Tom was in a great space. He had been in business 12 years, had just expanded into a new market, and both of his sons were active in the business. Tom was comfortable and had enough free cash flow to fund one of his passions: “racing”.  But his satisfaction level with his business and employees would vary greatly from one week to the next, sometimes even day to day.  His office manager studied this phenomenon for a few months and came to the conclusion that Tom’s attitude was attached to his checkbook balance. He was friendly, agreeable, and focused on the business when the bank balances were high, and grumpy and hard to get along with when the balances were low.

This is a trap that many small business owners fall in to when their only gauge of their businesses performance is their checkbook balance. Tom only had feelings if the weekly or monthly performance in the business was making or loosing money.  He did not know until March or April of that next year if all of the activity from the pervious year was actually producing a profit or not.

Tom knew it was important to manage his business and make a profit because his future and retirement depended on it, but he wasn’t committed to do anything about it. He didn’t want to re-allocate the funds from his hobby (where he was having the most fun) to an accounting system and controller that could generate “accrual” based financial statements so that he would have a monthly “report card” on the performance of the business. This would have told him when and where he was making or loosing money, and would have made him much happier.

Tom is just like many business owners. Here are a number of common reasons why business people do not make a commitment to have the information they need to grow and make money in their business:

• They are too involved in day-to-day crisis management to take a step back and look at what is happening.
• They do not realize that financial management is one of the 3 pillars that hold up the business; the other two are: 1) sales/marketing and 2) product/service.
• They do not know when to stop working and start managing.
• They do not know what they do not know – that financial management is just as important as sales management, or making sure that you have a great product or excellent service.
• Their accountant has failed in helping them understand the importance of accumulating good data (particularly financial data) on a monthly basis.
• They have never been trained on how to manage the financial side of the business.

Do you fall into any of these categories? Do you have a good handle on the monthly financial performance of your business? What is working more efficiently in making money and what is not? Do you wish that your financial statements were better, quicker, and were more meaningful (from a management perspective) to you?
Your chances are four times better for making millionaire status as a business owner than you do working for someone else. Are you maximizing your opportunity?  If not and you need help in any of these areas, please give me a call or shoot me an email; or buy my book “Cracking the Financial Code”, it is the first step toward financial greatness.

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 ever written (okay, that’s just my opinion). Get your copy now for only $15. Go to www.dynastybuilder.com to order now or email me your name and address and I can bill you.

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

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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Your business is your mission field and a tool that can be used by God in demonstrating the truth of the Gospel. Every day of the week people are influenced by you, and the way you run your business is your testimony to them — the only testimony many of them will ever witness.  The way you operate your business, how you believe in and market your product or service, how you pay your bills, how you maintain your facility, and how you treat your employees and customers are either an indictment or a wonderful demonstration of what God has done in your life.

Those who misunderstand money will misunderstand profit.  If Christians even subtly view money as evil, they cannot properly enact the biblical principles of sowing and reaping and of stewardship of resources.  Consequently, their ability to effectively operate their businesses — their mission fields — is adversely affected.

Just what is profit?  The textbook definition would define it as the difference between revenue and expenses.  But it is really more than that.  Profit is the only business goal that must be achieved.  Profit is the only thing that can reduce debt, increase working capital, and provide the ability to expand in equipment, facilities, markets or personnel.  Profit is the grease that keeps the business moving forward.  Profit insures that new capital and credit will be available.

Conversely, businesses without profit or with profit margins that are significantly smaller than competitors, are at a disadvantage in obtaining credit or attracting new capital, meeting obligations to creditors in a timely manner, properly compensating employees and in reducing debt.  These businesses are unable to grow, expand, and touch other people with their products.

One third of all new businesses fail in the first three years.  Over three quarters of businesses fail in the first ten years. Obviously, many factors go into those failures, but the bottom line is, there simply wasn’t enough profit — without it, businesses become statistics.

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One of the more significant challenges of owning a business is having enough cash to pay the bills.  Your ability to pay your bills on time, to a large effect, is based on how successful you are in collecting your accounts receivable in a timely manner.

Companies we have worked with who had problems with collecting their accounts receivable have seen dramatic improvement when they followed these few principals.  They may be just what you need to get that cash out of the bush and into your hand.

1. Implement a procedure in your organization where you or someone you appoint is systematically responsible for getting the invoices out in a timely manner. It doesn’t help cash flow if the end-of-the-month billing is not mailed until the middle of the following month. Many customers take 15 to 45 days from the date they receive the invoice to make their payment.  If you get your invoice out late, it just adds that much more time before you receive the money.
2. Always put the current date on the invoice. Many times the customers get a number of bills and they pile up until there is cash to pay them.  If your invoice is not dated, the customer assumes that they just received it and places it with the invoices just received.
3. Put the term of the sale on the invoice. The customer will probably not remember your verbal agreement or may have misplaced the written agreement.  If there is not a reminder on the invoice of when the money is due, you always end up at the end of the line.
4. Establish an accountability system for follow-up on overdue accounts receivable. If someone is not in charge, believe me, no one will take the responsibility of collecting that past due money.
5. Have your accountant or bookkeeper prepare a written aging of accounts receivable at the end of each month, so that you know what is collected and what is outstanding. This report needs to be circulated to the appropriate people at least once a month.  Increase the frequency of preparing this report and distribute it weekly if the monthly method is not effective.
6. Depending on your industry, there is normally a standard for how your customers pay their bills. If a customer exceeds that time frame, either follow up with a nice letter or a personal phone call. There is no need to get aggressive with the first contact.  In that contact, see if the customer received the invoice and if it is in their system to be paid.  Flag your calendar based on their response, and follow up (if no payment) and get another commitment for payment.  Follow this process until the account is paid in full or becomes 90 days old (or the date your have predetermined by your collection policy).  At that point, send a letter indicating that the bill will be sent to the collection agency if arrangements are not made by a specific date (usually 10 days from your current date).  If the amount is large, try to get a face to face meeting with the pay due customer.  In that meeting try to work out payment terms or a trade for product or service.  If that does not work, assign it to a local collection agency or attorney for collection.  Courtesy and consistency have worked the best for me, maybe it will for you, too.
7. If, for some reason, you want to speed up collections because you need an injection of money for a specific purpose, give a freebie. In the radio business, a station could easily give a few spots away if the customer paid their current bill within 15 days when the normal is 30 or 45 days.

Have any questions? Let me know. I’d be more than happy to sit down with you to talk about other ways we can help improve your business cash flow.

Joe and Bob were two dairy farmers who each needed a milking stool.  Joe wanted a fast solution to his problem so he scrounged around his barn to find the parts to build his stool, he found a flat seat and 2 pieces of strong wood for legs; but ended up with a scrawny third leg about ½ the size of the others.  The stool worked; but Joe had to sit on his stool with tenderness in case he put too much weight on the stool breaking the smaller leg, sending Joe to the ground.  Joe’s neighbor Bob wanted to make sure he had a good, strong stool that would last a long time. He spent much more time building this stool and made sure that each component was strong – the seat and the legs. Bob’s stool was so strong he started using it as a step to store products up high on shelves. His stool never broke.

Now allow me to explain how the 3-legged stool is like a business. Let’s name the 3 primary legs or functions of a business:

1) Sales/marketing – without sales a business is dead and marketing is the precursor of revenue generation.

2) The product made or service provided by the company – if you don’t have a good service or product to provide to customers, the business is doomed.

3) Finance – money is the lubricant that keeps the business machine running – a machine that is well lubricated – will run forever with few problems.

And finally the seat – that is management, the component that keeps the 3 primary legs of the business together: sales/marketing, product or service and finance.  The better these three legs work together, the better the organization functions.

The key to this story is not to be like Joe, the cheap farmer who did not spend the time to find a third strong leg for his stool.  Joe will spend more time worrying about his stool breaking and disrupting his day than Bob.  Bob will be more efficient and productive – no worries about the foundation he sits on.

Most business owners come from the sales or product side of the business, and have little knowledge of finance – this is nearly always the weak leg in a small business. With one weak leg – the whole business is weaker because the business is only as strong as its weakest leg.  The goal of management is to make sure that all three legs are strong and durable.

In finance that means:

1) accurate and timely financial statements

2) a revenue and profit plan for the year defined monthly

3) a forward looking cash flow plan insuring adequate cash flow to run the business

4) a sound financing plan supported by a local lender(s)

5) monthly performance accountability with the managers of: sales, production/service, and finance

I have employed this system for the last fifteen years, and the results – 19 business owners have increased their person net worth by at least $1,000,000.  Think about how you can evaluate and strengthen each of the legs of your business, it will pay you back a hundred fold.

Here is something I am going to give you today for FREE. If you follow it, it can improve your bottom line and show you 127 ways to cut your costs in business. Go to www.dynastybuilder.com and click on the picture to receive your copy today!

WHAT DO YOU DO?  Here are 6 steps you can take that will have immediate and positive impact on your ability to maintain positive cash flow:

• Profitability - This is the most important – your company MUST be profitable. Look at your last three months profit and loss statements. If you are making money, your chances of maintaining a positive cash position are very good.  If you are losing money – your chances of survival diminishes with each month that you show a loss. The reason: losses deplete your cash position and each month you lose money, your cash position (and cash flow) deteriorates. Lose money long enough and you will not have enough money to make payroll and/or purchase inventory for future sales.

• Revenue - develop a game plan to improve revenue. Pull out all the stops: Ask your sales people to commit more time, ask them to make more calls, ask for more work, quote more jobs, see more people and get better connected with customers. Start measuring weekly what is important in your sales area and review the data. You’ll be shocked at what you learn.  Also, selling is about building relationships; if your sales people are not doing that, your competition is.

• Accounts Receivable -improve your collections:

1. Review you’re A/R report weekly
2. Read the notes on each account that is over 45 days old on what is being done, promises made, etc.  Get informed on who is paying slowly.
3. Get out in the market and talk to your customers that are slow – see what is going on.
4. Invoice weekly instead of monthly
5. Fax or email each invoice – don’t rely on snail mail
6. New customers – get a deposit on the new job
7. Get yourself and your employees involved in collecting past due amounts
8. On slow accounts – consistency is the key
9. Track the percentage of receivables over 60, 90 and 120 monthly, the amount of money over terms should decrease – if not, ACT

• Inventory – less is better.  Inventory is not cash and the less you have to stock the better.  Work out a plan with your supplier to see if they can deliver more often, convert your old inventory to cash (especially if it is old, even at a discount), and measure your current inventory level against your current revenue level – you probably have too much inventory on hand.

• Borrowing - make sure that you have maximized this ability. If you can restructure or refinance some existing long-term assets at today’s low rates, you should jump at it. Although credit is harder to get than it was 18 months ago, there are still lenders out there looking to lend money. Exhaust this ability by putting together a good business plan with your company’s last 2 years performance and start looking. Ford Motor Company went out and re-leveraged their key assets and built their cash up before the economic downturn – they are the only car company that didn’t need government money.

• Accounts Payable – more is better. Although suppliers are also tightening up on credit policies, you can normally leverage this relationship for longer terms on repayment. If you’re in trouble with your suppliers already, talk to them and show them a plan as to how they will be repaid and how they are going to make more money in your account by selling you more product. But don’t make any promise you can’t keep on repayment because that will hurt you in the long run.

Over the last 35 years, I have worked with hundreds of businesses.  Successful businesses do the things I have outlined in this article. If you’re not doing them, you are lessening your chance of succeeding as a business owner – which may end up feeling like a sharp stick in the eye. If you do them, your chances dramatically improve, and the pain goes away. If you need help, some direction, or a complete plan of action, call me today – 765-644-8887. An initial meeting costs you nothing and can help get you on the right track.

This workshop will cover an array of business topics including sales, marketing, and financial know-how for small business owners. We’ll teach you how to:

• Increase profit by $25K by learning how to leverage your break even point
• 7 steps to never running short on cash again
• 4 ways to identify and penetrate your best customers
• Learn how to break all the rules & get more sales in a down economy
• Get your phone to ring – learn what advertising works for your target market
• PLUS- 2 hours of 1 on 1 coaching from any of the instructors

If you’re serious about pushing through the boundaries you’re currently up against, this seminar will teach you everything you need to know, plus put you face to face with some the best of the best in their industry.

Instructors

SALES: Aaron Prickel – 15 years sales experience and current sales trainer at Lushin & Associates

FINANCE: Dan Lacy – 25 years experience in financial management coaching

MARKETING: Lloyd Easters – 15 years marketing experince

The cost of this workshop is $995 with 100% money back guarantee if this doesn’t work in your business. For more information, contact Loisann@dynastybuilder.com or call 317-370-6626.

In 30 years of consulting with businesses, this is a common problem aired by most business owners.  Smart business owners are frustrated because they are not making the progress they want personally.  Not making the money they should, not seeing the growth in their business and not seeing their largest personal asset improve in value.  There are two primary causes of this, this article is going to speak of the cause and Friday’s article will deal with the second.

The most common problem business owners have is not understanding and utilizing the key performance indicators that monitor the performance of their business.  Not one of you reading this article would take a long trip in your car without looking at the gas gage or viewing the speedometer periodically to pace yourself against the posted speed limit.  The best performance indicators of a company are accurate and timely financial statements (profit and loss statements, balance sheet and statement of cash flow).  But less than 30% of business owners take advantage of this resource.

Let’s quickly discuss what understanding monthly financial statements will do for the owner of a business:

1. It is a report card on the performance of management that everybody outside of the business uses.
2. Bank and other lenders place a major portion of their decision making on the performance of the business as stated by the financial statements.
3. Vendors and other creditors will rely on financial statements to make key credit decisions
4. Investors will strongly rely on the financial information from the company to determine if they should make the investment or not.
5. The government relies on them to assess taxes.
6. Purchasers of businesses will rely on financial information to decide if they want to purchase and how much they will spend for the business.

It is a tool to tell you, as the manager/owner of the business, if you are on the right track in attaining your company and personal financial goals and objectives.

Financial statements provide the reference point for you as a manager to guide your company.  I believe that accurately prepared financial statements reflect all the activities in the business: employee satisfaction, product quality, on-time delivery, customer satisfaction, and all of the key financial indicators: revenue, margins, profit, cash flow and upside potential.

Most businesses leave thousands of dollars on the table every year in loss profitability because they don’t use financial statements as a management tool.

Are you frustrated with the performance of your business?

Do you want to make more money, have less stress and see your company grow?

Are you tired of doing the same thing year after year and not getting the results you want?

I can revolutionize your business in just 12 weeks, 24 hours of intensive management training that is guaranteed to improve just about every aspect of your business.  Also, it comes with a 100% money back guarantee if your newly acquired knowledge doesn’t make you at least $25,000 more in profit in 2010.  Our next briefing session is at 8:00 am on February 3.

Email me today for more information.