For over 25 years, I’ve been working with business owners who want to consistently improve the performance of their business.  In that time frame, there have been some pretty amazing success stories: companies seeing 30% compounded revenue growth, profit dramatically improving, and the owners taking home real money.  In looking back at the results, 19 of my clients have passed through the magic $1,000,000 personal net worth mark, due to the success of the cash flow of their business.

Whether you have a small, mid-sized, or large company, here are five tips that will help you be better and make more money:

1. Dominate your market.  Find an underlying advantage that will propel you ahead of your competition.  How do you do this? Look at your firms two largest costs; focus on how to stream line and improve the process.  Be much better than anyone in your market.  Have a brain storming session with your key managers – push them to think outside of traditional procedures. Find ways to improve speed, cost, and productivity.
2. USP. Your Unique Selling Position is critical in today’s competitive environment.  Everyone in your organization needs to know what makes your company: a) more unique, b) more valuable and c) a better choice (to your customers). Your employees need to be able to communicate this effectively, as with your advertising and marketing. The central theme in your marketing should always be consistence and repetition.
3. Focus.  Set clear goals for the next 90 days that you communicate to your management team (and maybe all of your employees). This could include: sales, gross profit margins, profit, accounts receivable, inventory turns (reduction), or unlocking a major bottle neck in your company; these are examples of what your management team can rally around and work towards.  Weekly meetings help keep the focus on the issues and measure progress towards your defined objective.
4. Control Your Cash. If Elvis is the king of Rock ‘n Roll, then cash is the king in business. A growing business consumes cash, so it is critical to construct a process in which you always know that you will have adequate cash to operate your business. Ideas can include: weekly billing, one person in charge of collections, a follow-up system on slow accounts receivables, a person(s) in charge of each line item in your expense section of your profit and loss statement, and most importantly (because this will bring all the elements of cash flow management together) a cash flow forecast.  A cash flow forecast is a spreadsheet that projects all the future sources and uses of cash in the business.  An updated monthly (or weekly) cash flow forecast is an early warning system on your cash position. This is the only effective way to “look into the future” of your business for anything you can do. Successful businesses always produce an updated monthly cash flow forecast – always.  This will take the stress out of managing cash.
5. Know Your Matrix.  Profitable growing businesses know their strengths and weaknesses; they know where they have been and where they are going.  It is critical that you know the 5 to 10 key indicators that drive the success of your business.  Most businesses fail to do this and operate by the seat of their pants every day.  Here are some ideas: break-even point (break-even point by division), profit, collected money, cash position, recalls, call backs, number of new customers, on-time delivery, and so on.  Every business and industry will be different, pick those that best reflect the overall picture of your business and review them weekly.

If you do this, you will see steady improvement in your business, I personally guarantee it.  This system has worked for me for years.

Much of what I do with clients revolves around the processes I have just described. While I have always preached on how critical it is to set revenue goals and march toward them, being a sounding board, a confidant, and accountability partner is just as important. If you need help in any of these areas, please give me a call or send me an email.

To Your Business Success:

Dan Lacy
Growth & Profit Coach, Financial Strategist, Cash Flow Doctor, CEO Mentor

P.S. I have received rave reviews for my book – Cracking the Financial Code. This is the most practical book on understanding your financial statements, and how to use them in your business. Get your copy now for only $15.

Go to:

www.dynastybuilder.com to order now.

Here’s what others have said about this book:

“Cracking the Financial Code removed both the mystery of financial statements and my excuses for not diligently using them.  This is a must-read for any business owner wanting to make informed business decisions.”
Jonathan Arnold, President, Tuitive, Indianapolis, Indiana

“In Cracking the Financial Code, Dan has taken difficult financial concepts and made them easy to understand.  This is a “must read” for business owners who want to grow their business.”
Kirk Klabunde, Senior Vice President, First Merchants Bank, Anderson, Indiana

“Cracking the Financial Code is a terrific reference source for growing companies to make sure their financial focus is sound.”
Terry J. Pahls P.E., President and COO, I Power Energy Systems Anderson, Indiana

Personality analysis has been in development for thousands of years.  The first know research on personality types was done by Hippocrates of Kos (Greece) (ca. 460 BC – ca. 370 BC) where he defined four basic personality types.  The 20^th century heralded a new interest in defining and identifying separate personality types.   DiSC is a popular personality assessment that is based on the work of William Marston PhD that has been in existence for over 50 years with 36 million people who have taken the DiSC assessment.

How does all of this relate to business?  Our personality type is a major force in who we are at work, how we do things, how we communicate and how we accept what is told to us.  If we have an important idea to communicate or we need them to buy into to the task or assignment; we can dramatically improve getting it done if we understand the personality type we are talking to. There are four basic personality types that business professionals encounter and understanding each type will help you be a more effective manager.

The High “D” Driver/Dominate. This type of person values brevity and getting to the point (they don’t waste time). They like your communication to also be short, tell them what you do and what you want them to do.  They don’t like a lot of details and if you email them, put you thoughts in bullet points.  They are multi-task capable; but their primary motivation is getting tasks completed and moving on to a new task.  They gain energy from being in charge and meeting challenges.  Know what you want to say to them and stay focused.  Be confident, maintain eye contract and keep your voice strong.

The high “I” or Influencer. This type of person likes new and exciting things.  They are great at expressing themselves, like social recognition, group activities and relationships.  They are easily liked and accepted by others.  They are great public speakers, good in sales and promotions.   But they are easily bored and may not follow through on work that requires detail or is highly complicated.  Sales people will have trouble turning in sales and expense reports.  If you expect detail work from them, you will have to check back with them on a continuing basis to get it done.  They like new directions, great ideas and enjoy humor.  They like to lead and influence others, they are highly motivated workers.  They like to be noticed and appreciated in public.

The high “S” Steady/Supportive. This type of person is easy to get along with and wants to be your friend. They are very dependable and loyal and are steady, consistent, unchanging.  They like friendly conversations at a relaxed pace. Ask about their family, kids or latest weekend outing before you ask them about work. Relationships are important to them, so continue to build relationship credits with them.  They will be there when you are in dire straights. Also know that a warm Hello and a sincere thank you in a private setting is fuel to the high “S”.  Think carefully before taking any action or major changes in your organization, they don’t like change.  Give them plenty of lead time before changes in location or routines so that they will buy into it before it is implemented.  They need security.  Communicate in a soft voice as a friend, be warm, friendly and smile a lot.

The high “C” Cautious/Conscientiousness. This type of person is smart, careful and accurate. They live for facts, the more facts the better.  In fact they will have so many facts that it is hard for them to make decisions because they have so many details to consider. They welcome documentation and statistical evidence that proves your point. Expect them to ask for more information or make minuet changes after three or four versions.  They are thoughtful and don’t always get a chance to express themselves, so ask for their opinion before you tell them what to do.  You will get better buy-in that way.  They are pretty critical of most projects and will be the first to ask more questions or tell you why it won’t work.  Be prepared to deal with this and deal with their criticism on a face-to-face basis otherwise, email communications will be endless.  If giving them tasks, be clear as what needs to be done and the time frame you expect it completed.  They are perfectionists and are critical of themselves and others.  They will work and re-work a project over and over until it is perfect, way past the dead line unless you tell them up front.  If you want to talk to them, don’t drop in, make an appointment. They will think about what you say long before you answer it, so don’t expect quick responses to your questions.  Talk to them in a reserved manner with your voice slow and low.  Give them time to respond.

Helping your employees understand their personality types goes a long way in improving communication, team work and getting things done.  It also helps managers in the hiring process getting the right person in the right seat on the bus (Tim Collins “Good to Great”).

We provide DiSC assessments and seminars.  We do this because understanding your managers and employees will help you improve financial performance.  That is why I teach DiSC, it is a key ingredient in helping business owners be better people managers. If you need help in this area, please give me a call or shoot me an email.

Canada, Germany, Great Britain and most other countries rejected outright Mr. Obama’s invitation to go deeper into debt and spend more money on stimulus.   The president of the European central bank took direct aim at Mr. Obama stating that Mr. Obama’s logic was flawed.

There are great lessons we as business owners can realized from Mr. Obama’s visit to the G-20 meeting.

• Your Management Team – Mr. Obama selected his management team (cabinet) and neglected to find anyone with high level management experience.  There are no business CEO’s on the team and there are only 2 people in his inner circle with any type of business background.  The management issue is compounded when the CEO of the country (Obama) has no management experience.  Your management team is a phenomenal resource, the stronger the team the better the decisions.  One of my clients make an acquisition of a company and in that acquisition, they also acquired a high level executive with strong industry management experience.  The acquisition was a prize and the acquired executive dramatically propelled the company forward.  Over the next 10 years, the company went on to win many outstanding awards for growth and financial performance.
• Objective Assessment – It is difficult for any organization to have checks and balances when all decisions are made in a vacuum.  Obama’s inner circle has made the decision that dramatic growing government debt is desirable (the 1^st bail out, universal health care, cash for clunkers, General Motors, Chrysler, etc.). Closely held businesses have some of the same challenges.  Many times the owner/president of the company doesn’t have anybody to discuss direction, major decisions or how to value opportunities (they have very objective input).  It is difficult to have a discussion with yourself and get all the options out on the table.  Few closely held businesses have board of directors that are different than the employees of the company.  It is difficult for an employee to be objective about issues when the owner of the company signs the paychecks.  An outsider (consultant for example) doesn’t have to be smarter than his client to add value, just as a Tiger Woods’s coach does not have to be a better golfer than Tiger.  The outside perspective, the freedom to ask questions, the ability to pull his viewpoint above the day-to-day challenges and look at the bigger picture, these are the things that consultants bring to the client.
• No Free Lunch – Peter Drucker PhD, one of the world best known management consultant, teacher and author told my MBA class at Claremont Graduate School many times, if there is only one thing you learn here remember: “there is no such thing as a FREE LUNCH” (that is impossible to get something for nothing).  Everything has to be paid for at some time, either in the front end or back end (depending on your marketing strategy).  Business owners all know that if we give away our product without a strategy to make money, we will go broke.  Here is what is frightening: over 85% of business owners (closely help businesses under $20 million in revenue) don’t do a good job of profit or cash flow planning.  Profit in your business is the grease that keeps your business turning and growing. We have to be fiscally responsible; our elected representatives need to understand this concept or the country will go broke.

Much of what I do with clients revolves around helping businesses improve their management team, focus on accountability and make much more money.  If you need help, please give me a call or shoot me an email.

Currently the national debt (principal only) is $13,145,954,178,723 or $118,450 per tax payer or $42,000 per citizen.  The 2008/09 stimulus package was $3.27 trillion and the Obama health care bill is estimated to cost another $940 billion over 10 years.  Mr. Obama is floating the idea of additional deficit borrowing to support more spending.   We cannot borrow our way to prosperity; most all business owners already know that excessive debt doesn’t create wealth.  In today’s banking environment, it is critical that business owners manage their debt very carefully by insuring that their companies are making money (similar to a government budget that shows a surplus)

This is a money/cash flow issue, making sure there is enough money coming in to meet the monthly requirements of paying your salary, overhead, vendors and labor (the money going out). For most young and growing businesses this is a plaguing problem.

There are a number of reasons why this can be a problem for any business:

1. the company is not profitable
2. the company’s accounts receivable and/or inventory is expanding faster than revenue is rising
3. the revenue stream is seasonal – high revenue where it is difficult to keep up in half the year and slow (people looking for work to do) in the other half of the year; for example a lawn mowing business.
4. the company’s revenue is growing faster than working capital can support.

Here are some ideas for solving these lingering problems.

1. No profitability – the primary causes for this is not having a profit goal for the year. More than 85% of business owners won’t set this goal for the year.  They like to be surprised when their controller or accountant tells them how much they made or lost at year end.  This is like going to a Colts game and not knowing the score until the game is over – not a very exciting way to watch a game; not a very good way to run a business.

First determine how much money your business should be making per year, this is determine by profit as a percentage of revenue (check your industry standards to determine this) or use 30% return on equity (equity on balance sheet X .3).  The most important thing is to determine how much money you want to make and manage to it.

If you do create a budget for the year, make sure that you look at it monthly and manage to it.  And don’t change your profit budget.

2. Growing accounts receivable and inventory faster than revenue.  One of the biggest challenges for growing businesses is to manage the growth in current assets; every dollar growth in accounts receivable or inventory sucks cash out of the business.  Controlling the growth of these two assets is really important to managing cash flow.

Review your accounts receivable aging report monthly.  Follow up quickly on slow moving accounts.  Take action and don’t pass this responsibility to someone else without looking over their shoulder regularly.  Also, do a turn analysis on accounts receivable and inventory quarterly and compare that with the previous year and see if the days on hand of inventory and accounts receivable is getting better or worse.

3. Seasonable revenue.  It is really difficult to grow a business when revenue varies widely from one season to the next.  Solving cash flow problems in this type of business is only accomplished when enough cash is made to carry through the down months.  This can only be accomplished when revenue and profit targets are established and managed to through the good times and controlling expenses in the slow times.  Planning is critical to this type of business.

4. Dramatic growth.  Fast growing businesses will have more cash stress than businesses that are growing slowly. As revenue grows, accounts receivable and inventory expand to keep up with the growth in revenue.  Labor is also accelerated to perform work that gets paid for down the road.  If extended payment terms are granted to new clients to induce them to buy more, the problem becomes compounded.  In a business that is growing, cash flow planning is critical because CASH sustains the growth, any hick-up in financing, collections or a glitch in inventory management greatly enhances the cash flow risk.  A Cash Flow Forecast is a early warning system to alert you when you will have a cash flow shortage – but you will have plenty of time to prepare or change direction.

Summary – I would strongly recommend a cash flow forecast to reduce the stress you have relative to your business.  It will help you plan better, see into the future and give you a better nights sleep.

To Your Business Success:

Dan Lacy
Growth & Profit Coach, Financial Strategist, Cash Flow Doctor, CEO Mentor

Harold soon found out that this was going to be one of the worst days of his life. His banker had come to tell him that his line of credit and the $325,000 equipment loan was being called.  Harold had 30 days to find other financing.   If you haven’t had the opportunity to experience this, it is like being hit (unexpectedly) by a truck, it is a demoralizing experience.

What Harold did not realize is that the banker had been reviewing the profit performance of Harold’s business for the last 18 months. And there wasn’t any (profit).   The banker had been looking at the monthly financial statements each month, whereas Harold didn’t give them much thought.  The company had cash in the bank, were paying their vendors, payroll and making the bank payments; Harold was not concerned until today. Don’t fall into this trap.

Here is an easy way to tell if your company is making enough money to keep your banker happy (and if your banker is happy, you can relax), for the last 12 months:

1)    add up the interest expense on your line of credit,

2)    add up all of your payments on term debt (principal and interest)

3)    Add: a) net profit, b) deprecation expense, c) amortization expense and d) all interest expense (including your line of credit)

4)    Add 1 and 2 together and divide that into 3, that numbers should be 1.25 or higher.

Example:

Last 12 months interest on line of credit.       $  60,000

Payment on trucks (P&I)                                    $  36,500

Payments on Equipment Loan (P&I)              $  37,500

Total                                                                       $134,000

Profit                                                                       $100,000

Depreciation                                                         $  72,500

Interest                                                                   $  83,400

Amortization                                                          $    0

Total                                                                        $255,900

Calculation                                  $255,900/134,000 = 1.91

In this example, the company has adequate debt service capacity to service all of the principal and interest payments that company has due.  It is in pretty good shape because its debt service coverage ratio is greater than 1.25:1.  There are many indicators that indicates the health of a company; but it is an important one.

This is one indication you should evaluate quarterly or at least semi-annually from your financial statements.  Your banker is looking at this and so should you.

Having trouble with your banker or your company’s financial performance?  Call me for an objective discussion on what you can do to increase the financial performance of your company and your personal net worth.

Here is a proven principal that is very useful in helping you identify the BEST and sometimes the EASIEST ways to improve revenue/sales.  This concept was developed a few years ago by Tom Epply when he, as the president of his company, wanted to help his manager identify the best way to increase sales.

Tom named this the “stop light study” because it resembles a traffic stop light – Green, YELLOW, and RED.  The GREEN is the easiest because it is selling an existing product to an existing customer.  The relationship is already formed, the players are known and all that needs to be determined is what does the customer need that you are currently providing.  This is the easiest way to increase revenue in your business.

The Caution areas are YELLOW.  This is selling either a new customer an existing product or an existing customer a new product.  The familiarity with one of the two key functions is known; either the customer or the product, the other side of the equation has to be created: the customer or the product.  There is one unknown in this step and one known.  It can be done but it is somewhat harder than the GREEN alternative.

The RED box – finding a new customer to sell a new product to.  This has the highest level of failure and the sales cycle is the longest.  Not that this cannot be done successfully; but it takes the longest, cost the most and the highest level of risk.

The easiest, fastest and most cost effective way to grow revenue is by going to existing customers with one of your existing products (GREEN) ; the next best is going to existing customers with a new product or going to a new customer with one of your existing products (YELLOW).  The most risky is trying to find a new customer with a new product (RED).

I’ve help scores of businesses wade through tough times and come out on top. I would be happy to help you as well.

Buried in section 9006 of the health care bill, there are just a few lines that are going to create havoc for small businesses. Beginning in January 1, 2012 – just 19 months away; all businesses will be required to issue 1099 tax forms on everything purchased over $600.  Not just individuals; but for every goods or services purchased.

A quick review of my check register, my small consulting firm will be required to issue more than 300  separate 1099’s to institutions such as the phone company, garbage company, utility company, cell phone provider, office supply (Office Depot, Costco, Staples), internet provider, Apple Computers, lawn mowing service, window service, gas stations, just to name a few.  Larger businesses that purchase materials from multiple sources (one of my clients has over 300 suppliers) will have a daunting task.  You will be required to find their corporate address, corporate tax number and identify the department the information goes to.  This will waste hundreds of hours in lost productive time and increase your tax bill at the end of the year.  More work for thinly staffed companies that are trying to survive the Great Recession.

Representative Dave Camp (Republican from Michigan) released a new report detailing how the Obama healthcare bill vastly expands the responsibilities of the Internal Revenue Service adding up to 16,500 people to expand their auditing capacity.  Are we more productive and profitable holding the hands of auditors or helping our customers?

Small business owners cannot afford to be passive politically – our elected officials are out of touch with reality and need a wake up call.  Contact your local state and federal representative and tell them your thoughts on the new 1099 law.

Unfortunately, many business people have not come quite as far since the Depression, in their ability to discern what makes a company or organization work and what needs to be done to ensure its survival. There are basically nine “danger signals” that indicate the strength and viability of a business is deteriorating:

1. Declining gross income, combined with operating losses. In most instances, declining sales will not be targeted as a problem until operating losses deplete cash reserves. Normally operating costs will remain high and not be adjusted as sales decline. This creates the operating losses that eat up cash reserves.

2. The absence of an operating plan to guide the company. Most managers do not use a carefully crafted planning procedure to create an on-going validation system. If a planning document exists, it is often shelved and forgotten as day-to-day concerns take precedence over future goals. When this happens, management has little or nothing to measure itself against and is oblivious to hidden dangers.

3. Breakdown in communications between upper management and the labor force. Failure to communicate vertically creates a situation where upper management cannot identify conflicts that exist in the on-going operation of the organization.

4. Inadequate cash flow. The ability to generate cash flow is the key ingredient in a successful business operation. Without adequate cash flow, an organization is doomed to failure. While it is normal for most organizations to have seasonal fluctuations, balancing these adjustments is critical for the survival of any organization.

5. Inability to convert accounts receivable to cash promptly. The slow collection process of accounts receivable can be a danger signal that a poor job of screening accounts and granting credit has taken place.

6. Inability to convert inventory to cash promptly. A slow down in inventory may signal a problem in the quality of products shipped.

7. Cash tied-up in nonproductive assets. Investing heavily in a new office building, equipment and personnel without careful planning can be a nonproductive use of assets and can destroy a company.

8. Amounts owed to vendors. When an organization is unable to meet the payment terms of their vendors, not only does a serious cash-flow situation exist, the future credibility of the company is in doubt. Long-term business success depends on the goodwill a company is able to generate with its creditors.

9. Low employee morale. Most employees truly want their organization to be successful. When a company is without solid direction, morale declines and with it goes productivity.

In today’s economic climate, if any of these ring true with your business, it is time to take swift action.

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I posted this blog a while back but thought it was worth posting again. Mainly because I’ve had many people say it was helpful.

Getting the top dollar for your business is something that you should start immediately if you want to sell within the next two to five years.  In other words, it is never too early to start getting your business ready to sell; because you never know when an opportunity will present itself to make you a millionaire or multi-millionaire.  On the flip side, a recent study from M & A Today magazine states that 65% of business owners don’t know what their business is worth, 85% have no exit strategy and 75% of their personal net worth is tied up in their business.  So, what can you do? Here are five tips I would suggest:

Tip 1.  Have a plan.  Determine a time line.  Look at your age, your family and your bank account.  How many years to you have before you want to simplify your life?  What must you do between now and then?  Start with the magic year and then work backwards until you get to the next 12 months.  For example, you are 50 and you want to retire when you are 55 and you want $1 million in the bank with your house free and clear.  You need $750,000 from your business to make it happen.  What needs to happen in the next 12 months to make $750,000 a reality at sale time?

Tip 2.  Maximize the value of your business starting today.  Selling your business may be a big part of the financial side of your retirement strategy.  You can do a lot to enhance the value of your business with 24 to 36 months prior to sale day.  For example, if businesses in your industry sell for a multiple of 5 times cash flow and your company is currently generating $75,000 in annual cash flow ($40k in profit, $35k in interest, deprecation and amortization), the value of your company has a value of somewhere around $375,000.  By increasing your pre-tax income an additional $75,000 to $115,000 per year your company will have a market value of $750,000 ($115,000 profit, $35,000 in interest, deprecation and amortization = $150,000 X 5 = $750.000).

Tip 3 Get help to guarantee cash flow growth. It is lonely at the top of any closely held business and here are only 24 hours in a day.  Most business owners immediately enhance performance when they: a) have help drafting an overall plan to attain their long term goals, b) have assistance in evaluating what needs to be done monthly to make the program work, c) have assistance in establishing performance levels with accountability for the top two levels in the organization and d) have a defined monthly review and evaluation of performance on a consistent basis (minimum of monthly) and e) have a 24/7 resource to call when challenges occur.

Tip 4.  Seek professional brokerage assistance. Although it is possible to sell your business without professional assistance, a do-it-yourself approach is one of the surest ways to leave money on the table.  A seasoned business broker with a stellar reputation can help you establish a price, seek out qualified buyers, arrange financing and make sure the transaction is handled correctly and timely.

Tip 5.  Be Patient. If you need a quick sale, there’s a good chance you won’t get top dollar for your business.  It’s not unusual for a business to be on the market for months before the right buyer comes along.

Questions?

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There are steps to take as you head up the road to success. Here is a quick overview on Dynasty Builders and how I make millionaires by examining the financial side of businesses.

Have any questions?

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