Where Should I Start?
Earlier today, I read a wonderful Small Business Trends blog post from Jason Cohen called “How To Work On Your Business Not In It.”
Chock-full of great action steps, I wondered, where should I start?
"Where Should I Start," asks Andy Birol.
The further I read the more my stomach tightened. This was not your typical 3-5 action step sort of piece. Instead, it was a list of 24 essential tasks, each which could easily grow into a day’s worth of work.
Stepping back, I wondered with all the how-to articles for at small business owners, where should we start?
Here are my five action steps for getting started
- Begin with activities that increase customer trust.
Actions that make paying customers feel stronger about you is a top priority. The key is to ensure that your activities make your customers trust you without smothering them and wasting your money. - Then focus on steps that monetize your customer’s trust.
You can’t eat trust and your business won’t survive if it is not getting paid for its value. You must get paid for your added service, assurance, or results that your customers trust and value. - Start projecting this trust to prospects.
Your target prospects need to learn about how you treat your customers and how they value you in return. Tools and tactics that get your message out to those who can buy from you next are essential. - Move on to activities that create new revenue streams from customers and prospects.
Creating new ways to make money is essential. In a world of ever-changing customer needs what you can and should sell is a moving target. John Rockefeller, the Warren Buffett of his time said, “My goal in life is to give everyone else all my work so I can spend all my time thinking of new ways to make money.” - Finally take actions that reinforce or create stronger branding for your business.
The Internet economy and social media offer infinite ways to be heard and be in demand. Take advantage of all the creative ways there are to make and sustain a lasting impression.
In reading over my list, I wonder, what am I missing?
So what do you think? Feel like I’m off target and you need to set me straight? Share your thoughts about where you think we should start.
Three Ways To Create Profitable Payers
The 2nd in my series of videos on profitable growth: Three Ways To Create Profitable Payers.
First Way You Can Start To Ensure Profitable Growth
Profitable Growth By Borrowing Less
Is it possible for your business to create profitable growth without borrowing money?
Most business owners and financial experts say no, but after this Great Recession and tight credit sure to continue, the less your business needs to borrow, the better. So let’s look at the following four questions:
A. Why must your business borrow money to grow profitably?
B. What is your real cost of not getting paid just as you invest in your business?
C. What can you do to match expenses to revenue?
D. What’s the best way to increase your margins and profitable growth while borrowing as little as possible?
A. Why must your business borrow money to grow profitably?
Businesses borrow money because most customers don’t pay for goods and services until after they are produced and consumed. Before then any business must:
- Buy raw materials
- Spend money to produce goods or services on:
- Direct labor
- Direct materials
- Direct overhead
- Invest money on sales and marketing to create paying customers.
- Spend on overhead
As long as there is a timing issue between spending and receiving funds, businesses need to borrow money. But it does raise the next question.
B. What is your real cost of not getting paid just as you invest in serving your customers?
Your costs are:
- The actual financial outlays you make to purchase the abovementioned items
- The opportunity costs of not spending money to grow your business
- Any financing costs of carrying accounts receivable for your customers
- Your debt collection costs when you realize you aren’t going to get pad
Furthermore the drain on your emotions, energy and passion are significant.
C. What can you do to match inventory to expenses?
- Inventory plays a large but different impact on a P&L statement than it does on a balance sheet.
When purchased, and applying standard costing rates, the raw materials go into inventory but do not become an expense then. As labor and overhead are added (also at standard costing levels) during the conversion process, inventory becomes an asset on the balance sheet and an expense on the P&L. Those monies also show as asset on the balance sheet and do not hit P&L as expense.It is when finished goods are sold that the asset comes off the balance sheet and the expenses in making it (at standard) hit the P&L as expenses. Don’t assume that expenses on a P&L and balance sheet assets track together or at a predictable rate to sales.
Reducing inventories and turning them fast is critical. - Don’t assume that all customers for your goods and services cost the same to satisfy.
Most firms determine standard customer costs based on costing out average service activities. Just as different customers pay different prices for what they buy, the costs of servicing these customers differs greatly. In good times high maintenance customers could be subsidized by more efficient ones. In this Great Recession with its tight credit, high cost customers cannot be carried. Ensure every customer is paying their way based on how much they cost to service. - The uses of scarce cash need to be equally scrutinized across all three major company functions of sales, operations and finance.
When cash is scarce and it becomes king, all three functions place different demands in their zeal to spend it. Marketing wants to invest in more service and features to raise margins. Operations wants to invest in order to reduce inventory and cut lead times. And Finance wants ration as much as possible by slowing down payables and speeding up receivables. Understand the sources and uses of cash in your business as the less you keep the more you will need to borrow.
D. What’s the best way to increase your margins and profitable growth while borrowing little?
Add value that increases prices without increasing variable costs. Find every way you can to increase the amount of expertise and knowledge that your customers value in your products or services. Doing so allows you to charge more because your value is perceived by customers as helping them to become more successful. And knowledge and expertise should not add additional costs, either variable or fixed. Instead it helps brand your business, create differentiation, and increase your margins, all without borrowing more.
Maybe it is not possible to increase profitable growth without borrowing money.
But every bit of growth you can create without increasing credit become sales dollars you can take to the bank, instead of borrow from it.
