6 Weeks to a Better Bottom Line
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“You have to be pretty lean now, but there are opportunities to grow if you are in a position to take advantage of them,” says Edward Marram, a senior lecturer at Babson College’s Arthur M. Blank Center for Entrepreneurship in Wellesley, Mass. “It’s a good time to evaluate your business, find ways to conserve cash and improve. Then look at where other competitors aren’t making it and go after those opportunities.”
But taking a cold, hard look at your business–which has absorbed so much of your blood, sweat and tears–can challenge even the most tenacious entrepreneur. So we asked business-building experts to help us develop a six-week shape-up plan. They told us what to look for, how to set goals and measure progress and, most important, how to get to where you want to be.
Think of them as your personal trainers and set aside the next six weeks to exercise their principles. You’ll build business muscle, lose resource-draining fat and speed up growth. But first, you’ll have to step in front of the mirror and face those flabby, underperforming areas.
Week 1: Step On the Scale
What figures give you the most accurate assessment of your business?
It’s tempting–but a mistake–to concentrate on gross receipts, says Steve Wilkinghoff, author of Found Money: Simple Strategies for Uncovering the Hidden Profit and Cash Flow in Your Business. “A lot of business owners tend to focus on reaching a sales number and assume the rest will just take care of itself,” he says.
Instead, make a list of what you want your business to provide. A six-figure salary? Jobs for your kids? An asset you can grow and sell for millions? Contributions to a charitable organization? Those big-picture goals will dictate how to structure your business and where to put your focus during the coming year.
Be realistic. Your one-location coffee shop may not provide a six-figure salary, employ a dozen offspring or help save the rain forest. Sizing up your business against others in your industry is important so that you can decide whether you’re happy with your solo storefront or want to try being the next Starbucks.
For good benchmarking information, start with the SBA’s Office of Small Business Development Centers (sba.gov/local resources/index.html) and its affiliated nonprofit business organizations. These information clearinghouses offer free or low-cost counseling in virtually every area of business. SBDCs can help you forecast revenue and sales, measure profit margins and gauge where your business is versus where you want it to be.
The nonprofit Service Corps of Retired Executives also pairs fledgling entrepreneurs with experienced businesspeople who volunteer as mentors. Trade associations often keep industry data and may be valuable resources as well.
Week 2: Find Your Zone
To carve out a healthy share of any market, startups and small businesses have to be scrappy and resourceful, says Jack Trout, an early pioneer of product positioning and author of the 2008 book In Search of the Obvious: The Antidote for Today’s Marketing Mess.
Quick Fix: Improve Cash Flow
Even a cursory review of the last quarter’s expense statements can be revealing if you know what to look for. Here’s what Found Money author Steve Wilkinghoff says to keep an eye out for:
. Inventory. Money tied up in excess inventory can’t be used to grow your business.
. Location. Is there less expensive office or warehouse space available? Don’t spring for a prime spot if you don’t need it.
. Billing. Don’t let unpaid invoices linger. Collect payments promptly.
. Ongoing expenses. Periodically examine your phone plan, insurance policies, interest rates on loans, and subscriptions.
. Purchasing. Consolidate purchases to get the best price, without overordering. Ask suppliers to extend terms. You may get an extra 15 or 30 days to pay.
Going head to head with bigger, better-capitalized firms is hard, particularly during periods of slow economic growth. Trout advises pinpointing a profitable niche and owning it.
“It’s like the service guy who repairs only Sub-Zero appliances and becomes the best at that instead of trying to go head to head with Sears in trying to repair everything,” he says. Customers will hire the Sub-Zero specialist because they know he’ll have the right parts in stock, have experience with the brand’s quirks and be able to complete repairs faster, Trout says.
To figure out if there’s a zone in your market worth exploiting, look at your customers. Who are the most loyal, who are the most profitable and where do those groups overlap? (Beware the customers who are loyal but not profitable, Trout warns. You’re probably spending too much time serving them or you’re charging them too little. Both are bad for your business.) Now analyze your products or services the same way. Which are most in demand and which are the most profitable? Look for that sweet spot where loyalty, demand and profitability intersect.
Week 3: Sharpen Your Message
Now that you’ve zeroed in on who your target customers are, it’s time to find more of them.
To start, Trout says, craft a sharp, succinct marketing message. If you can’t explain your advantage in one sentence, you need to simplify it. It will take time to carry it out, but make a plan to test variations of your marketing message across flexible advertising platforms to gauge what resonates with your key audiences. Ask new and existing customers how they found you and why they decided to buy from you. Log the responses and look for common themes to further refine your message.
Also develop a personalized customer outreach effort: loyalty programs, online or print newsletters, blogs or social networking profiles. Whatever you use, it should enable you to quickly update customers with information, offers and expertise. “You have to keep in touch with them and be a specialist in your business,” he says.
Trout rejects any percentage-of-revenue approach to setting a marketing budget (10 percent of revenue is a commonly cited figure). Reaching customers is not optional, so price out the vehicles you know will reach them and adjust as you go. Start tracking which investments are yielding the best returns, and soon you’ll have a view to where your company’s stronger future lies. Then you can confidently begin dropping products and services that aren’t on that path.
Week 4: Spot-Check Your Technology
“It’s all in my head” information management doesn’t cut it for a growing firm, says business technology consultant Michael Johnson of Wain Technologies in Jersey City, N.J. But gorging on gadgets isn’t the solution.
Look critically at the areas where technology would increase efficiency in such a way that it would improve cash flow, customer service or both. Do you need new bookkeeping software to get invoices and estimates out faster? A smartphone app that enables salespeople to send in orders from the road? Separate the must-have systems from the discretionary buys.
Define the business outcome you want from this tech investment, Johnson says. “Are you looking to increase overall sales by 20 percent or cut cost in the field operations by 15 percent?” Unless you set those goals, you can’t tell if it paid off–and can’t decide effectively about future upgrades.
At the same time, be sure to automate good business practices. Buying customer relationship management software won’t fix your sporadic invoicing and collections. Instead, size up what’s holding back your business, figure out a better way to get it done and then choose hardware and software based on your true needs. The last thing you want to do is further embed poor processes, Johnson says.
Finally, he says, don’t skimp on new technology training: “A surefire way to kill a product is to have untrained staff try to figure out a tool while they’re expected to deliver high-quality results.”
Week 5: Build Up Your Staff
More important than the BlackBerry is the employee who’s using it.
Critically assessing employees of a small operation can be emotionally fraught. Often, employees feel like family, or are family. But getting the right people in the right jobs is the only recipe for success.This week, write or update job descriptions for your key people–whether you’ve hired them yet or not–and see if your current employees measure up.
Creating a clear job description will crystallize your expectations, says HR consultant Becky Regan, founder of Regan HR Inc. in Sacramento, Calif. From there, you can figure out whether additional training will lead to improvement or whether the employee’s existing skills are better suited to another position. The introverted sales rep with an aptitude for numbers may be better suited to bookkeeping.
Also think about your most invaluable employees and how to retain them. “One of the primary indicators of whether an employee will stay with a company is his or her relationship with a direct supervisor or manager,” Regan says.
If you’re ready to hire, Regan advocates a step-by-step approach. Don’t recruit until you’ve nailed down the job description and specific requirements for education, training, experience and salary. Pose a set of prepared interview questions to each applicant. Pay attention to what candidates are hesitant to discuss; This can be a clue to weaknesses. Document their responses, and take notes. This way, you’re comparing apples to apples when you make a hiring decision. (Tom S. Turner’s 2004 book Behavioral Interviewing Guide: A Practical, Structured Approach for Conducting Effective Selection Interviews is a good resource.) Always check references before settling on a candidate, Regan says, but trust your gut, too.
Week 6: Develop Endurance
By now, you may have a marketing, technology and employee wish list that outstrips your current budget even if you have made prudent cuts. If so, prioritize your needs and map out the avenues for funding your company’s growth.
Explore the SBA’s online guide to financial assistance, which lays out a wealth of information about types of business financing. The guide also explains what types of investments qualify for SBA-backed loans, which are expected to loosen up a bit this year.
Businesses in fast-growing sectors may catch the eye of a venture capitalist or angel investor who will take an equity stake in your firm in exchange for an infusion of cash. But you’ll have to network in the right circles. One place to start is the Association for Corporate Growth, a professional organization of venture capitalists, investors, private equity firms and other companies. ACG’s annual conference and regional events are open to nonmembers.
In the current credit climate, it’s tougher to borrow from banks, especially if your company doesn’t have enough assets to secure a loan or line of credit.
Until the credit markets thaw, says Babson’s Marram, growing businesses may have to turn to the funding sources that startups use, namely family, friends and credit cards. But meet with your bank anyway to build relationships and keep apprised of options such as small-business credit cards or lease-to-buy programs with tax advantages. Also consider whether leasing will let you acquire or upgrade the tools you need with less cash outlay.
Now is the time to be conservative with your cash, Marram says. “Keep money in the business as much as possible because you’re not able to just go out and borrow,” he says. “Anything that distracts from running the business–any cash that you use to do anything that doesn’t move the business forward, even paying yourself excess cash–is going to inhibit your growth.”
But remember: Growth doesn’t mean bloat. Weigh in regularly by checking your customer relations, marketing strategy, technology plan and human resources to stay a lean business that’s fit to go the distance.