Efficiency improvements in administration and operations

One of the great things about being a small business consultant is that I get to help my clients see problems and challenges they didn’t even realize were there. Many of us have been working for such a long time with the same tools, the same habits and the same protocols that just having a fresh set of eyes come in and ask some simple questions can be very revealing.

A business owner I recently worked with had a number of challenges to tackle, including promotional materials, bookkeeping and web development. They primarily wanted an extra pair of (qualified) hands to help with the extra work that had been mounting in the previous months. But one thing they were not thinking about was increasing efficiency by reducing the total amount of work that needed to be done.

When I looked at their procedure for managing their mailing list, I realized it was a terribly cumbersome process. With a list of tens of thousands of addresses, every new mailing piece required several hours of labor to organize and sort through the list and eliminate duplicates that had been added since the previous mailing. When I inquired, my clients confirmed that this was indeed a laborious process, and they dreaded it whenever it came time to send out another mailing. Now there’s a needless restraint on promotion if I ever saw one. Since the list was constantly adding new subscribers, the problem could only get worse as time went on.

Using some Microsoft Excel tricks, I was able to streamline the whole “mailing list update” process, making it more accurate and less prone to human error, and reducing the total time for the task from several hours to several minutes. Now more mailing pieces could be sent out, on a more regular basis, and the company could be unafraid in pursuing new subscribers.

Efficiency improvements often come in unexpected places. Done well, they can save you money, time and sanity for very little sacrifice. Sometimes, as in the case of my client, there may be no downside at all, only upside.

Analyzing Data to Improve Your Business

An event production company I recently worked with had been experiencing a slowdown in revenue from clients, impacting total profit as a result. So I took it upon myself to look back into the company records to see if history offered any insights. I was right.

I knew every year this company had changed not just the prices, but the price structure of its production offerings. Sometimes they would require a minimum number of services from the client in order to produce an event, and other times, they would offer a flat fee for a package of services, and a higher fee for another package. The prices themselves and complexity of the price structure varied from year to year, but without any kind of pattern. In other words, every year, this company was shooting in the dark in setting prices for one of their most important sources of revenue.

In performing my analysis, I initially looked at two major series of data: first, the prices in each year and second, the total revenue from all clients that year. Pretty simple. But as I went along, I realized there were other important and interesting numbers to consider, such as the total number of clients participating, the average payment per client, the median payment per client for each quarter, etc. Each of these numbers supplied valuable information.

My most important discovery was that the company earned the most money from client fees–by far–in a six month period several years back when the prices were lowest. Moreover, in spite of the myriad jimmying with the price structure and product offerings, that very same period turned out to have the simplest price structure of all the ones on record! Tying it all together was a final key piece of data: this very same period also saw the greatest number of clients on a monthly basis the company had ever had.

Right in line with these observations, I noticed that in the most recent months and quarters, the company earned the lowest amount of total client revenue, and the lowest average payment per client. Were the prices high and the offerings complicated? Indeed. Sure enough, these months also had the most complex set of prices and product offerings, as well as the highest prices overall–ever, in the history of the company.

My conclusions from this analysis were that clients, in the aggregate, were interested in two things: (1) low prices and (2) simple options. It was no coincidence that the company received the least amount of total client revenue when prices were the highest, and when the price structure and offerings were the most complicated.

By offering a simpler set of options and slightly lower prices overall for those options, the company could spark the interest of more clients, and therefore receive more total client revenue during the year. In spite of the lower payment per client, profit would increase. It’s fascinating what the right kind of analysis can do for your company.

Cash Flow Improvement in 10 Easy Steps

Cash is the lifeblood of small business. No matter how great your revenue and expense situation looks on paper at the end of the year, if your cash isn’t coming in and going out at the right time during the year, you could find yourself in dire straights on a regular basis. The resulting gaps can be enough to cripple your operations and severely curtail your growth prospects.

So how can you improve your cash flow situation? Here are 10 steps:

1. Beginning with today, make a list of all cash in and out that you can expect for the next 6 months, as detailed as you can be.

2. Use the records from previous weeks and months to estimate the amount of your expenses, and when they occur each month (in the case of regular expenses), or when they can be expected to occur (in the case of irregular ones).

3. If previous experience can be used to estimate upcoming revenue and the timing of that revenue, then do it. If not, then go through all your current leads, clients and projects with a fine tooth comb, make an estimate of how much money you can reasonably expect from each (note: NOT what the contract or agreement was for, but rather what you can actually expect—the purpose of this exercise is to be as realistic as possible), and when you can expect to receive the money, as date-specific as possible

4. Reevaluate any previous forecasts made about upcoming marketing campaigns, investments in equipment, big-ticket purchases or new hires, and the expected costs and benefits thereof. Are those projections made last year still on target? Are they still reasonable? Should they be adjusted, up or down, and if so, why? And if so, what does that mean for forecasts going forward?

5. By now you should have a detailed and pretty exhaustive look at what the coming months have in store for your bank account. If it looks good, then pat yourself on the back (or say a prayer of thanks). If not, then move on to step 6…

6. Go through your expenses one by one, cut out unnecessary or wasteful spending right now, before it hits the bank (automatic payments can be particularly insidious in this regard), and seek to negotiate for more favorable payment terms with suppliers and vendors wherever possible. Don’t complain, just swallow your pride and do it. These kinds of new agreements can be precedent-setting for the future.

7. In the same way, go through your clients and see if you can get them to pay sooner than expected. Offer discounts for earlier payments. Offer a payment plan in installments. Offer extra goods or services that are low-cost to you, but high-value to them, such as a quality guarantee for an extra fee, some consulting services in an area you know well, or a new product/ service that complements their main purchase, for a lower price. This can incentivize them to do more business—now—with you, and get the cash flowing. This is also a good time to take a look at the simplicity and effectiveness of your billing system.

8. Reward loyal customers with a discount that incentivizes them to pay up sooner rather than later, and then offer those same customers lower prices, preferential treatment, and/or more choices from now on. Because there is nothing better for a business than loyal customers.

9. When met with new clients, size them up from the start to get a good idea if they will be loyal and lucrative for months and years to come, or if they are exhausting their life savings to do business with you. File their business cards accordingly. This will help you get a more realistic view on your cash flow prospects at any given time.

10. Perform these exercises on a regular basis. You will get better at it over time, and your estimates will get more and more realistic as you go along. You will also get better at sizing up your customers quickly, which will help you better allocate promotional and sales resources.

Small Business Planning in Three Simple Steps

It is easy and effective to plan well in small business. Planning doesn't take a lot of effort, it shouldn't take a lot of time, and the best part is: it's free. Use these 3 simple steps to get an advantage over the competition.

1. Mission and Objective

What is the overall purpose for your business? Your answer should be detailed, specific, meaningful and measurable. To say "make a lot of money" is not an objective. To say "consistently exploit advantage X to create Y amount of value by date Z" is better. A good objective will be realistic, but ambitious. It will focus your attention and push you to take reasonable risks. It specifically defines what "success" looks like. Although the world of small business is constantly changing, with new opportunities and new threats all the time, your mission should provide a solid, consistent framework. Within that framework, you will plan, strategize, innovate and execute in a changing marketplace.

2. Strategy

How will you attain your objective? What fundamental rules or method will you use? That is your strategy. Strategy is a long term approach that underlies all of your short term actions, in the service of your objective or mission. A good strategy, like a good objective, will be detailed. It should be detailed enough to provide answers to a variety of important questions that you will encounter. But it should be general enough to only change occasionally. What major tools, methodology or resources will help to achieve your goal? What kinds of advantages, characteristics or unique qualities will allow you to stand out from the competition? These kinds of questions will help you develop a strong strategy.

3. Tactics

Tactics are the short term, day-to-day and week-to-week measures taken to support the strategy. Good tactical decisions allow you to compete more effectively. Tactics are inspired by two types of sources--internal and external. Internally-inspired tactics come from new initiatives and new projects that you think will help to further success. Externally-derived tactics are responses to short term changes in the marketplace, in the overall economy, feedback from customers or new moves by competitors. Success requires flexibility. Flexibility is what good tactical decisions are all about. By staying flexible and responsive to both internal and external developments, small businesses can find success consistently.

Five Steps to Whipping Your Small Business Into Financial Shape

Good financial management can be a challenge for small businesses. With the passion and creativity that small businesspeople bring to their work, the nuts and bolts of exploiting revenue streams and controlling costs often take a back seat. Here are 5 quick tips for better money management.

1. Recognize your limits

Don't let enthusiasm for your field get the better of you. Energy, passion and love for your work are great (and necessary) virtues for the entrepreneur. But leave them to their own devices, and you can quickly get in way over your head. I've seen it happen. Before you know it, your business might start looking more like a hobby--an expensive one.

To keep on track, spend a few minutes taking stock of your financial and human resources. How much money do you really have? What can you realistically expect from your current receivables? How about tangible assets? A positive attitude can be a double-edged sword: great when it forces you to take on challenges that push the boundaries of what you think is possible, but potentially undermining to a realistic assessment of your capabilities. And that's when big money can start to fly out the door. Money you can't afford to waste as a small business. Recognize your limitations, accept them, and then push on them responsibly without breaking the bank.

2. Cut out the fluff

Focus on what you do best. In small business, it's terribly important to have a rock-solid idea of what you do, the value you deliver to customers, and how you're doing it. Part of that, though, is having a firm idea of what you don't do. Just like recognizing your boundaries, having a solid understanding of what your business is not will allow you to streamline your thinking as well as your operations. Once you can concentrate your energies on your "core competencies" you can save yourself a lot of financial headaches. Those are the kinds of headaches brought on by misguided "investments" and foolhardy purchases designed for a revenue model that isn't yours.

3. Worship money

Make the necessary cost cuts, even if it hurts in the short term. Exploit every opportunity available for stoking sales and closing deals. Think outside of the box on both sides of the ledger. You're in business to make money, right? Once you're done with points 1 and 2, you should be in a position to make the absolute most of what you have and maybe even a little more. Keep your eyes on the prize.

4. Be flexible

The only constant in business is change itself. Be responsive to change. Keep an eye out for new time-saving technologies, new threats to your established relationships with clients, and new competitors in the industry. Just when you've got it all figured out, the market will throw you a curve ball. Consumer tastes will shift. Your biggest client will go under. Whatever. Only those businesses most responsive to change will succeed. And this means keeping an eye open for threatening developments as well as easy-to-tap opportunities. That's when you'll start to leave less money on the table.

5. Get some outside advice

If you're like most small businesses, a fresh set of eyes and ears will give you a new perspective. Maybe the old routine that you've fallen into is actually holding you back more than it's helping. Maybe there are some fresh opportunities for cost savings that you didn't even realize. You want an objective voice, and someone you can trust. Your consultant or coach should be able to give you the insight you need, as well as the honest appraisal you might not want to hear, but that you know is right. Financial success might not be easy, but following these tips can get you there sooner rather than later.

The Secret to Success? Low Overhead, Low Fixed Costs

Ok, maybe it's not that simple, but according to the recent Forbes study of the most profitable small businesses, low overhead, seen in professional services among others, can certainly help:

Two big perks with professional services: consistent demand (no matter what the economy is doing, people will still catch fevers and want to avoid paying taxes) and relatively low overhead. Little surprise that traditional industries--like manufacturing and retail, which are hard to scale--didn't make the cut. The top of that heap, including medical-equipment makers and wineries, clock 6% pretax margins; jewelry stores, 4.4%.

This compares with an impressive 17% margin for CPAs, who sit at the top of the list. The biggest insight from the report is that specialized knowledge pays off the most. As a result, professions like medicine or accounting which require years of study and deliver good value when the customer needs it most, are most likely to do well, irrespective of the current place of the business cycle.

Now, the Forbes analysis dealt with businesses making $10 million or less, which some would argue are not "true" small businesses. Still, how might your organization benefit from this kind of analysis? What kind of expertise or specialized knowledge can you offer to customers, with low overhead or minimal fixed costs, at a key time in their business or financial lives?

Ten Ways to Build Trust with Online Customers

By Darren Barefoot, Open Forum

1. Treat online customers as if they’re standing in front of you. The anonymity of the web sometimes makes us behave less personably to our fellow netizens. When interacting with others online‚ particularly when you receive criticism‚ ask yourself how you would react if they were in your office in a bricks and mortar business.

2. Abandon the superlatives and spin. The more intelligent your customer, the more heightened their distaste for unearned self-praise. Tell people what your product is, and why it’s good. Praise works much better when it comes from a third-party; that’s why media relations and user testimonials work so well.

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IRS to Target Independent Contractors – Protect Your Small Business

IRS to Target Independent Contractors; Protect Your Small Business

Money Management Tips

This Yahoo article is targeted toward women but, frankly, anyone can benefit from this advice. The issues are very relevant for many small businesses. Here is my favorite line:

What does it take to waste $10,000 a year? Just $27.40 a day.

Simple as that. Imagine how many more small firms, one-person firms and entrepreneurs would attain true success if they just paid better attention to that kind of detail. And the best part--attention to financial detail comes with a price tag of zero.

Small firms with big ideas

See this video from Business Insider for a reality check on the recent Facebook and Twitter valuations. The interviewee warns that those valuations may be excessively high. Whatever your opinion on the topic in question, I see an important takeaway for small businesses: it all comes down to dollars and cents. Even if, unlike the speaker says, the valuations of these companies are spot on, he raises the important issue of style vs. substance in the world of business.

Countless small firms have great, profitable ideas, but it can be difficult to see that value in a realistic framework, especially if positive confirmation from the market and from investors has accrued in spades. The entire dot-com bubble was born out of this kind of disconnect between style and substance. Chances are your small business has real value, and so does the idea underlying it, but if that initial seed of potential isn't watered with the adequate attention to detail (i.e. the "boring" stuff like cutting costs or marketing), and a commitment to an objective reckoning with its limitations, it will never realize it. A small businessperson shouldn't allow anyone to know the limitations of his/her own firm better than them.

Small needs vs. Big experience: Bigger isn't always better

An interesting article recently by Ben Horowitz in Business Insider analyzes the challenges that can arise when small companies--especially creativity-hungry ones--bring in managers from larger organizations. Suffice it to say it doesn't always turn out as planned. Here are some quotes that jumped out at me:

In fact, most skilled big company executives will tell you that if you have more than 3 new initiatives in a quarter, you are trying to do too much. As a result, big company executives tend to be interrupt-driven.

In contrast, when you are a startup executive, nothing happens unless you make it happen. In the early days of a company, you have to take 8-10 new initiatives a day or the company will stand still. There is no inertia that’s putting the company in motion. Without massive input from you, the company will stay at rest.

And more:

When you run a large organization, you tend to become very good at tasks such as complex decision-making, prioritization, organizational design, process improvement, and organizational communication. When you are building an organization, there is no organization to design, there are no processes to improve, and communicating with the organization is simple.

On the other hand, you have to be very adept at running a high quality hiring process, have terrific domain expertise (you are personally responsible for quality control), know how to create process from scratch, and be extremely creative about initiating new directions and tasks.

The reason these kinds of relationships can fail is because small businesses and big businesses simply have different needs. In the broadest sense, both are profit-seeking enterprises seeking to maximize return on investment. But there are an infinite number of ways to accomplish that goal, and different environments (external and internal) call for different strategies. And therefore different managerial and leadership styles.

It is not safe by any stretch to assume that an individual, team or organization that thrives in one environment will thrive in the other. Small businesspeople can avoid a lot of hiring headaches by simply taking a good look at what their environment is, and what skill sets are a best fit. Top-down management or bottom-up? Routinized, mechanistic administration or creative, spontaneous inspiration? Collaborative teamwork or individual initiative?

Not sure which approach your organization needs? Start by looking at your own tasks, projects, and daily routine, and go from there.