At the turn of the twentieth century, and in a deep recession, Frank Bettger quit his job as a bill collector.  He wanted a better paying job because he was newly married and had a child on the way.  Within a few days he found a job as a commission insurance salesman, but within a few months he was fired. Frank had no saleable skills and was depressed.

He needed help, so he turned to his friend at the local YMCA; that friend introduced him to Dale Carnegie, and Frank enrolled himself in Mr. Carnegie’s public speaking and business training classes.  Later he applied and was re-instated as a commissioned life insurance salesman for the Fidelity Life Insurance Company. Within 12 years, Frank was able to purchase a country estate for his family and retire at age 40.

What was Frank’s secret?  Frank applied the principles learned at Dale Carnegie’s training sessions by keeping track of his time and his sales activity.  He soon understood that he closed 70% of his sales calls on the first interview and 7% on follow-up interviews.  But Frank was spending 70% of his time on follow-up interviews.  Realizing this, he eliminated follow-up interviews after the second call, and boosted his performance by focusing on more new prospects.

What was true over 90 years ago is still true today.  Tom Peters picked up on it in his book Thriving on Chaos, published some 80 year later that “what gets measured gets done”.

Are you measuring the progress of your business on a consistent basis or you just hoping for the best?  In the last 18 months, the US economy has changed.  It is more volatile and will have shorter economic cycles.   In other words, you have to be a better manager today than you had to be 10 or 15 years ago, if you want your business to amount to anything.  Here are some suggestions on how to measure if your business is getting you where you want to go or not:

• Gross Revenue (Sales)– This is the indicator that most business owners use to determine success.  It is a fairly good indicator and one of the seven drivers of business value. Depending on the cyclical nature of your industry, this can be compared month-to-month, quarter-to-quarter and/or year-to-year.  First quarter of 2010 compared to that of first quarter 2009 for example.  But beware, I have seen business grow dramatically and barely make any money; revenue growth is only good if there is the same or greater growth in profit.
• Gross profit margin- This is an indicator of the money you keep (as a percentage of revenue) after creating the revenue (revenue less cost of goods = gross profit).  Gross profit divided by revenue = gross profit margin percentage. – the money it cost to create the revenue. A declining margin can be an indication of many negative things; it is also a key indicator of your break-even point.
• Profit in dollars and as a percentage of revenue- Are both growing?  If revenue grows, profit should grow in a corresponding fashion.  If revenue grows and profit does not, or if the profit percentage is less, then you need to research why you are making less money on more revenue.
• Cash flow generated by the business- This is what pays down debt.  Profit, plus deprecation, plus amortization, plus interest costs.  Is this growing relative to revenue?  There should be dramatic improvement in cash flow with growth in revenue.
• Current ratio- This is calculated by looking at your balance sheet. Current assets divided by current liabilities; the bigger the number the better. What is this trend doing, going up or going down? If the trend is up, that is a good sign, if down – a bad sign.
• Working capital- This is determined by subtracting current liabilities from current assets and defines the working capital you have in the company.  This number should be positive and should be growing. Both the current ratio and working capital are great indicators of a healthy (or unhealthy) company.
• Debt to worth– this is calculated by dividing debt (total liabilities) by total equity in the company. The number should be somewhat less than 4:1, which means that the creditors have 4 dollars in the business for every dollar invested by the owners. The trend should be slowing dropping from 4:1 to 3:1 for example, or even 1:1.

Much of what I do with clients revolves around helping businesses design measurement systems that guide the company toward improvement. In today’s erratic economic climate and political uncertainty, it is critical that you have a matrix or measuring system in place to assure you that your company is moving in the right direction. If you need help, please give me a call or shoot me an email.

To Your Business Success:

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

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

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.

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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Historically, being a contractor is a great vocation and a productive way to make a great deal of money.  Although 2008 and 2009 were not great years for contractors, predictions are that 2010 and 2011 are going to be much stronger than the last 24 months.  How do you capitalize on that opportunity?

I am a believer in copying things that work and after 30 years of working with business owners, those that have the most money, least amount of debt and stress are the contractors that focus their attention on the bottom line. Yes, making profit, month after month, quarter after quarter and year after year.  They use every method they can to insure that the actions they take every day will make them money.

Want to your spouse to see big pay checks – focus on profit.  Want your kids to have a good education – focus on profit. Want to retire early and wealthy – focus on profit.  Want your banker to loan you money when you need it – focus on profit.  Want to have cash liquidity when you need it – focus on profit.

One of the tools used by successful contractors as a way to manage the performance of their business is their monthly financial statements.  They not only tell if the company was profitable for that month; but also if the company wasn’t profitable, why it wasn’t profitable.  Was revenue lower than expected, margins off or expenses high?  Information is powerful and with current and accurate information, the contractor can be successful.

Where the contractor gets into trouble is when he shoots from the hip and makes a decision without good data.  The contractor wouldn’t be caught dead on a job site without a tape measure. Financial statements are the business’s tape measure.   When the profit and loss statement shows profitability, money will be flowing freely.  When the company doesn’t show a profit, management will always be struggling with having enough cash to operate their business.

Here are six benchmarking tools you can use to determine if your company is on the right path from a financial performance measurement standpoint.  This information was cleaned from a hundreds of other contracting companies as of January 2010.

• Gross profit margins 45% of 50% of revenue
• Net profit 5% to 9% of revenue
• Outstanding accounts receivable – 22 days to 35 days
• Outstanding accounts payable – 29 to 35 days
• Debt to equity ratio 1.6 to 2.9 to 1
• Sales per full time employee $81,000 to $112,000 per year

The financial management function for most contractors consists of looking at the outstanding unpaid bills, outstanding invoices and seeing how much money is in the check book. Most contractors stagnate at revenue levels over $1 million because the check book method of financial management doesn’t work.

The bottom line. When you invest a little time and money into a good financial accounting system with job costing and get some one with experience to enter the data and print reports, you will be ahead of 70% of your competitors.  They don’t know when they are loosing money.  Only the strong survive in any business.  Will it be you or your competitor?  You get to decide.

Questions? Get with me. Want to add to this list? What are your thoughts?

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!