Monthly Archives: October 2012

5 Financial Metrics Every Business Owner MUST Know and Pay Attention to (and Why)

It’s Halloween, so I wanted to pick what is a SCARY topic for many business owners: FINANCIALS.

Apparently, for most business owners (even solopreneurs), this is such a scary topic that they choose to ignore it.  The thinking goes that, as long as there is money in the bank after bills are paid, the business is doing well.  Leave it to the accountants.

Unfortunately, this is like saying that as long as you can still walk, you are “healthy.”  In reality, there may be growing problems that, unless you know how to look for them, will catch you by surprise.  After all, how many times have you heard someone mention a business closing and say, “I thought they were doing OK”?

Just like you need to pay attention to your blood pressure, cholesterol, glucose, and many other levels; it is essential that you as a business owner keep track of these:

1.  Revenue:  Current vs prior year, vs last 12 month average, vs. last 3 month average.    Revenue is, obviously, a measure of your businesses’ ability to get people to PAY for what you deliver.  That said, it is essential to understand what revenue is doing.

– Versus Prior Year:  How are you doing right now, versus the same time last year?  This is just a basic measure

– Versus Prior 3 Months:  This is particularly important in fast growing businesses.  So, if your average sales from June – August were $40,000, and September is $50,000; then you have the appearance of rapid growth.  That said, do the same analysis on last year (prior year September versus prior year June – August) to understand if the growth is just a seasonal “bump”

– Versus prior 12 months:  This helps you understand your current results versus what the average sales were over the last year.  Think of the prior 12 months as a “water level” for your business.  Is the current month’s revenue above, at, or below that “water level”

Once you know these numbers, do the analysis.   What was the reason for the change this month vs. the comparison periods?  Any new Marketing initiatives?  Different team members?  New products?  Product mix changes?  New Team members or lost team members?  New customer service initiatives?

2.  Transactions:  Do all of the same analysis that you did on Revenue.  If you are building your business well, then you should see steady increases in transaction counts.  Even more telling is if you can define whether your “mix” of transactions is coming from new customers, repeat customers on a regular buying cycle, or maybe repeat customers attracted because of a new marketing campaign or improvements in service.

3. Revenue per Customer:  What is each customer giving you for each purchase?  If this changes, is it because your prices went up; or are people buying different products?  Perhaps you trained your team on “trade-up” strategies, and they worked.

4.  Margins:  You must know your Margins, both:

Gross Margin:  For ever dollar you sell, there is a DIRECT cost of the product.  For example, a restaurant sells a meal for $10, but its cost of food, paper goods, garnishes, etc is $30; while it’s cost of labor directly attributable to the sale, both the cook and servers, is 20%: so, your Gross margin is 50% (100% less 30% less 20%)

Net margin:  Besides the costs directly attributable to the individual sale, you have your fixed costs like rent, management salaries, utilities, repairs and maintenance, training, office supplies, etc..etc…  Net Margin is what is left over after ALL costs have been subtracted from revenue.

WATCH CAREFULLLY the movement of Gross Margin and Net Margin, both  on an individual basis as well as compared to each other.  This analysis is a great way to “catch” waste and potential issues in your expenses that often are never looked at until they become huge problems

5.  Net Working Capital.  The “official” definition is current assets minus current liabilities.  What I tell my clients is to pay attention to this number as “how much money could I spend RIGHT NOW, if all of the bills due in 30 days had to be paid RIGHT NOW.”  I know it’s not the formal definition that the Accounting Board would approve; but it lets you have a real sense of what you have.

IF this number is negative, you had better know exactly why this is the case and have a specific path to make it positive soon (not “hope,” but a specific plan).  For example, you may invest in a new marketing campaign today that makes your Net Working Capital fall into the negative; but the expected return from the campaign will make your business a profit to make Net Working Capital positive in 60 days.

The fact is, TRULY successful businesspeople “know their numbers” because those are indicators of the health of the business.  Thinking that these are just “for the accountants” is a sure way for you to make poor decisions about the future of your business.

I’m going to be blunt and loud:  STOP WORKING SO DOGGONE HARD IN YOUR BUSINESS AND START UNDERSTANDING WHAT’S HAPPENING TO IT.  Understand and analyze your numbers, or you WILL struggle more than you have to.  If your sales are up, know why.  Maybe there is something you should be doing more of.  If sales are down, don’t throw “the economy” excuse at it; know why.  Is it seasonal?  Did your product mix change?  Is your team not providing great service.  etc., etc, etc.  Knowing your numbers will catch a brushfire before it burns down the forest.

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If you do not really understand how to do this, then make an investment in your future and invest in a coach who gets it (not just a “marketing coach”).   Get out of the “scarcity” mindset (I do not have the money to invest now..maybe later), and into an “abundance” and belief mindset (I have potential that can be maximized and I believe in myself and my business enough to start maximizing it now).  Every day you spend in scarcity just guarantees more scarcity.

Why a Short-Term View and poor Math Skills are Bad for your Business

OK, I might have frightened many of you.

Math?

Well, the good news is that we’re not going to do any regressions or differential equations today.  So…breathe slowly into the bag; and let’s talk.  I am going to do the math FOR you.

Many of you own a business that is very stressful for you.  You constantly worry about cash flow.  You feel pain because your team does not seem to care about anything but their paychecks.  And, you sometimes wish that you could wave a magic wand, so people could “Get it” about the value you provide. You might even have to discount your prices, which drives you crazy (after all, you are worth more, aren’t you?).

To make matters worse:  you keep thinking things will “get better”; but, six months go by, and it’s just as tight and stressful as it was six months ago.  One year passes, and you wonder why things seem to be just as bad, or worse, than they were at the same time last year.

So, let’s do a little math (I’ll walk you through it 🙂 ).

  1. What if you invested $15,000 over six months to learn some proven tactics to get new customers and build a more motivated team?  Or, you invested that $15,000 to train 3 or 4 of your managers with a Management Training program; so they could  close some of their skill gaps?
  2. What if, based on extensive data, that investment were proven to get a 5-1 return (so, exchange $15,000 for $75,000 in one year)?  BUT, to be conservative, you won’t believe anything more than a 2.5-1 return (so, you invest $15,000 and get $37,500 back in 6 months – Net profit is $37,500 – $15,000:  $22,500).
  3. Then, you were able to take that $22,500 and grow it just 3% per year for 10 years.

Over 10 years, with a conservative view, your $15,000 investment would be worth $257,937. 

If you took the full 5:1 return, and grew it at 5%/year; you would have $15,000 become $754,674That’s a quarter of a million dollars extra in your pocket, for a $15,000 investment.

This is why the short-term view of fearfully holding onto money limits the greatness of so many business owners.  The simple math is that, holding onto the $15,000, with no change in how you do things in your business, will just result in more of the same stress and a return of $0, won’t it?

The fact is, whether you are talking about investing in a coach/consultant or a management training program; your long-term benefits are huge.   Here is a personal case study:  I invested in my own coach even when I could not afford one; because I realized the value of having someone to get me to think outside my personal experiences and make decisions even when I was not sure of the potential results.   It’s why, when I owned a business coaching franchise, my business was 3 times as big as the average coach in that system (which made me the top Franchisee).       All franchisees had the same “system,” but my coach made me prospect when I did not want to; he gave me strategies that I had not considered; he helped me focus when I was looking at “shiny objects”; and he even helped me realize why a strategy that HAD been working suddenly lost effectiveness.   Even a coach needs a coach.

There is a reason that an elite athlete invests in coaches, even though he has an enormous amount of talent.  The one-tenth of a second that his coach helps him cut from his 40-yard dash time could be worth millions of dollars.

For a business owner, there might be one thing you or your managers are not doing that, with the right training, you could discover can make you millions of dollars, or remove 90% of the stress you experience every day.

Am I the right coach/consultant for you?  Most likely not:  unless you are in the restaurant or hospitality business (private coaching/consulting), or have a management team helping run your business (our classroom-based training program).   But, I promise you that there IS someone out there who is a great fit for you.   And, doing the math, thinking that you are saving money by not making the investment in closing your skill gaps is absolutely bad for your business.

Take Action Today, and start your path to investing in your future success.

I am connected to a lot of coaches/consultants; so feel free to connect with me on Facebook, Twitter, or Linkedin; read what they write and post, then contact those who might be the best fit for you.

5 Questions You MUST Answer about Your Social Media (or you will hurt your business)

OK, since some of you are reading this as a result of Social Media sites; obviously, I believe there is value in Social Media. 

But, for many business owners, Social Media is a direct cause of their struggles to make money.    The biggest reason for this is what I would call “Intellectually Lazy Marketing.”   “Intellectually Lazy Marketing” occurs when you have no defined “ideal customer,” no targeted message, no integrated online/offline marketing Strategy; but you just post onto Social Media in the hope that people will find you interesting enough to try you.  Sadly, companies who are lazy marketers become companies with falling sales who complain that “the economy” is bad.

Can you answer these 5 questions:

1.  Of your Facebook Page Fans, Twitter Followers, LinkedIn Connections, etc…; how many of them are your Ideal Customers?  How many are people who would never buy from you?

2.  What is your Strategy to increase the number of Ideal Customers who “Like” your page and “Follow” you on Twitter?  Given that many of you spend precious time posting and tweeting (or pay someone else to do so); how many Ideal Customers do you expect to gain from that work in the next week? next month?     After all, you should NEVER spend time or money on marketing without a specific “Success Criteria,”  should you?   

3.  Exactly how many Paying Customers do you expect to get from your Social Media in the next week? month? year?   Think about it.   Have you ever said that the Yellow Pages “don’t work because people do not use them anymore,” but you spend time and money on Social Media without a clear idea if you are getting any quantifiable benefit?  And, if you are saying it’s just about “awareness,”  STOP.   That’s just “Hope”; and we all know that Hope is not a Strategy.

4.  How do your updates speak directly to your target market that: grabs their attention, makes them interested, creates desire, and stirs them to Action?  Sorry, but posting a picture of your Quail Egg Pizza or Line of Desserts do not count.  After all, you are just one of thousands of people trying to get attention.   Consider if I told you that the best way to sell your product would be to drive 30 miles from your restaurant, stand in the middle of a busy street with a big picture, and yell “Desserts!  Look at our Desserts!”  Wouldn’t you think I was crazy, given that people will be “whizzing by” and, even if they hear you, will be unlikely to stop and find out more?  And, for the few who stop, you now have the extra hurdle of making them choose you over all their other choices?  And, then they need to work to drive  across town to try you out?

But, that is what so many of you are doing on Social Media; yelling “Buy my product! Buy my product!” to a generic audience; as you expect THEM to work to discover why they should be your customer.    How much more effective would you be if you had a focused message targeted to your ideal customers?  (this DOES assume you have done the work to identify your ideal customer and the unique message that they will listen to).. 

5.   Are you ignoring other, potentially FAR more effective marketing tactics, because you think Social Media is “cheap”?  FIrst of all, unless you have figured out a way to Stop Time; Social Media is NOT FREE.  Perhaps the time you spend on posting or taking pictures SHOULD be spent on creating motivating compensation plans for your team;  better customer service procedures; or more efficient processes for product delivery.  Secondly, as months go by with an ineffective Social Media system; are you creating a risk that your cash flow will eventually be too low for you to afford what DOES work?   Or, you get to the point where you have no money to invest in a consultant/coach who could have made a massive difference for your business.   Unfortunately, all you can do then is struggle and hope.

Have these questioned changed your view of your Social Media activity?  What is YOUR Strategy for answering these questions?  Please comment below and share this.

Are You an Acorn on Concrete?

Here is a simple question:

Are you an Acorn on Concrete?

What do I mean?

This morning, as I came back from dropping my daughter at school, I saw an Acorn on my porch.  Hmmm.  How successful will that Acorn be at becoming an Oak Tree if it stays on the concrete?  It’s only about 6 inches from the soil; but it may as well be a mile away.

Maybe that’s you: do you have potential, but are struggling to grow because you are just in the wrong place?   Ask yourself these questions:

1.  WHY are you in your particular business?     Just because you CAN do it, does not mean that you SHOULD do it.  I once coached a bookkeeper who was good at the numbers; but who LOVED Real Estate.   I discovered this because, every time I gave her an assignment around marketing her bookkeeping business; she always had some “obstacle” keeping her from doing it.    So, being a successful bookkeeper will most likely be an incredible challenge for her; since that’s not really her passion.

2. Have you examined the REAL potential of your business methodology?   I did not say your business might have little potential; but your methodology.  If you spend all of your time doing business TASKS; but little time strategizing or marketing, success will elude you.  This is one reason most “coaches” and “consultants” struggle to make money:  their methodology requires too much of THEM.  So, every time they get a new client, their pipeline to get new customers shrinks.  They cycle up and down; but never have any real “Freedom.”

3.  Does your business “Get you up in the morning”?   Do you get up every day, excited about how your business is bringing a benefit to others; and is allowing you to live the best life you can?  Or, do you say, “here we go again”; or “I can’t wait until Friday [the idea that you would spend 4.5/7 of your life (the week) looking forward to 2.5/7 (the weekend) is just..dare I say it..crazy!] .   If you do not LOVE what you do, then you WILL subconsciously derail yourself from increasing demand for it.

4.  Are you open to getting help?  It MIGHT be that you ARE in the right business, and you LOVE what you do; but you are doing just a couple of things (or NOT doing a few things) that make the difference between success and struggling.   Maybe, like the Acorn,  all you need to do is to have someone who will find the right place to “plant” your business, and it will grow exponentially.    All the “experience” in the world will not help you; if you continue doing the wrong things.  And, since you should never confuse effort with results; a struggling business means that there is a gap between what you are doing and what you should be doing.

All I am saying in this post is that, it does not matter if you are the smartest person in the world with the POTENTIAL to be a multi-millionaire.  If you are not in the right place, you will struggle.  Even if you are “close,” the wrong place is still the wrong place.

Make a decision RIGHT NOW (not later today, or tomorrow) whether you are truly in the right place and, if not, take action to change.