline that pushes the deferred gratification envelope beyond what you ever thought possible, let alone acceptable.
See, I told you it was less adorable. The closest kin to this kind of passion is that which is required for parents to love their teenagers - during those times when you don’t like them very much, but you still love them … anyway.
It’s critical for a starry-eyed startup to distinguish between, and be dedicated to both passions, because passion for what you sell won’t be enough when:
  • Payables exceed receivables
  • You’re making payroll and there isn’t enough cash because you didn’t manage the cash (”Is it Friday already?!”)
  • When customers are the most difficult
  • When an employee becomes part of the problem
  • When your bank loan request must have current financial statements, including a 12-month cash flow projection showing how the bank will be repaid
  • Your operating derailment here
Brace yourself! This list is like a “What’s inside!” teaser on the cover of a very thick catalog of abiding small business operating challenges. Fending them off will require you to deliver on the management fundamentals you became good at because you had that second kind of passion: you became a high-performing, professional business owner, not just someone who dreamed of being one. You were passionate about what you do, and just as passionate about how you do it.
Write this on a rock … Sustained business success - year after year - requires passion for what you do, AND for how you do it.

10 reasons to never be too cool for Old School

You may think you’re too cool for “Old School,” but there’s one thing it produced that you can’t be successful without: the fundamentals. Here are ten essential operating fundamentals that are timelessly, beautifully, definitively, non-negotiably, Old School.

Financial statements: Become an expert at understanding your financial statements. Spend more time with the numbers below the sales line on your operating statement. Non-negotiable.

Budgets: Yuck, right? But operations work best with a track to run on. Creating budgets isn’t hard – sticking to them is. Grow some discipline and get on track.

Cash management: Whether sales are up or down, you must be intimately familiar with your cash picture today, tomorrow, and six months from now. Do not delegate this.

Inventory: This is a euphemism for cash. Inventory that isn’t turning is declining in value and must be converted into cash – ASAP. And if you aren’t practicing Just-In-Time inventory management, do it now.

Vendors: Their success depends on yours. Talk to them about managing inventory, improving margins, lowering freight costs, and new ways to serve customers. Get rid of any vendor that only wants to sell you stuff.

Systems: These are the structured components in your operation which may be outdated and unproductive. Scrutinize employee schedules, delivery routes, opening hours, (your idea here). Nothing is sacred! Nothing.

Customers: Categorize them from the most profitable As, to the least profitable Ds. Worship the As, cater to the Bs, encourage the Cs, and let the Ds learn the meaning of self-service. You might even have to fire a few.

Products: Same song, different verse: A-B-C-D. Stock the fast-turning As, keep some of the Bs handy, and only a couple of the Cs. But never let a D spend the night under your roof unless a customer has paid for it.

Add Value: Find out what customers want instead of trying to get them to take what you need to sell. If you don’t add value to your customers’ operations, like your unhelpful vendors, expect to be fired.

Employees: Let them help you find efficiencies and opportunities. Encourage creativity and entrepreneurial thinking. Invest in training. Share your plan and let them help you accomplish it. Empower producers and cut the dead wood.

Bankers: Don’t be a stranger. Good news or bad, an informed banker can help you. But an uninformed banker is a scared banker, and no one ever got any help from a scared banker!
Focus on these Old School fundamentals and success will come and play in the New School backyard.

Write this on a rock … Even if you’re too cool for Old School, you still have to focus on the fundamentals.

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




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