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!”

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!

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!

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.