Tag Archive for 'Management Fundamentals'

Diaper Changing Stuff (DCS): Five critical questions for startups and veterans

Small business owners have to deal with two universes every day: the Marketplace, and what I call, the Diaper Changing Stuff (DCS).

The Marketplace is the fun place, where you buy and sell stuff. Playing in the backyard of this universe is why you became a business owner in the first place. And the good news is, most entrepreneurs are pretty good at the rules and expectations of this universe before they start their business.

The DCS represents mostly backroom, operating tasks (read: not much fun) that have to be done in order to present the business and its products to the Marketplace – accounting, cash management, banking, capital allocation, payroll, regulations – you get the picture. Just as no one has a baby because they like changing diapers, no one ever went into business because they’re passionate about inventory management or accounts payable. And yet, those tasks are as critical as the fun ones.

If you’re thinking of starting a business, don’t do it until you’ve compared my quick DCS checklist to your abilities. If you’re a business veteran, road test your DCS skills against this list to see where you might need improvement.

1. Cash and accounting

Do you know the difference between cash and accounting? Gain this understanding before you hock the house to start your business, because it’s the most imperative financial dynamic you’ll face every day. In fact, it’s the number one business issue that will wake you up at 2am. Remember, you can’t make payroll with a debit or a credit.

2. Capital allocation

Do you know how to properly allocate operating and non-operating capital? Don’t use operating cash to buy long-term assets, or borrow money to operate on. Create a capital source and allocation strategy before you crank up your corporation.

3. Banking

Do you know how to talk banker? If you need a loan, can you explain what you’re going to accomplish with the money, AND how you’re going to pay the bank back? If you make a loan request without this information, you’ll just burn a banking bridge. Bankers are easily frightened, and no one ever got a loan from a scared banker.

4. A/R Days – A/P Days

Do you understand the relationship between Accounts Receivable Days and Accounts Payable Days? If you extend credit to customers, you have to fund those accounts until they’re received, which is usually later than when you have to pay vendors. If you’re not tracking this relationship, you could literally succeed yourself out of business. And the first indication you’re in jeopardy will be a call from your banker telling you to make a deposit, or a vendor putting you on C.O.D. Sometimes these calls come in at the same time.

5. Quality Process

Do you know the difference between Quality Service (QS) and Quality Process (QP)? QS is always making the customer happy, no matter how many times it takes to get it right. QP means getting it right the first time. QS is an expense you have to pay for over and over. Having a QP is an investment in excellence that stops the bleeding and moves customers from complaining to placing new orders and referring you to their friends.

Bonus question: Can you operate the business you had the entrepreneurial vision to create? Not everyone can. Don’t start your business unless you’re ready to change the diapers on your baby.

Write this on a rock … Blasingame’s Fourth Law of Small Business: “Successful small business owners have the spirit of an entrepreneur and the heart of an operator.”

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.

Do you value your soybeans more than your time?

Ever think about time as a commodity? Commodity: something in common use, readily available and virtually the same wherever you find it.

Time certainly fits that definition, doesn’t it? But so does a soybean.

Time may be the only commodity we haven’t synthesized. Until we do, it will continue to be unique among commodities and, consequently, our most valuable. And yet, as precious as time is, it’s an expensive irony that it’s the commodity we often waste the most, sometimes as if it were worth nothing. Meanwhile, we take extreme measures to protect every soybean.

So, what’s the solution? Organization – it’s the nexus between time and productivity.

We commit resources to acquire all kinds of stuff – information, materials, etc. – with the intention of accomplishing something, like a bid or a marketing project, which typically will need to happen within a predetermined period of time. But whether it happens as planned — including on-time —often depends more on how organized we are than our capability, or the information and resources we’ve acquired.

If someone stole your new $2000 computer, you would have them arrested. But how often has being unorganized cost you more than $2000 in an unsuccessful bid, loss of a contract or other opportunity? In the justice system of the marketplace, that’s the same as being arrested, indicted, tried, convicted and sentenced to some level of failure. So what does your organization “record” look like?

But let’s cut ourselves a little slack. It’s not easy for a small business to be organized when you have one person doing the work of three, or 25 doing the work of 40. Such ratios are one of the markers of a small business – doing more with less – especially these days. Consequently, a large project can be so intimidating that it creates the dread disease that’s worse than anything your soybeans could get: procrastination.

Professional organizers say cure procrastination with one critical practice: Break large projects into an assembly of smaller ones. Instead of thinking about a large project like it’s an elephant you have to eat all at once, split it into an assembly of smaller pieces and take them on one at a time.

How small is small? How about small enough to complete while you’re waiting on hold? Not with the IRS. Much shorter, like with a customer.

Break big projects into bite-size pieces to help you work smarter, not harder; increase your competitive advantage; and use that most precious commodity - time - more efficiently.

Write this on a rock … Value your time like you’d value a load of soybeans.

Small Business Lessons from Jeff Foxworthy

Have you seen the classic Jeff Foxworthy act?

You know, the one where he says, “If you have more than one car jacked up in your front yard, you might be a redneck.”

Foxworthy got rich with this comedic routine. And you can benefit from this cause-and-effect logic too, if you apply it to your small business.

Let’s use Foxworthy’s shtick to deliver and emphasize a few small business survival punch lines. But in this application, if you resemble too many of these one-liners, not only will you not get rich, your business might not make it.

· If the gloom-and-doom you’re hearing in the media has you holed-up inside the four walls of your business instead of getting out into the marketplace where customers are buying, you might not make it. Listen more to customers, and less to the media.

· If your budget cuts included wiping out your marketing plan, you might not make it. Make appropriate adjustments to your marketing plan, but don’t wipe out the budget.

· If you don’t have a website, you might not make it. If you have a phone number, you MUST have a website.

· If you don’t have a mobile website, you might not make it. More prospects want to reach you on their smartphone - make it easy for them with a mobile site.

· If you’re a retail business and you don’t have a local search strategy, you might not make it. Turn over every rock for business by maximizing your mobile search presence.

· If you sell to businesses and are still making cold calls, you might not make it. Business prospects expect you to get to know them, not drop in on them.

· If you’re spending more time worrying about what the competition is doing instead of asking customers what they want, you might not make it. Followers worry about the competition - leaders stay close to customers.

· If you don’t know what your monthly expenses are – every month, you might not make it. Don’t you know how much it takes to run your household every month?

· If you don’t know how much gross profit your operation must produce every month in order to cover expenses, you might not make it. You wouldn’t drive down a dark road without turning on your headlights, would you?

· If you don’t know how much sales revenue it takes to produce that monthly gross profit, you might not make it. This is the difference between working hard and working smart.

· If you don’t manage accounts receivable collections so there is enough cash to cover your current obligations, like payroll, you might not make it. It’s possible to operate without making a profit for a long time, but you can only operate without cash until your next payroll.

· If you haven’t prepared for customers on your accounts receivable list to take longer to pay over the next few months, you might not make it. You have to expect your business customers to have a tight cash picture too - have a Plan B for cash.

· If you haven’t developed a close relationship with a bank that makes loan decisions locally, you might not make it. For long-term survival, every small business must have a relationship with an independent community bank.

· If you aren’t managing cash flow with a 12-month cash flow projection – preferably electronically, like an Excel file – so you know the months you’ll need extra cash before you get there, you might not make it. I don’t know how any small business can operate safely without managing cash with a 12-month projection. It’s my most important management tool.

· It’s okay to fall in love with what you do, but if you fall in love with how you do it, you might not make it. What you sell may never go out of style, but how customers want to buy it, take delivery of it, and sue it is changing all the time.

Who knew Jeff Foxworthy could be so useful?

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If you want to hear more about small business lessons from Jeff Foxworthy, click on the links below to download or listen.

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A Small Business Minute: Build your small business on trust

Trust in a small business is not a means to an end, it must be an organizational way of life. Watch this one minute video on how to build trust in your organization.

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Three myths small business owners tell themselves

Want to be your own boss? Good for you. But that’s the definition of someone who is independently wealthy, not a small business owner. When you own a small business, you’ll have many more bosses than when you were an employee.

Are passion and persistence enough to succeed as a small business owner? Clearly, they’re important, but what about those difficult days – when payables exceed receivables, on payroll Friday, when customers are the most difficult, when an employee becomes part of the problem? You’re going to need more than passion – you’re going to need management fundamentals

Do you think a business plan is passé? Well, if you think a business plan is just something to write down, print out and put on a shelf, don’t waste your time. But if you understand that a business plan you create, organize and use as a critical management tool, then it’s becomes passé on the day that success becomes passé.

Recently, on my radio program, The Small Business Advocate Show, I talked about these three topics, with one of the founding members of my Brain Trust, Tim Berry. Tim is the world’s guru on business planning and the founder of Palo Alto Software, the makers of Business Plan Pro.

Each of these “myths,” as Tim calls them is in its own short podcast, so you can listen to each topic separately. I hope you’ll take a few minutes to listen and learn. And of course, please lever your own comments.

Myth 1: You can be your own boss

Myth 2: Passion and persistence are enough

Myth 3: A business plan is no longer necessary




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