Monthly Archives: February 2014

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Cash-Flow Woes and Antidotes

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Lucky you.  Your sales pitch to prospects is working and clients are stacked up like planes landing at O’Hare.  Receivables are numerous and the balance sheet rocks.  So how can it be that you almost didn’t make payroll  (again)?  How can you come up short on cash,  with all the business you’ve created?

Like so many business owners,  especially those who are new or who suddenly acquire a competitive advantage that creates a tidal wave of business,  you did not recognize the signs that a cash-flow crash was impending,  regardless of how much money was scheduled to flow into your coffers.  You placed your primary focus on creating business (which is vital),  but neglected to monitor the ebb and flow of revenues and expenses (which are vital).  Every business owner must keep an eye on the money ball and take corrective actions as needed,  if we want to keep the business alive and thriving because quite perversely,  as sales go up,  cash can go down.

Here is one example of how a cash-flow crash might happen.   As business expands,  staying on top of accounts receivable becomes more time-consuming.  Those in service businesses  (like website design or public relations) may find that clients,  oftentimes larger businesses whose names we crave for our client list,  may unilaterally decide to pay receivables in 60 days,  instead of 30 days.   Meanwhile,  you have payroll,  office rent,  phone bills,  auto insurance and numerous other operating expenses that are due somewhere between right now and 30 days.

Another cause of cash-flow crashes is improper pricing.  You may sell a ton of T-shirts but if the profit margin is too thin,  you’ll find that excellent sales volume as demonstrated by number of items sold does not overcome an inadequate mark-up.  Revenues generated will not cover expenses.  It will be necessary to either acquire the product less expensively,  or raise the price.

A growing business brings up still more issues that keep its owner awake at night: capital expenditures.  You will need to decide whether or not and when  (or not)  to upgrade office equipment,  open a new office or move to larger quarters,  or hire more workers to keep up with the growing number of customers.

Fail to invest in capacity and you leave money on the table,  plus dissatisfied customers who are likely to kill you on social media.  Get fooled by the romantic delusion of further growth,  invest in demand that never materializes and you are stuck with potentially crippling debt that can bankrupt the business.

That is quite the dilemma and only the best fortune-teller can give the right answer.  John Terry,  of Churchill Terry business advisers in Dallas, TX,  recommends that the business owner focus on one question only when evaluating the possibility of making large capital investments:  will it bring money in the door?  If not,  find a less expensive alternative or learn to make do without it.  Successful business owners learn to preserve and protect liquidity.  Here is an effective antidote:

  • Hire a savvy bookkeeper or accountant to function as the business controller ( full or part-time)
  • Each week,  collect the data on key financial indicators: accounts payable,  accounts receivable,  available cash and the quick ratio (cash + receivables / current liabilities + payables) to monitor that all-important liquidity
  • Each month,  collect the data on these indicators: accounts receivable turnover ratio (how long does it take to get paid?),  the operating cash-flow ratio (cash-flow from operations / current liabilities)  and the pre-tax net profit margin

It is imperative that you are able to pay obligations when they are due and for that you need cash in hand.  Analyze the above indicators weekly and monthly and learn what is really happening behind the scenes of your business.  Track the available cash trends over time.

Seasonal variations may become evident.   You may have to step up collections of receivables or approach certain clients about speeding up payments.  You may have to request more money up-front before taking on certain projects,  so money will come in faster.  You may need to trim expenses.  You may need to raise prices.  The decision of whether to invest in capital upgrades will become clearer.

There are software programs that will track important data and help business owners resolve problems and set priorities.  Accounts receivable,  cash,  inventory and liquidity can be monitored,  along with confirmation on whether the business is on target to meet budget and revenue goals.  For those businesses that get a lot of repeat business,  it is also possible to track the profitability margins of key clients.

Thanks for reading,

Kim

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The 5 Minute Sales Call

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I am writing on Valentine’s Day and I confess that I believe in love at first sight.  It does not always happen but sometimes,  one or both members of the couple  “know”  that the other is someone special and that the relationship is probably destined to be significant.   Some claim that they knew almost immediately that they would marry a particular person and that in fact the marriage took place  (I know three such couples).

Business relationships can follow the same pattern.  One or both parties may sense very early in preliminary discussions that there is great potential in the relationship or conversely,  that it is likely there will be no future.  Create some good luck for yourself by making a good first impression and making the most of your first five minutes with a prospective client.  Success lies at the intersection of good fortune and preparation.

Minute 1   Grab attention

Create  “verbal packaging”  that portrays your product or service as relevant to prospective clients.  Communicating the relevance of what you sell comes from knowing what clients value about your offerings and deftly articulating those benefits for prospects as you describe why,  where,  when and how to use your product or service.   If you’ve had time to prepare,  then do your homework to get a good sense of that individual’s business and construct a personalized pitch.  Your product/service must solve a problem or create a competitive advantage.

Minute 2   Talk details

If your prospect either admits that what you sell is needed,  or at least continues to listen with interest,  then ask a few questions to find out where you stand.  Is there a specific and immediate problem or goal?  What is the time-table? Float solutions that your product/service will provide.  This stage allows the prospect to visualize the process and outcomes of doing business with you.

Minute 3   Propose solutions

Explain further the solutions that your product/service will provide and persuade the prospect to define the goal or problem if that has not been done so already.

Minute 4   Establish timeline

Lay out a road map for implementing your solution and completing the sale.  Define the operational processes that will be followed to put your product/service in motion.  Now the client will know that he/she must agree,  or decline,  to proceed.

Minute 5   Close sale

Tell the prospect what has to happen to enable the sale.  Confirm that you have a sale   (“Are you ready to move forward with this and when would you like to start? You would like the project to be completed by what date?”).  Offer to send a contract or confirmation email to lay out the steps,  the timeline and project milestones.  Confirm the project budget and negotiate/agree on the project fee  (or hourly rate),  the amount of money that must be paid to you before you begin working and when future payments will become due.   Confirm payment options.   Say thank you and shake hands with your new client!

Thanks for reading,

Kim

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Highlights of The Social Business Benchmark Study of 2013

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Last year Leader Networks,  a Boston area consulting firm that specializes in B2B social media and the global not-for-profit think tank Society for New Communications Research,  teamed up to conduct a comprehensive and global study of the usage of social media for B2B interaction.  Fifty-five mostly for-profit organizations of various sizes participated.  The study examined the following topics:

  • How organizations are currently leveraging social business efforts
  • The use of social media tools,  internally and externally
  • The readiness of organizations to utilize social media tools
  • Intentions of social business strategy
  • Social media marketing strategy and the ability to leverage and operate same as social business initiatives

Companies studied were mostly present on LinkedIn,  Twitter,  YouTube,  Facebook,  Google+ and their company-sponsored blog,  in that order.  The study distinguished between social media marketing,  which it defined as the use of social media platforms for marketing and social business,  defined as using customer information gleaned from social media marketing to enable more efficient and effective decisions,  actions and outcomes within the organization.  The study also developed a continuum of social media use:

  • Socially Familiar- organization is present on at least one platform and has policy guidelines;  the organization is experimenting to learn what works
  • Socially Present- organization has minimal or limited social media staffing, strategies,  or policy guidelines;  brand advancement forms the core of information communicated
  • Socially Enabled- social media platforms form the basis of customer outreach;  moderate to significant levels of budget,  staffing,  policy guidelines and strategies are in place and utilized optimally
  • Socially Integrated- organization has significant use of the above indicators;  communication is two-way,  with much customer engagement;  information gleaned is incorporated across the organization

Companies usually approach social media involvement through a few Socially Familiar staff members who experiment with various platforms to figure out what works best for company objectives.  After about 3 – 6 months,  those staff members will present their findings to direct-report management and request approval to advance to the next level.   At the Socially Present stage,  selected social media platforms are used to broadcast brand awareness messages and marketing campaign information.  Communication is primarily one-way.   This period usually lasts 6 – 24 months.

At the Socially Enabled stage,  communication is primarily two-way and information is deemed actionable.  Social media staff gather and disseminate information from social media communications deep within the organization,  where it impacts R & D,  customer service,  technical support,  marketing campaign strategies,  sales distribution choices and other functions.   Social media may play a role in nurturing relationships with organizational partners and suppliers.  Tangible social media ROI is recognized.  The final stage,  Socially Integrated,  is only rarely achieved at this point.  In fact,  this stage may not fit the objectives of most businesses.

Insights brought forth from the study were what one would expect.  C-suites executives are rapidly accepting the inevitability of social media and budgets are being made available to support staffing,  which is based in marketing departments.  Social media strategies are being developed and social media guidelines are being drafted (by legal departments).  Brand reinforcement,  rather than customer engagement,  is the primary goal of B2B social media strategies at this time,  but lead generation (sales departments),  R & D and customer service (operations departments) are emerging as important players.  Linking the social media strategy to business needs and performance metrics to measure ROI is becoming more common.

Nevertheless,   in most cases,  funding for social media initiatives remains low.   More than 50%  of respondents reported that their companies spent 5%  or less of their IT budgets on enabling social media platform tools.  23%  reported that their organizations had no plans to spend on social media.

Thanks for reading,

Kim

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Doing It Better: Operational Efficiency = Competitive Advantage

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Many of you may know that I teach business plan writing.  I will begin another session of my three-part  (total six hours)  workshop series  “Become Your Own Boss: Effective Business Plan Writing”  at Boston Center for Adult Education on Wednesdays February 5, 12 & 19 5:30 PM – 7:30 PM  http://bcae.org class ID # 10573.  

I recently upgraded the operations segment of the workshop because like too many business plan resource providers,  insufficient attention was paid to those issues.  For example,  the business plan template displayed on the Small Business Association website does not include an operations segment.  Operations is an important element of every business plan and business,   including those organizations that sell intangible services.  The inclusion of an operations segment to my business plan writing workshop is a quality control/operations upgrade that allows me to better  meet or exceed client expectations and gives me a competitive advantage.

What do we mean by operations?  Operations is the process by which the items we sell,  whether products or services,  tangible or intangible,  are obtained or produced and made available for sale.  The operations component of a business plan  (and operations departments)  accounts for a wide variety of responsibilities,  including distribution of the product or service to the marketplace  (sharing that responsibility with sales; operations oversees shipping and handling);  inventory management;  quality control;  maintenance of the place of business;  maintenance of business equipment;  workplace safety;  and risk management (sharing that responsibility with finance;  operations oversees aspects other than financial).   A business model includes elements of operations and marketing functions.

Recently,  I suggested to a client a way to use social media to create an operational efficiency that will result in a competitive advantage for her business.  Outreach made by her staff to targeted populations will soon become faster and the number of potentially successful contacts will increase,  as the time and cost of doing so will decrease.  The organization will more easily and inexpensively meet or exceed its clients’ expectations.  This new operational efficiency can be promoted to prospective clients in the talking points of a sales pitch and used as a means to bring in more business.

It is to a Freelance consultant’s advantage to learn how to create operational efficiencies and provide services of the greatest value faster and less expensively.  The time and money saved can be used to directly increase revenue and/or promote the business.  The operational efficiency that I created as I became more experienced and proficient in writing these weekly blog posts caused me to receive the paid opportunity of editing a colleague’s monthly newsletter.

Operations processes are different for every category of business,  so I cannot give specific recommendations of how to create efficiencies within your venture.   Overall,  be mindful of how you source  materials for products that you manufacture,  the wholesale costs of  items that you sell at retail,  or what you pay for supplies.  As your business grows,  look for ways to buy in volume so that you can minimize the cost of goods sold.  Look also for ways to cut production time of products or services that you create and always strive to provide a product or service that meets or exceeds customer expectations.

Thanks for reading,

Kim