Limit Your Business Risk & Prepare for the Unexpected

No matter the size of your business – sole proprietor, partnership, LLC, or corporation – you daily face decisions and opportunities that affect your business risk. Many of the choices due to these circumstances are obvious and you will make good decisions guiding your future business operation toward safe territory. However, other choices may appear to be innocuous in their affect on your business but under dynamic market and business conditions can have a significant impact on your business, increasing your risk to grow and perpetuate the business.

At the beginning of the recent recession I was amazed at the number of companies that did not have sufficient cash reserves or line of credit to last more than a few weeks when sales dropped. They did not have enough freeboard in their business to withstand the economic storm and take corrective action to survive. Do you have enough freeboard to deal with the unexpected in your business?

Here are some positive steps that you can take to reduce the impact and risk in dealing with the unexpected?

1. Managing Cash Reserves: Accruing cash to offset unexpected cash (either due to controllable events such as unplanned/ unforecasted expenditures or uncontrollable crisis) demand is difficult to do when you think you are in control. Putting cash on the sidelines may appear to be betting against yourself, that you have a good handle on the future, or that you are convinced that spending the money now versus putting it into an “idle” position is a better business decision. Remember once spent it is not easy to recreate cash when business tightens, squeezing your cash flow from positive to negative. Get counsel from your accountant or trusted advisors on what level of cash to keep in reserve. Rely on outside or objective perspective as your emotional commitment to the business may blur your objectivity.
2. Employee Competence: The competence of key employees or contractors may not be a glaring problem during boom times but can become a critical factor when you least expect or can afford it – particularly during a down market. This may be expressed in what you hear from customers that your employees are promising or how they are servicing the account, which may be retarding additional sales. Employee loyalty is a diminishing characteristic in the work force today, which can result in unexpected turnover, loss of an account relationship or worse loss of a customer if they go with the employee. Choose employees wisely and review their performance regularly to make sure their performance and attitude is consistent with the needs of your business. Owners can become so focused on the tasks of managing the company that they take relationships with key employees for granted and overlook their shortcomings and miss signals indicting their dissatisfaction and potential for leaving.
3. Customers: Customers are obviously important but what risk do they present to your business. Do you have good business agreements in force in case payments are stretched out? Does one customer have more than 10% of your business or margin? Do you have regular contact with customers to measure what is happening to their business and how it will affect your forecast? Good customers can adversely affect your business when you least expect it. Do you have the reserves to see through what ever interruption in normal business occurs, possibly even replacing them, until you are able to recover the loss? If you have customers that represent a significant part of your revenue or margin then you are well served to develop other clients to reduce the potential impact on your business by any unexpected loss of business from major accounts.
4. Key Suppliers: A supplier of critical components or services can also have an adverse impact on your business. Remember you are not just buying a product or service to a specification but you are also dependant upon the quality of the management process to perform sufficiently to protect your interests with timely delivery, at the contracted price, and meeting or exceeding quality expectations. Do you have a strategy to use alternate sources of supply to preserve your ability to deliver to your customers reliably?

Will I avoid all risk if I invest in the areas cited above? No! But it will set a tone for how you and your organization manage the business. It is not a matter of making a mistake but how you respond to those mistakes and reduce them over time, Developing sound business practices and a balanced business strategy that is not only focused at developing the business but also addressing those issues that will impair your ability to deal with the unexpected – and the unexpected will occur!

When to Say No to Business!

In a recent article on the Five Principles to Managing Cash Flow Successfully I received a number of comments on the third principle – Importance of No.  As business people we strive for the yes from the customer/account/client, which means an order or a commitment for an engagement.  However, in our drive toward closing the order we can overlook critical signals about the customer or become too aggressive in negotiating away our value that often results in business we wish we had said No to and walked away.

Why is it so hard to say “No?”  We have all been there –more than one, two or three times.  The experience is the same.  We make less money.  We regret the customer relationship.  We loose face or feel people will think less of us if we back away.  We are less motivated and we struggle to deliver a good quality experience despite the circumstances.  Our internal drive to win any and all business is a strong one and difficult to manage.  It becomes personal when we should be objective and recognize that we should let the opportunity pass to someone else who may be a better fit or willing to take the risk with this particular piece of business.

We need to manage and control the fear of loosing business or an account and stand firm on the success principles of our businesses. It doesn’t make sense to compromise your business principles only to put the customer relationship at risk.  If you roll over and walk away from your principles you will move from a position that you can defend to your customer to the slippery slope of compromise that once you start it is difficult to know where to stop.  Some customers (under the guise of good negotiating) will take advantage of you once you start down this path.

Here are key indicators that you should look for that will put you in a “No” position.

1. Balanced agreement/contract – You should have a sound business contract/engagement agreement that protects you and looks out for the interests of the buyer.  Use legal counsel and an insurance professional to look it over to make sure it is sound.  The key terms of the agreement should be reinforced during the sales development process.  If the customer is hesitant to sign the agreement wanting to do a handshake or refers it to his attorney and it comes back with language that clearly favors the buyer – say “No!”
2. Moving goal posts – Too often a customer will want, or appear to want, infinite idea flexibility and each time you meet with them the story changes.  Your job is to contain scope creep and avoid pressure on what you have proposed and what will be agreed to in the beginning but seems to continue to evolve.  Another factor is vagueness or difficulty in agreeing to details that are critical to your performance.
3. Working relationship – If you do not have a reasonable working relationship – keeping scheduled meetings, providing necessary details, reasonable access (returns e-mails, phone calls, etc.), demonstrates appropriate follow up on activities they are responsible for – then you are witnessing what your under-contract working relationship will be like.
4. Outside your core competency – You get jazzed about a great opportunity and then realize that the scope of the work requires experience and competency that is too far from what you are capable of doing.  In this case the opportunity is not a good match for you and you should withdraw gracefully.  Most customers will respect your decision and will consider you for future opportunities due to your honesty.
5. Contact with the key decision maker – Where your success is dependant upon organization cooperation but you do not have access to the decision maker that is responsible to deliver that cooperation then you are at risk. You need to have access to the senior manager that can make things happen if they are not occurring on their own or you will find that you are working uphill, against the flow, and at risk.
6. Absence of commitment – If the customer is unwilling or finds it difficult to commit time or reasonable resources in the development of the project then, like 3 above, the customer is not engaged or committed to not only to their success but yours as well.

Saying “No” should occur as soon as you cross one of the thresholds above where you know it is not going to be a good deal.  Communicating your decision should be in person if possible and also in writing describing the important business factors that you feel need to be present for success.  Do not highlight what you feel are the customer’s shortcomings, as you will want to be considered for future work.  The “No” statement should be used to strengthen the customer’s impression of you and not a basis for breaking a relationship.

So what do I do if I am always saying No?  You will find yourself doing a better job of qualifying customers and investing in those that do not have the characteristics above.  They are out there and as you raise your standards you will find them.  Why are there so many “No” opportunities – possibly because the better companies and professionals have already turned them down! 

Make sure you invest in opportunities where there is a high probability you will want to say, “Yes!”

Character: Cornerstone of Win/Win Success in Business

Steven Covey in his 1990 bestseller “The Seven Habits of Highly Effective People” devotes a number of pages of his book to discussing the 5 Dimensions of Win/Win. His premise is that thinking Win/Win is the habit of interpersonal leadership. This is a key point in that many of us are small business owners or sole proprietors and do not have the luxury of delegating the Win/Win of our business to someone else. We need to be sure we can master the Win/Win philosophy or we will not be able to enjoy the success we aspire to.

These dimensions include: Character, Relationships, Agreements, Supportive Systems and Process. Thinking Win/Win begins with character and this will be the focus of this article and I will leave you to get the book and read about the remaining four dimensions. Why is character of interest to me? It is what I can control or influence the most. It is the foundation and cornerstone of Win/Win.

Covey defines character as having three traits essential to a Win/Win paradigm. These are Integrity, Maturity and what he calls Abundance Mentality (there is plenty for everyone). We know these traits and often recognize them in others that we find are easy to work with, are trustworthy and provide a sense of satisfaction and accomplishment when a project is completed – Win/Win.

A penetrating question is do they have the same feeling toward us? How do we score ourselves in the fundamental character traits for Win/Win.

Character Traits

Integrity: Integrity is the value we place on ourselves. A primary measure of integrity is how good are we at honoring promises and commitments not only to ourselves but also to others? Is this trait important to you? Do you find it easy to work with someone who cannot fulfill what they have promised others? Do you find it easier to work with someone who you know will go the extra mile to make sure they deliver and support you?

Maturity: Maturity covers a lot of ground but deals with our ability to express our feelings and convictions with consideration for the feelings and convictions of others. We often find ourselves in urgent (confrontive) situations where it is necessary to communicate a difficult subject and we have choices in how we accomplish it. Are we overbearing and inconsiderate in our goal of completing the task or do we address the feelings of the other person and help them see our point of view. How do we react when we are taken to task on a matter and the other person tramples all over our feelings and convictions? Are we motivated to work toward a winning relationship? Are we more motivated by someone dealing with confrontation emotionally or in a mature manner that balances nice and tough? Do you deal with others in this type of circumstance as adults or as children?

Abundance Mentality: How do we share credit or recognition, power or profit? We all know what it is like to work with someone who “steals” the credit or “grabs” the power in order to make them look good. These people tend to be insecure and have low personal wealth. On the other hand people who have high self worth and security tend to be very interested in the welfare of those around them. It is much easier to work with someone that is not always looking for ways to make them look good and willing to share the credit and recognition with you and others.

Character is the cornerstone of the 5 dimensions of Win/Win. Some of us come by the three traits of character naturally. Others of us need to consistently work at it to overcome negative behavior.

So . . . how did you score yourself? What are you going to work on? If you are not sure of how you are really doing seek out a mentor (someone with integrity, maturity and an abundance mentality) who can offer you perspective on your character. You may this difficult and tough to do to be transparent and vulnerable but it is better getting feedback from someone you trust than through lost business or lost accounts. Seek out those in your workplace that seem to have the Win/Win profile and go to school on them on how they develop their positive character work traits. You might be surprised at how hard they work at it.

Remember Win/Win begins with your character!

5 Principles to Managing Cash Flow Successfully

Managing cash flow is a simple concept – but hard to do it successfully in practice. Why? Business is dynamic and balancing the timing of unpredictable revenue against the predictable consumption of cash by fixed expenses coupled with unpredictable variable expenses can create a cash flow crisis. An easy solution is to just borrow more money (sound familiar – US Gov?) but that only provides a short-term solution to what might be a chronic problem of reigning in expenses to the revenue that your business is producing.

I have outlined 5 basic principles that can help you establish good business practices that will allow you to keep abreast of your cash flow position and enable you to take necessary action and managed your cash successfully.

1. Revenue/Expense Budget: Develop a budget that time phases your cash (expense) needs. This may need to be down to the day (i.e. cash for payroll) and not just bucketed by month. This then helps you determine how much revenue you need to sell and then collect payment on in time to make payments. Review your budget with other business professionals to get their feedback as to its believability. Their initial comments may hurt but your still working on paper and not spending money. Stress your plan for corner conditions (low sales, unexpected expenses, delays in receivables) and understand how your budget may or may not respond under those conditions.
2. Collection of Receivables: The critical element in managing cash is to understand what collection obstacles may occur that would delay the arrival of cash to pay for necessary expenses. A common mistake is not recognizing that a (valuable) client may choose at their discretion to extend and delay payment. Having an effective collection process that is prepared to contact clients “prior” to the payment date to make sure that the client organization is scheduled to make payment and that nothing is amiss. Do not let this become a conflict avoidance issue. Remember you are in business and the collection process, done professionally, can be painless – most of the time!
3. Importance of No: Too often we are hungry for business or excited about a new client and make allowances, become too aggressive in pricing or scheduling a project, or committing to a poorly defined project. The end result is that you devalue the value that you offer the customer. What you rationalize as a good concession at the time to get the order makes it a costly product/project to deliver. Because of the over commitment you consume opportunity and delivery time on a low margin piece of business that may end up becoming a collection problem when other business was available that would have come in with full margin and paid on time.
4. Negotiate Expenses: A number one priority is to minimize your expenses by effective purchasing. When you need something in your business remember that there are all kinds of ways of purchasing it – at different prices. Online auction sites can be very effective in reducing the cost of a business item by over half the local street price. Used equipment is also a great way to conserve cash. That approach may be a problem for you or a few of your employees using something that is refurbished or shows signs of wear but still has a useful life left but it protects cash. Tough negotiating on recurring costs (rent, advertising, etc.) is basic to containing cost and relieving pressure on cash flow.
5. Cash Flow Dashboard: Doing all of the above does not get you to a point where you are through. Managing cash flow is a daily discipline. How severe your cash flow situation is determines the intensity in which you monitor key performance indicators (KPI’s) or metrics. If you are in good shape then it may be as simple as monitoring incoming orders, shipments and deposits. If you are on a roller coaster then you may need to include watching each receivable, bank balance, when you pay payroll (even yourself), what your payable situation is, etc. Keep a dashboard active so that you can always dial it up or down when you need it. Creating it during a crisis is not easy to do.

I have listed 5 principles to managing cash flow successfully. These steps are tactical measures that require solid execution. Bottom line is your basic cash attitude toward managing your business.

• Good attitude: Keep your spending inline with your actual revenue and don’t spend assuming you will get the revenue.
• Dangerous attitude: Convincing yourself that by spending more the revenue will come.

You may feel “crippled” by a tight spend/cash policy but that is an easier problem to handle than when you are over extended with no way to meet your financial obligations. Many successful individuals and companies started out using an austere money management approach and made it work for them. Make it work for you!

Style: Is it Important?

Is your professional style important? Style is defined as the way you make decisions or solve problems, resolve conflict and relate to others – peers, subordinates, superiors, customers, etc. Your style can be a make-or-break factor to your success. It is the primary factor that influences the experience someone has when they come in contact with you. In these days of customer experience awareness, style has never been more important.

During the late 80’s and into the ‘90’s through Y2K the technology industry was in high demand for technology professionals and in many cases a pulse was a primary condition of employment. This resulted in organizations with a diverse mix of individuals who expected everyone to accept them as they were – appearance, working habits, attitude, etc. Since the technology feeding frenzy was so great companies and customers overlooked the idiosyncrasies of many of these “professionals” as the price to achieve an objective in a crisis.

As the demand/supply curve came into balance it became necessary for technology professionals to consider how they influenced the customer experience by not just delivering a successful project on time and with in budget but to also successfully demonstrate interpersonal behavior that was harmonious with management and employees. We went so far as to publish a style guide for our on site consultants as to how to deal with key style factors. The following is a few of the more dramatic style factors:

• Improving appearance (including of all things personal hygiene).
• How they initiated proactive contact and communication with customer management and team members.
• Improving their listening skills to detect customer concern or misunderstandings.
• Resolve conflict in a timely manner without becoming personally involved.
• Taking responsibility for customer satisfaction.

The results of this effort were impressive as we saw increased customer satisfaction, trust and confidence in our consulting team, extended project work, engaging with more sophisticated and higher value accounts from referrals and most significantly, increased work satisfaction on the part of the technology consultants.

I have applied this experience in a number of companies that I have consulted with. One of the more significant examples of how style affected an organization was with a private school, which was concerned about the ability of the school to have a consistent interaction with parents – the customer – particularly by the younger generation teachers. The problem was more complex than just a couple of teachers as the communication to the parent that impacted their expectations of what was to happen in the classroom was affected by the formal literature provided the parent, the teacher manual for the teachers and daily communication – teacher-to-student, teacher-to-parent, admin-to-teacher and admin-to-parent.

It was easy for the parent to become confused over the “style” of the school particularly when it came to problem resolution whether it started with the teacher or admin. This was compounded when the teacher (often a younger generation teacher) would receive the parent concern in a defensive way, which escalated the attitude of the parent to a crisis level. The bottom line result was a poor customer experience for the parent, which reflected on the school reputation and brand.

The correction to this style conflict:

• School administration needed to reconcile the inconsistencies in the communication of expectations to parent, teacher and student.
• Administration and teachers needed to visit this subject on a regular basis so that all knew what to do when an incident occurred so that they could execute in a predictable and consistent manner.
• The teacher was often the first to receive the parent concern and they need to hear the parent out (listen) before coming (or jumping) to a conclusion as to what action to take to resolve the problem.
• The teachers needed to accept that resolving parent concern was part of their job and to not take it negatively or personally that the parent was complaining to them and to handle it as part of what they did as a teacher.

The results were reduced parental conflict and improved relations with their customer and improved teacher morale. The style of the organization and individuals was adjusted so that communication was consistent and problem resolution was dealt with in a low to no conflict manner.

Take a look at your style, the style of your organization to see if you have areas that can be improved to enhance customer experience, improve morale and lead you to higher value business. Style is important!

Leadership: You Know It When You See It!

There is a continuous dialog on the internet and in management publications as to what defines leadership. Leaders are often contrasted with managers since a manager heads an organization and therefore must, by definition, be a leader. This is not necessarily the case.

Managers normally have a defined position in the organization and generally operate on the conservative side of the guidelines of their job description. They are comfortable directing activities and addressing problems within a narrow range and when that range is exceeded they seek direction from higher ups or pass it over to peers (HR, Accounting, etc.) in the organization. To vary from this "narrow path" raises the risk component of their job as they are then "on their own", have "stuck their neck out" or have become "independent."

Most managers are out of their comfort zone when they move too far into the risk zone. They are generally risk averse and withdraw to defined areas of responsibility where they are licensed to operate. Unfortunately unpredictable and uncertain business conditions occur at inconvenient times that require someone in the organization to step forward and deal with the exceptional condition that is outside the anticipated management guidelines. Leaders rise up and "lead" either his direct reports or others in the organization to successfully confront, over come obstacles and resolve the business challenge. This is leadership!

A leader is capable of performing as a manager but is also gifted with the innate ability to recognize when they should step out and wrestle a risky situation down into a controllable event. This often exposes the leader to criticism by others who are threatened by their confidence to exceed their management responsibilities and successfully perform outside of the box. This person is a valued asset to the company providing that senior management (primarily the owner in a small company) is not threatened by them and know how to mentor and develop them to greater levels of leadership and contribution to the success of the company.

A leader possesses certain critical skills that will enable them to be effective in operating outside manager guidelines. This skill set often includes the following:

• Vision - They have a good sense of the long range view of how things are supposed to operate.
• High Energy & Positive Attitude - Inspiring a group to move in a critical direction over a short period of time requires energy and a positive attitude to overcome objections and obstacles that will stop and defeat others.
• Anticipation - Able to assimilate and translate various events into a condition that if addressed early eliminates a serious problem from developing.
• Assertiveness - Has strong convictions on why their objectives are important and will pursue them even if they are unpopular.
• Observer of People - They realize that the strength of the team is dependant upon each individual and the leader will mentor team members where they are weak and, where possible, recruit people with key strategic skills that complement the group.
• Accountable - Take ownership and commit to what is the right thing to do and what needs to be done.
• Influencer - Can successfully present the need for others to respond and perform in a manner they might not have done otherwise.

This combination of skills enables a leader to see what needs to be done, energize and inspire people, lead people to focus on “I can!” and not “I can’t!”, draw the right people together into an effective team that results in above expectation performance, and place the recognition for the successful outcome on those who worked the problem and not themselves. It is truly an exceptional experience to be lead by a leader.

As a company owner are you recognized as a leader? This can be a challenge for an owner where their “power” can be mistaken for leadership. You may be termed the leader but do you demonstrate the leadership characteristics that result in empowerment and positive motivation for the organization. This may be difficult to measure by yourself and you may need to rely on an outside resource – professional associate, board member, or consultant – to give you independent perspective. Take the initiative and evaluate your leadership strengths and weakness. Experienced management professionals often struggle with the definition of what makes a leader – but – they are pretty agreed that they can recognize it in someone when they observe how they operate on a daily basis and under special (and stressful) circumstances.

They know it when they see it!

Three Steps to Protect Customer Confidence?

There have been a number of tragic events lately in various industries - oil refining, mining, automotive, pharmaceuticals, commercial airlines - to name a few. In each of these instances severe injuries and/or fatalities of employees, customers and the general public occurred creating public outrage over what happened to those involved and how it might have affected others - even themselves. The public focus is immediately on the CEO or prominent company leader who will use a public relations firm to provide media coaching for damage control to deal with immediate events and public perception. Coaching to deal with the public image deals with the short term exposure and many CEO's are very effective at coming forward, expressing concern and, when necessary, publicly directing company resources to take immediate action to remove product, stop distribution and take other measures necessary to win over public confidence.

However, what can really undercut and compromise all of this upfront effort to put a good face on the reaction to the incident is what emerges as either the company or, in the case of a regulated industry such as airlines, an outside investigator discovers internal company practices that were not being followed and were the principle factor in causing the tragic event.

Here are three positive steps that can be taken to make sure that your company is doing all it can to avoid the unthinkable from happening?

1. Process control: Unfortunately too many businesses do not have adequate control of their business processes. Adherence and compliance with procedures and regulations take a back seat to expediency and cost control. Executive management does not reinforce the importance of critical process control points by their inattention to detail, which sends the wrong signals into the organization.
2. Listening: Too often indications of pending problems are well known to people in the organization but it is not popular to voice concern or become a squeaky wheel. "Whistle blowers" as they are often called are overlooked and dismissed as being uninformed or troublemakers. Executive management is responsible for the company culture that will either encourage open feedback and quick resolution or suppression and inaction.
3. Training: Adequate and consistent training of new or transferred employees that reflect current practices, procedures and business conditions is paramount. Updating training programs and timely refresh training can become a lower priority particularly during times of business economic stress puts all employees on deck to meet business needs.

Total avoidance of the unthinkable happening is not possible. Things happen and people can still make mistakes, equipment can fail in unusual ways and it is always possible to experience the perfect storm of events. However, too many highly public industrial accidents are later determined to have been caused by fundamental operations that could have been controlled but basic practices broke down, people were not listening (or taking action) when told of bad conditions or people did not recognize what to do in circumstances where better training would have prepared them to handle the events successfully. Consequently the investment to look good in front of the media is short lived as the true story is later revealed and does real damage to company image, brand and more, importantly, customer confidence.

The Best Read: Reading Your Financials!

For many people the most boring aspect of running a business is reading their financials. For some it is so onerous they try to avoid the experience every month and only want to know the bottom number - profit or loss! However, your P/L, Balance Sheet and Cash Flow statements are the cardiogram of your business. To maintain our personal good health we get physicals on a regular basis and for many that means a cardiogram and even a stress test to make sure all pumps and valves are working properly. For good health and longevity we would not go without one.

Your financial statements, on a monthly basis (minimum), are the cardiogram of your company. Properly designed financial statements provide insight on how the key elements of your company are performing. While significant focus is put on how much profit (hopefully) you made. Profit will take care of itself if the key profit performance factors of your business are under control. Financial ratios help you quickly get the feel of where the pain might be if profit is less than expected. The value for each ratio may be measured against historical averages or market benchmarks. Obviously performance factors that have current values on the wrong side of the desired value deserve your first attention. There is always a story behind each number so it is necessary to uncover the facts that influenced the outcome in order to take effect give action. It is in this process that you can learn a lot about your company.

• Are unusual numbers the result of data collected incorrectly (wrong coding)?
• Is it a one-time anomaly which will correct itself in successive periods(3 versus 2 payroll periods)?
• Were all of the closing cutoffs made on time so that all revenue and all expenses for the period are included?
• Is your Cost of Goods sold - material, labor, contracted services - consistent for the revenue recorded?
• Are you absorbing too much labor that is nonproductive?
• Are you buying from the best price/quality/delivery source?
• Is there a mix shift in the products delivered that resulted in less margin than what was expected?
• Are your overhead expenses inline?
• Salaries are often fixed for the period but variable expenses such as marketing, expense accounts, travel, entertainment, etc. may get out of line.
• Are your commission payments consistent with revenue and discounts?
• Does your balance sheet show any surprises?
• Is your inventory level consistent with the production demand?
• Are customer deposits collected and in reserve for the product or service ordered and not consumed by other operations?
• Is debt service under control and do you have adequate operating reserves in the event of an unexpected change in business?
• How healthy is your cash-flow?
• Do you have sufficient cash to ride out the normal flow of high expenses and valleys of revenue?
• Do you have the cash to afford the capital improvements that you are planning?
• Using a conservative revenue forecast how strong is your cash position two to three months out?

These are just a few of the questions that need to be considered as you examine your financial feedback on your business. In too many cases I have observed owners/CEO's taking a complacent attitude toward their basic financial reports "since they were profitable." However, when an unprofitable period arrived they then had plenty of time to dive into the details only to find out that the "unprofitable" signals began several periods earlier. Timely action would have avoided the profit problem or reduced it significantly through proactive measures instead of reactively applying CPR to the business.

Experienced owners/CEO's take advantage of interim metrics that track key performance factors that influence their financials so that on a daily/weekly basis they get snapshots of what is going on without waiting until the next month to discover a problem. This serves as a pace maker to make sure that the pulse of the business is appropriate and if not - inject their attention and leadership to get things back on track.

Read your financials and develop a good feel for how your business operates so that you can enjoy good business health!

Win-Win Banking Relationships

Having a positive working relationship with your banking institution is critical in a turbulent economy. Having a good understanding of your banks lending policy is a given but there are additional factors that come into play when a loan is necessary. Factors that can make this process a Win-Win situation are: Honesty is at the top of the list. Fundamental to any lending relationship is trust. Whether lending hedge clippers to a neighbor or money to a customer, the lender needs to trust that the borrower will return the property / money in good order. If honesty is # 1, “no surprises” is a close second. Money was lent based on a set of circumstances. If these facts change, the lender needs to be kept informed in advance if possible. Consider the neighbor who says; “your hedge clippers? I can’t get it to you this weekend; my brother-in-law in Ohio has it. I am sure he will bring it along when he comes back to visit.” Good Surprises will not always be viewed as positive. “If management can miss what was happening by that much, could they also miss it in the other direction?” Keep in mind that every lender reports to someone who is generally less informed about your company. Even the bank President reports to a Board and to the Regulators.Keeping them informed protects them within their organization. Have a plan and do what you say. Being consistently overly optimistic will eventually compromise the trust relationship. Pay attention to the covenants in the loan agreement. Making payments on time is only part of what was agreed to. These covenants are in place to help the bank maintain its fiduciary responsibility to their depositors. Think how you would feel if your mother was the widow mentioned above. Be realistic on how you view rates. Think about how you respond to your low margin customers. Do you want your lender thinking about you in this way? Remember, a quarter point on a $250,000 loan costs an extra $625 per year. Compare that to the cost of being viewed as an unprofitable account. View the relationship as long-term. Consider the banks other services (home mortgages, investments, cash management, etc) if they can add value. If you are satisfied with your bank, refer them to others. In other words, increase your value to your bank. If the bank invites you to a social event. Go! Getting to know each other in a relaxed environment can often lead to better understanding. Reciprocate when possible. If you get in a tough cash bind, make sure you pay your payroll taxes. Without getting into a legal discussion, unpaid withholding taxes can jeopardize the lenders secured position. This is never a good thing. These are good points for us as banking customers to keep in mind as we managed our relationship with our respective banks. Bankers can also foster better bank / customer relationships that we should look for (and expect) in determining if a banking relationship should begin or continue. Listen! Be consistent. If things are changing on your end of the relationship, remember the “no surprise rule”. Know your customer. Understand their business. Be aware of the challenges and opportunities. Serve as a resource. Introduce the company to successful new ideas or services. You see a broad cross section of the marketplace that your customer may not be aware of. Most banks today have a catchy slogan. “They are all good”. Live your slogan. Take the mystery out of your lending process. Recommend your other services only when they can add real value. If the value isn’t clear, remember the “trust relationship”. About rates, be fair. You deserve to make a profit, but again remember the trust relationship. Introduce the customer to your back up person. It’s never positive if that introduction happens in a transition meeting. Keep the client’s interest in mind on the depository side of the relationship not just the borrowing side. “No, but have you considered…” is often a better answer. A banking relationship is an important and invaluable asset which both sides need to invest time and energy to manage well. Don't just invest in it when you need it! Click here for the complete article from Lauber & Company.

Personal Guarantees and Your Business

Operating and growing a business often requires injections of cash to provide the working capital for expansion in staff, equipment, and market promotion campaign or to just get through a tight business climate and preserve essential resources. Depending upon your source for credit you may be asked to make a personal guarantee. Despite your confidence and enthusiasm in the ability of the business to bear the repayment of the loan and associated debt service consider the following 5 tips (see 5 Steps: A Personal Guarantee and Your Business (and Future ) to protect your self and your business. Know the risks. Understand what you will risk in the personal guarantee. For business partners, a new meaning to "one for all." Make sure that all partners share the same liability if the debt cannot be repaid. Beware the "clause" & effect. Know what the impact of changes or "flexible" alternatives to loan elements as such as determining interest rate over the term of the loan can have to you. Don't gloss over the fine print. Understand what the fine print says. Use a lawyer to interpret the legalize. You do not want a surprise if things go bad. You can't run. You can't hide. So don't! Bankers do not like surprises. Don't let them learn of a problem from someone else other than you. Don't let your bravado hide the true condition of your business. Be transparent on what you are doing if a problem situation and build their confidence in you. Borrow wisely and take the time to exhaustively determine what range of liabilities you are obligated to in your loan agreement.

Choosing a Consultant

Hiring an outside consultant is a common practice in many businesses. The need to do this is often due to the need for a particular skill or function that is not present or available in the organization but not one that the organization is prepared to add as a permanent employee. Another reason for hiring an outside consultant is the need to have an impartial voice weigh in on an important matter.

The selection of the consultant is as important as hiring an employee and should not be taken lightly. Accepting "brand names" as a qualification is short cut method used by many that too often lead to undesirable outcomes. This path is often used by senior executives as a "safe choice" alternative in supposedly hiring the best.

Keys to making a good consultant selection and successfully completing an engagement begin with project definition and should include:

• Have a good definition of the task or problem for the consultant to work on.
• Define what type of consultant activity - analysis, training, coaching, design, development - is needed to perform the assigned task.
• Identify who the consultant will work with and who will be responsible for their work product.
• Have a good definition of what the completed work product should look like.

Once the project definition is complete then it is time to consider the consultant to do the job:

• Do they have the requisite experience to do the job?
• Perform your due diligence and talk to previous customers and understand what experience they had with the consultant and if your project is smiler to what the consultant worked on.
• Were the contract terms honored?
• Was the project finished on time?
• Was the project completed within budget?
• Were the recommendations useful?
• Were they open and flexible to ideas and input from the project team?
• Did they work well with others?
• Did they discuss or reveal information from work performed at competing organizations?
• Involve a number of people from the project team that the consultant will be working with to make sure sufficient chemistry exists for a successful working relationship.
• Determine how much of a "learning curve" the consultant will incur during the project and whop pays for it.
• Have the consultant present how they work with customers, provide a record of work performed and work remaining, problem resolution, ability to contain cost within budget or advise if work parameters change and affect cost.
• Evaluate key performance factors: communication style, ability to work with others, work habits, ability to meet deadlines.
• If appropriate, have the consultant candidate submit a proposal on how they would structure and perform the engagement.
• Have the consultant candidate critique the project definition to reveal their ability to understand the work requested and to make recommendations on any changes in order to make the project more successful.
• Discuss the terms of payment and make sure that they are included in the contract.
• Will the consultant sign a confidentiality agreement to protect your proprietary information.
• Resolve who owns the work product.

A successful consultant engagement is important for all parties. Consultants provide expertise and experience to undertakes projects that you might be unable to do otherwise. They provide the capability you need when you need it. Plan your use of this resource carefully, do your due diligence, understand how they will impact your organization and how to put what they do to work in a timely and effective manner to maximize your return on investment.

Another Government Mandate To Take Care of You

A reaction to the east coast snow storm this weekend where there were several incidents of plane travelers strandede in planes for extended periods of time was for the Department of Transportation to order airlines to let passengers off stranded airplanes or face fines. The fine would be $27,500 for each violation over a three hour limit. This would total $1,375M for a commuter plane carrying 50 passengers or $5.5M for a larger plane carrying 200 passengers. Is this reasonable? What is our government doing to us in making this mandate?

It is true that there are a number of unusual stories where, in specific instances, mistakes were made and passengers were inconvenienced and kept for an unusually long time. However, for the number of trips per day that are taken by air travelers in this country these examples are few and far between. THis doesn't make it right but this new mandate will have significant ramifications to the relative low cost of air travel that the flying public has become used to.

Why will cost go up? Unfortunately the airlines are not omniscient and will have significant difficulty predicting when disastrous snow or weather conditions will create a situation where it will have a "stranded" passenger condition. This occurs when the planes themselves either cannot move on the ground (ice and snow) or cannot land at their destination such as when airplanes are grounded due to fog resulting in too many¨aircraft for the existing facilities to handle. The latter occurred to me flying from Denver to Seattle. Seattle closed while we were en-route and the decision was made to land in Portland and wait until landing conditions improved. We waited 6 hours on the ground partly due to waiting for conditions to improve and then for the few jetways to be available to land passengers. We were in a DC-10 at the time and Portland only had equipment and staff to handle three of jetways at a time and many aircraft were ahead of us.

Consequently we will have airlines faced with enormous fines if they cannot get passengers off the planes within three hours. How many extra staff will need to be on hand in the event of a weather or other incident that could "strand" passengers. What about baggage? Security is not too keen on passengers and baggage being separated particularly if when they re-board the plane the same passengers are not on the plane. What happens if the pane is at an airport where they do not have an office and use other facilities. Will the other airline or operation have liability if it does not have the crew and equipment to meet the need even if the primary carrier has the plane ready to let the passengers off? What an enormous problem and a great opportunity to finger point.

In this instance we have a government bureaucrat without any financial responsibility for the outcome making a decision so that we can all feel better. The traveling public used to be capable of letting an airline know when its service level was bad by avoiding it. The airline either corrected its ways or went out of business.

Who will absorb the cost of this mandate? You will! Will we still have isolated instances where conditions beyond the control of the airline result in inconvenience? Yes! But we will do it at a higher price because of mandates and fines imposed by an ever increasing governmental role in the lives of its citizens and free enterprise.

Do you feel better?

Is Your Organization Ready to Sell?

I recently considered (a pre-January 1st vow) expanding my workout schedule to include weight training in addition to lap swimming to address the rapidly escaping muscle mass that age brings in later life.

I regularly pass a well known gym in the area and thought that it would be convenient using that location for my new workout. I stopped in one morning to get membership information. The lobby desk was unattended so I waited a few minutes until someone returned. During my wait I scanned the counter looking for a brochure that might answer my questions.

I had visited the gym web site the night before but it did not show any schedule of membership rates or packages. A young woman soon returned and I asked to see a club brochure to understand what package/price would best fit my interest.

The woman looked at me sheepishly and said that they did not have any brochures and that sales people came in later in the day - it was 8:30am. I then asked her what the typical prevailing prices were for a membership. She quickly said that she did not think she could do that as everyone was different.

I was getting more confused and was hesitant to ask another price related question. She stood looking at me and seemed to want to leave it at that. So I saaid thanks and said goodbye. It was obvious that no one in ownership/management cared enough to create a customer experience encouraged membership.

It was obvious the woman at the desk had not been prepared for a sales scenario. She did not offer a tour (while she gathered her thoughts on how to address the price question), she did not get my contact information, she did not provide me with a contact name to reach later that day, she was not coached on how to keep a prospective member in the door until they made a buy decision or secured a commitment to meet or connect with someone who could.

• Is this the case at your company? Of course you are prepared to sell - aren't you - but what about your front office? How do you score on the following check list?
• Do you have an up-to-date price list of your products and services to answer customer inquiries?
• Do all people that have contact with customers know how to triage interest from a customer so that they do not get away without taking them to the next level?
• What is your policy on returning inquiries from a customer?
• Phone calls - within the hour or within thee promised period on voice mail.
• Fax - same day or no less than 24 hours.
• E-mail - same as fax or less.
• Are you on time with appointments?
• If customers come to your office for appointments, are you on time. If they have to wait are they notified before the appointment time passes, and are they kept abreast of delays as the time progresses past the scheduled time (i.e. waiting for your schedule doctors appointment)?
• Do you sit in on customer contact calls or visits to gauge the effectiveness of your sales training?
• How regularly due you audit your sales process and materials?
• If you use a web page (server side database) to collect customer requests information is it monitored regularly and are they responded to within the promise response time?
• Is your web page accurate, are the phone numbers correct, are the contact e-mail addresses current?
• If the customer request escalates into a quote is it processed in a timely manner with timely follow up to move the quote into an order.

Be ready to sell! A casual attitude toward a sales opportunity does not differentiate you in the market place and lead to a revenue opportunity. In the case of the gym above, I had heard that they were have trouble with membership. I thought it was due to the economy but now after experiencing the short comings of their sales process, their revenue problems could be greatly eased if they had a better "sales" attitude in their organization. How about your organization?

Bringing Order to Chaos

We have all been there! Taking over a company or group that has lost its way or suffering under market conditions that has overwhelmed it. Or, a major customer relationship erupts requiring immediate triage to stabilize and return to a normal business relationship. Or, you are blind sided by a third party trying to disrupt your organization by hiring away key employees affecting product development, sales and operations, or undercutting you position at key accounts. What do you do?

Your plan of action is a result of a quick but careful assessment of the conditions that exist. Many contradictory factors may be in play: Lack of organization and individual confidence, trust issues (mistrust, blame, defensiveness), break down in business discipline, poor communication, poor vision execution, etc. The effectiveness of your action plan is based on how you organize and prioritize what you do first, second and so on!

The following is a five-step process that I have used successfully to deal with severe organization dysfunction and poor performance:

• Focus Employees On What They Can Control - The biggest distraction that I find that needs to be contained is the disruption that things people cannot control causes. Uncontrollable events can be very distracting to many employees and they are far more productive and satisfied when they can offload the unexpected and uncontrollable issues and Focus on What They Can Control.
• Establish a Crisis Path - As a sizable part of the organization returns to processing controllable events there needs to be a timely response to the uncontrollable. Every organization has people who are more adept and comfortable dealing with uncontrollable problems where boundaries are poorly defined. They thrive on solving crisis. These people are capable of rising to the occasion in creating and developing solutions that solve tough problems in a timely and effective manner.
• Establish a Horizon - A dysfunctional organization has lost track of what it is working toward. It may be difficult to target a long term goal right away. Daily (or in more severe cases hourly) goals or targets might be necessary at the beginning to measure progress and accomplishment for the organization. A sustainable track record of attaining daily goals will lead to increased confidence in setting longer term weekly and then monthly goals.
• Eliminate the Root Causes of the Uncontrollable - As the organization begins to redirect itself toward a successful direction and uncontrollable crisis are contained; resources need to be applied to eliminating the causes of repetitive crisis. Possible reasons for this condition are:
• Poor quality that is either occurring in the organization or by a supplier in the supply chain.
• Critical business processes that are not being complied with.
• Customer communication on commitments and expectations has broken down leading to an unrealistic demand on company resources.
• Honesty, Transparency and Communication - Through all of this it is imperative to be as honest with employees and customers as possible. Ongoing urgent or crisis situations breeds skepticism. Telling the ruth is golden over telling people what they want to hear. I have had amazing response from employees and customers alike when I present the truth about a situation rather than using double talk or worse - delay and deny - to deal with a problem.

Are these the only steps you can use to bring order to chaos. No! These five-steps have worked successfully for me in laying a foundation of stability in addressing severe organizational dysfunction in a number of management assignments in my career. Some of you may have circumstances that required a different tact and I would certainly appreciate hearing from you on what worked best for you.

Cash Flow Planning and Profits

Cash Flow Planning is something that many companies do not integrate with the normal budgeting and profit forecast process. For some companies this is not a serious problem in a "normal" economy as they have sufficient cash reserves or credit line that can absorb the normal ebbs and flows of cash demands of the company. In todays economy where cash reserves have been depleted or credit lines tightened or "lost" raises a new demand for "accurate" cash flow planning.

If I make a profit then whats the big deal about cash flow? Profits on most company financials do not represent cash but a sale that is a liability on the customer to pay at some time in the future. Until the customer pays the company uses working capital to pay for inventory, employee wages, heat, lights and other expenses. It is the management of customer payments and company obligations that results in either positive or negative cash flow.

Isn't it just a matter of making sure receivables are greater than payables - right? This would be a simplistic view of managing cash flow as this attitude would most likely not recognize factors that influence the changes in Days Sales Outstanding (DSO) or balancing non-uniform demands for cash such as new products, tax payments. capital expenditures or debt reduction.

DSO is a measure of the number of days that a company takes to collect revenue after a sale has been made. Why would DSO vary?

1. Products that have quality issues and do not operate properly will cause payments to be delayed until the products perform.
2. The customer mix changes where the majority of customers paying in 45 days days may transition to customers who push payments out to 60 days - or more.
3. Customer cash flow problems can filter down to you where they may delay payments to improve their own cash flow situation.

So if I do a good job on collections cash flow can be managed? Managing the inflow of cash is important but it is also critical that you look what expense and asset strategies you are using in the company. Such as:

1. Carrying inventory that is not being used consumes cash making it unavailable for other purposes such as paying wages, lease payments, etc. Excess inventory can even result in lost cash if the inventory becomes absolute and is written off - thrown away.
2. Capital expenditures such as equipment or buildings consume cash prior to getting a return on the investment. Timing of investing in capital expenditures can put positive cash flow at risk.
3. Factory cost or the cost of goods sold - labor and material - will put pressure on cash if productivity and quality objectives are not kept to insure that a dollar of sales will yield a predictable gross margin. Loss of control in labor cost, productivity, quality or material cost can create products that cost more than expected and/ or delivered later that expected resulting in a cash flow crisis.
4. Vendor financial stability can become a problem where they may need to tighten their collection policies which may require you to pay early if there are not otters sources for the same product or service that will let you pay on the same schedule you have planned into your cash flow plan.

Summary

Good cash flow management is not an accident. Intentional action is required on a regular basis to make sure that all of the factors that support your cash flow plan are in order. Cash is king - but you have to take a proactive role with your organization to make sure you achieve your cash flow objectives. Integrated cash flow planning is essential. Developing cash models of your business will help you and your team understand the sensitivity of your specific business model to factors that can cripple or impede good cash flow management.

Are you Managing or Leading?

I am passionate about the four key elements that I feel are critical to running a successful company. These elements are Leadership, Process, Metrics and Organized Financials. The cornerstone of this four-step methodology is Leadership. Do not use confuse this with the term "management" or "managing". Leadership involves inspiring others with a clear vision of how things can be done better. Those who manage tend to implement someone else's vision or what they believe is the "corporate" vision and normally slow things down by limiting what their part of the organization can do to just what has been asked or expected - to play it safe and no more.

Leaders work between the lines and interact with their organization to test their vision and assumptions by getting feedback from those who actually work in the operations they are responsible for. Taking the time to understand what is holding people back from higher levels of job satisfaction and job performance. Leaders try to find out how the employee can be unleashed to higher levels of performance than they thought possible and then get out of the way. This is true for individual contributors and those in intermediate supervision positions as well.

Too often artificial ceilings trap employee performance because of misunderstandings, poor vision implementation and access to the facts that drive the business. The Leader looks for this condition and gets to the bottom of the problem. Few people intentionally perform poorly when provided with reasonable training, equipment, work environment and motivation. The leader is conscious of the whole picture and looks beyond the traditional boundaries to see that his business (or department) is successful and that their employees are excited about what they are doing and are onboard with the direction of the business.

Have you trapped yourself into a "manager" mindset? Are you excited about your business? Are you transferring that excitement to others in your business? Can you recognize that excitement in those who produce your products or deliver your services. Take a fresh look at your business, take a new look at your business plan (even better - develop one), identify what is necessary to energize not just your key people but all employees. Become a facilitator and less a controller. Celebrate the independent accomplishments of employees and supervision when they do well and lift the performance of the team(s).

Be a leader!

WWDD: What Would Deming Do?

"No one has to change. Survival is optional." W. Edwards Deming

Several lifetimes ago (1983) I attended a 3.5 day seminar in San Diego and joined over 300 people from various manufacturing and service companies to listen to W. Edwards Deming. Deming is attributed to be the father of the evolution of manufacturing in the use of statistical methods to manage business processes and the attitude of continuous improvement.

We all sat at narrow tables in a large ballroom with Deming on a raised dais. We were equipped with a full 3" binder that contained a Xeroxed volume containing his many lessons on how to apply statistical methods to solve business problems and improve product performance. Deming was not a gifted speaker but his stories and anecdotes were riveting and despite the size of the group few people left early.

Deming did carry a chip on his shoulder since he had not, by then, received recognition in America for what he had done in Japan. Others, American based statisticians, were claiming ownership of the movement but it was clear that Deming had fostered a miraculous change in post-war Japanese industry that resulted in significant inroads in American markets with lower cost and higher quality products. In the early 80's it was clear that American companies were waking up to what they had to do to just catch up let alone get back in the lead.

What Would Deming Do Today? American industries have gone a long ways in implementing the the following Deming philosophy into their business.

Deming would evoke disbelief in his management seminars when he insisted that 94 percent or more of all problems, defective goods or services came from the system, not from a careless worker or a defective machine. He would go on to say that to improve an organization’s goods or services, the system had to be improved rather than searching for the guilty worker or broken equipment.

In almost all cases, when top managers implemented his ideas, they were surprised to find that they agreed with him: The management and the system they were managing were the true source of both problems and improvements.

However, in today's economy we find an increasing presence of government in business in terms of regulation, company ownership and increasingly complex taxation and fee structures. What role should government take in adopting the Deming philosophy as it becomes inextricably involved with the ability of business to operate in the free-enterprise marketplace. Can government, a body that sees some form of leadership change every two years, plagued by lack of accountability, has many political appointees that are not carefully recruited and placed because of their ability to perform in their jobs, has extreme difficulty in managing itself (post office, budget deficits, perks) let alone managing profit based organizations?

Successful adoption of the Deming principles begins at the top of the organization. It requires a constancy of purpose, breaking barriers between functions, driving out fear as the common denominator for change or performance, elimination of slogans, exhortations and targets and a solid understanding of the processes that they are managing. This is a tall order for a government process that consistently demonstrates an inability to be accountable to its citizens and other stakeholders for the management of basic services.

What would Deming do? He would get government out of the business of managing business.