Marketing Strategies for a New Economy

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by Bernadette Peters, Natural Marketing Services, LLC

What an interesting time to be running a business?  Everyone is trying to speculate about what is going to happen in real estate, with gas prices (and the shortage), the election and in the economy overall.  Small businesses are responding in a variety of ways . . . some are ceasing all extraneous spending . . . others downsizing . . . and many are “hitting the streets” in an effort to boost their sales.

We can’t throw in the towel – small business is still the fiber of our economy . . . but now is an even more important time to make some smart marketing decisions.  Below are a few key principles to help your business continue to thrive in the midst of tricky times . . .

Retain, cross-sell, up-sell

We all know that the most time-consuming and costly part of marketing is capturing a prospect’s attention, and then building trust so they will buy from you.  Marketing analysts say that the cost to acquire a new customer is 5-10 times greater than to retain an existing customer.  So why not spend your time and resources keeping your existing business, cross-selling to your current customers and encouraging former customers to buy again?  You already have a good bit of contact information, a buying history and hopefully some other knowledge about them.  Use this to re-connect, stay in touch and demonstrate the value you bring through your products and services.

Promote products/services people need in this economy.

Think about the products or services you offer that save your customers money, increase efficiency, simplify life and can contribute to their key values.  Focus on promoting those products and services rather than your entire inventory.

Give them a “taste” of what you have to offer.  Consumers have become a lot less risk-tolerant.  They want to get a sense that their purchases will count.  We are seeing fewer impulse buys and more calculated, well-thought out purchases.  You may want to consider breaking down your offering into a more appealing price point – a massage therapist may want to offer a 30 minute massage rather than the typical one hour . . . an IT services provider may want to put together a package of computer services with specific diagnostic and service deliverables the will speed up the performance of the computer for a flat rate.

In prospecting, build trust, go deep

As you pursue new prospects, your approach is what matters most.  Since we see and hear over 3400 marketing and advertising messages each day, it is difficult for a business to capture a prospect’s attention to get them to make a purchase . . . especially in this economy where people are more careful when parting with their money.

When promoting your products or services make the investment in time or money to generate an attractive, professional design and compelling message.  The call to action should require very little risk on the part of your prospect.  Get them to take the next step by offering valuable information or free or low-cost “samples” of what you do.  In this economy, consumers won’t make a decision by simply seeing an ad or mailer . . . you’ve got to go for the easier close, and build a relationship with a prospect through multiple steps.

Focus on the personal touch

Historically, challenging economic times have precipitated a return to core values and close relationships.  Personal connections with clients and prospects will prove to be an effective strategy when marketing your business.  Networking, phone calls, face-to-face meetings and hand-written cards bring the personal connection in our media saturated world.  The idea of doing that might seem daunting, but when integrated with your traditional communication and promotional programs, you can be both effective and efficient.

We are seeing a return to the traditional “drip campaign” where calling programs are integrated with mailings and email to individuals.  Natural Marketing Services has partnered with a direct marketing company called, Telesales, Inc. to provide these types of drip campaigns for our clients, as well as lead generation programs, customer retention, surveys and studies.  They have also seen a return to personal touch with their clients as the economy has changed.

Most importantly, you can’t spend too much time watching the news and listening to all the analysts’ opinions about the economy!  Your business makes a contribution to the economy too, and now is the time to focus ON your business, your customers and your prospects.

If you are interested in scheduling a low-cost marketing strategy session to jump-start your business, call Bernadette Peters from Natural Marketing Services at 678.643.3899.

Knowing and Focusing on Your Market

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by Anne Moore Odell

In economic boom times, companies often put their marketing efforts on autopilot. In the current recession, business owners can’t afford to spend money on ad space reflexively. For savvy companies, the downturn is an opportunity to re-examine their marketing strategies, think through what works and why, and make more meaningful connections with new and loyal customers while supporting sales efforts.

“Focus on customers and markets that absolutely need your product and service to survive and your marketing message should be in that context, “says Chris Lambrecht, Lead Consultant, Intelligent Marketing Solutions, based in Atlanta. “One should be focused on building long-term relationships and the objective should not necessarily be to sell.”

Retaining your current clients is important—they may be buying less or even taking a break from buying, but that doesn’t mean they are no longer loyal. Keep them in the loop so that when the economy turns up again, you are still the first business they call. Statistics show that it still costs five to ten times less to retain a customer than to acquire a new one.

“Just like in many markets, it’s easier and less expensive to gain market share today that it will be after the economy turns,” concludes Lambrecht.

“Look at different ways to expand the relationship with your existing customers,” says Mike Iverson, CEO of Trillium Financial. “That’s true in all economies. Today I hear people saying their customers are looking at ways to cut their cuts, but they can’t really cut costs. What extra value can they add such as bundling products or offerring two for one?”

You also need to study what is happening across markets so you can keep your existing clients and acquire new ones.

Bernadette Peters, CEO, Natural Marketing Services in Atlanta, GA says “Re-evaluate your target market. Many Nordstrom customers are shopping at Target. Target shoppers are going to Wal-Mart. Wal-Mart’s customers may be buying less. This downgrading makes all businesses have a new target market with different demographics, buying behaviors and characteristics.”

Marketing needs to reflect that the economy and spending habits have changed. Peters says that many successful marketing strategies tap into the “return to core values” that a recessions tend to cause. These include family, peace of mind, more leisure time, connecting with friends, philanthropy, and life’s little pleasures and rewards.

Your marketing message should reflect this change, telling clients about their short-term or long-term cost savings.

Another strategic plan that Peters suggests is to provide a taste or smaller portion of your products or services in order to build trust on a low-risk level with new customers.

“Don’t throw the baby out with the bathwater, but hold your marketing staff accountable to do their due diligence on their new target market, and leverage existing relationships first,” says Peters.

In this economic environment, Iverson recommends making sure “that you include everyone in the thought process regarding what can help improve the bottom line of a business.”

Suggestion boxes, monthly contests, and rewards can get everyone in the business involved with finding for the best marketing or cost saving ideas, and at the same time, help build company morale. Ideas flow up from the bottom as well down from the top.

“Make sure that everyone in the organization has a clear understanding of what your business does and then they can each be a walking billboard among their circle of influence,” suggests Iverson.

Peters adds, “Don’t hold back on investing in marketing and advertising just to save money. Media costs are lower than ever. There are fewer competitors out there marketing for the same reason. Again, hold your team accountable to evaluate the marketing channel, include the right messaging for this new economy, and test on a small scale to reduce risk and track results.”

Reassess Your Customer Credit Practices for Stronger Financials

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by Anne Moore Odell

Every time you send out an invoice, it is like you are granting a loan to your clients. Business is built on trust with products and services moving around the world on the foundation that invoices are going to be paid in a timely manner.

However, extending credit can’t happen in a vacuum. It is up to you to create credit policies that keep your cash flow and business healthy. And while having good credit practices in place is always important, it is especially important to make wise credit decisions in today’s difficult economic times.

Take the Time to Research

Now is the time to revisit your credit application process. Make sure that your application is thorough. Make the effort to call all supplied references and banks. Although clients are only going to supply positive references, you can still learn a lot about how potential clients work.

Do your homework on prospects by going to the library where free information from publicly traded companies can be found. Consider using a professional credit report service like Dun & Bradstreet , TransUnion or Equifax. For a small fee they can provide credit histories, records of liens against companies, and current financial obligations on larger clients.

“Don’t forget to use your contacts with the various business associations you belong to – they can help gain information about credit decisions,” suggests Mike Iverson, CEO of Trillium Financial. “Through these relationships and through relationships with other vendors, you can learn about potential clients. You might also require information from clients’ accountants, and tax returns,” says Iverson.

Consider using a Z-Score as one metric of credit worthiness. A Z-Score is a calculation that allows you to figure out the financial health of a company by using ratio values for a “score” that can indicate potential future bankruptcy.  A Z-Score calculator can be located at either The Accounts Receivable Network (membership site: www.tarn.com) or at JaxWorks (http://www.jaxworks.com/calc2a.htm )

Be Selective

Keep your customers’ credit files up to date.  With businesses going bankrupt and changing hands, it is important to update your credit information on existing clients, increasing or decreasing credit limits as needed.

“In this market you need to be discerning regarding who you are offering your services and products to,” says Marc D. Smith, Vice President, Magnolia Financial, Inc, based in Spartanburg, SC. “Fire customers if they don’t meet your credit requirements.”

Because of the reduction in sales that many businesses are seeing across sectors and industries, businesses are facing increased pressures when it comes to extending credit. However, just because a client is interested in your product or service it doesn’t mean that you need to accept every application.

“In my experience, people are lowering some of their credit limits,” says Iverson. “You should consider your accounts receivables to be much like an investment portfolio—you have invested in your customers and you want your portfolio to be profitable.”

Working with customers before problems and outstanding invoices occur is the best approach. In some cases, you can work out new payment schedules. It is also important to include your entire team so that salespeople know clients’ credit and payment histories.

Follow Up

“In good or bad times, one of the keys to collecting from customers is timely and accurate billing,” explains Mike Iverson, CEO of Trillium Financial. “That sounds like a no brainer, but sometimes that doesn’t happen.  An invoice might have to be approved or reviewed by several different people, which can cause you to lose two, three, or four days in collecting your invoice.”

One effective practice for larger bills is calling to follow up on an invoice two or three days after it is sent to see if everything is in order. This practice not only puts you top of mind with your client but acts as a customer service call that could generate more sales.  If the client does have an issue with the bill, then you can quickly solve the problem, generate another invoice and get paid on time.

Another proactive practice is to send monthly statements or even bi-weekly statements, again reminding clients before bills become overdue.

Good Relationships are Important

All levels of management are becoming more involved in credit decisions as businesses look to keep the cash coming in. These days CFOs and CEOs are participating in credit decisions with their teams.

One of the main points to remember, however, is that while the recession will end, the relationships you form today will continue. Working to preserve the business relationships you have now and creating new working relationships not only generates good will, but also builds a strong foundation to catapult your business when the economy rebounds.

Phased Approach Makes Marketing Planning Easy AND Effective

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by Bernadette Peters, Natural Marketing Services, LLC

It’s the new year again.  We’ve all been working on budgets, evaluating our financial strength and setting goals for the new year.  One of the biggest challenges for any business owner or manager is creating a marketing plan.  There’s a misnomer out there that the plan requires several months of work and the final result is a large tabbed notebook of strategies and initiatives.  But that’s not necessary to create a plan that you can implement in 2010.

As a marketing services provider and consulting firm, we have worked with a lot of small businesses.  They all need a marketing plan, but didn’t necessarily have the budget or time to go through the full marketing planning process.  So we developed a phased approach that any business can use to produce positive results in the short-term and over the long term.

It looks like this:

  1. Evaluation/Discovery
  2. Strategy Document
  3. Implementation Plan

Evaluation/Discovery:  When a business is small, the owner or manager has a pretty good sense of where his or her customers are coming from, which marketing strategies are working or not working and the general areas that the business needs to focus on to grow.  But as a business expands, owners and managers “wear fewer hats” and are more disconnected from the reality of their marketing effectiveness.  The evaluation and discovery process provides real data to get the owner or manager back in the driver’s seat.  Actionable data is the result of this process.  During our client marketing strategy session, we go through a discovery process which looks like this . . .

  1. Financial – this discussion centers around revenues, profit margins (per product/service or customer group), average number of transactions, average transaction amount, growth goals for the following year.
  2. Target Market – we look at existing customer demographics, psychographics, buying behaviors, then combin the financial data with this information to determine adjustments to the desired target market, and products/services that go with that market.
  3. Database – since data is everything, we look at the types of data that the business maintains on their current customers, inactives, prospects and strategic/referral partners.  We evaluate trends through reporting that will help shape our strategy phase of the plan.  We also look at the marketing tracking – activites that lead to new sales, retention, or cross-sales to existing customers.
  4. Marketing activities and infrastructure – this is probably the most time-consuming part.  We look at all marketing, communication and sales initiatives for the year, evaluate their effectiveness and prepare for the decisions we will make in the strategy phase of our plan.

And guess what?  If you never get past the first phase, you’ll still have created something valuable to make a difference in your marketing.  But if you want to go from “good” to “better,” move to the Strategy phase.

Strategy: This is where we take all the data from Discover/Evaluation and create ideas to improve on what’s working, make decisions to remove what is not working, and then reallocate funds or effort toward new marketing initiatives that we will test and track in the coming year.  The result of this process can be a one-page marketing plan listing specific goals and high-level initiatives or a multi-page document with enough detail to get the process started.

At this point if you don’t have the time or resources to move into the implementation phase, you can use this document to move forward.  We suggest going back through it to rank the initiatives in order of potential effectiveness (A, B, C), then list target dates for each initiative.

Implementation Plan: If you have a team to help you implement the marketing strategies, we highly suggest moving to this phase which will take your plan from “better” to “best.”  This is where you put specific information to your plan.  Each initiative will have associated tasks, resources needed to implement them, and time required for each step.

Although Microsoft Project may be more software than you need for this process, you may want to consider using it or something similar.  One of the key features we use is the “predecessor” fields so if one step gets delayed or an initiative re-prioritized, you can easily change the target dates of all associated tasks for that particular project.  You may want to use something as simple as an excel spreadsheet.  Remember, for each marketing initiative, you will want to test and track its effectiveness, and possibly adjust the marketing channel or message in order to find the most effective approach.

Here are some metrics we recommend tracking.  This works for direct response initiatives (promotional programs, events, mailing, advertising), but is not as effective for branding strategies.

Response rate – you will need to define what a response is for you.  It could be a sale, an inquiry, the prospect giving you an email address, etc.  Response Rate = # of responses/number of impressions (mailings sent out, number of ad copies, etc.).  The goal is to increase responses.

Cost per Acquisition – what it costs the business to acquire a new customer.  This can be tracked on a business level, customer group level or even a campaign level.  The goal is to reduce it over time. On a business level, you can divide what you spent on marketing or sales and marketing by the number of new customers acquired for that year.  That will be your baseline.  We’ve had clients track it on their business customers separate from their consumer customers, or even by affinity group.  On the campaign level, you can track what you spend on the campaign and divide by the number of new customers you acquire directly from that campaign.

Just remember that in everything, even marketing, there’s a good, better and best approach.  Going through the evaluation and discovery process will provide you with a good sense of what needs to be done in the new year.  The strategy phase will provide a better approach with identified initiatives, and the implementation phase offers the best approach toward achieving your growth goals in the new year.

Cash Flow Forecasting Keeps You in the Black

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by Anne Moore Odell

Like blood beating through the heart, cash flows in and out of a business. Cash flow is not profit. Rather it is the money coming into the business through sales and other revenues and it is the cash leaving the business, for example, as paid invoices and payroll. Cash flow, or cash on hand, is simply cash in minus cash out.

Cash flow forecasting, then, is the process of looking forward to what you expect your cash flow to look like over a set period of time. The period can be for a month, 12 weeks, or even as long as a year. It is an extremely useful tool for businesses as it can provide insights to improve profitability.  If management has a well-constructed cash flow forecast for the year ahead, it is in a strong position to plan, execute and control improvement measures.

“Forecasting cash flow helps businesses be realistic rather than idealistic”,  says Jack Koester, a  Counselor affiliated with SCORE(r) Lake/Sumter Chapter 414 in Florida. “Cash flow forecasts are tedious and require substantial due diligence. But survival is the main early benefit.  It always has been, but it is much clearer today.” SCORE(r) provides free online and face-to-face business counseling, mentoring, and training.

Creating a Forecast

A cash flow forecast is a written document that makes note of all the cash that you expect to receive and all the cash that you expect to pay out over a given period.  Plan for when you will receive payment on invoices so that you can efficiently time your payments to vendors.  To be useful the forecast needs to be updated frequently, honestly, and in the current economic times, conservatively.

There are many programs available to help with cash flow forecasting, but one of the best is one that your business probably already uses daily: Excel. “An Excel spreadsheet allows you to create a forecast that matches the size of your organization, the inflows and outflows,” says Mike Iverson, CEO of Trillium Financial.  These types of models can be effective ways to measure near term cash flows such as a rolling thirteen week plan.

For businesses interested in a cash flow software program, one provider is PlanWare.  Says Brian Flanagan, Director, PlanWare.org, “The simplest solution is to develop a cash flow forecasting plan using a spreadsheet. This can be a do it yourself worksheet or based on a template located on the internet.

Another option is a full software program that you can purchase such as PlanWare’s Cashflow Plan.  It offers a range of forecasting planners some of which are  integrated into your budget planning which includes a balance sheet, profit and loss statement, and a cash flow statement.  The benefit of the full software program is a change in sales automatically adjusts the cash inflows from receivables and values for cash and receivables in the balance sheet based on your assumptions.  These plans can be effective for longer range planning such as over a 12 month or longer period.

Cash Flow Forecasting in a Recession

“Many more companies are generating cash flow forecasts today. Cash is always an issue, even in good times,“ says Iverson. “I have more clients that forecast 12 weeks out, especially now. Cash flow forecasting for the next 12 months can be more difficult.”

Iverson adds, “With ever larger, more seemingly secure companies declaring bankruptcy, asking for extended terms, and making slow payments, cash flow  is definitely trickier than it has been in years past. Making it even more important to do.”

“If we feel clients are being too optimistic, we strongly suggest they project a separate set of cash flow projections based on a WORST CASE scenario. Sobering!” says Koestar.

“More of your Fortune 500 or Fortune 2000 companies are using cash flow forecasting. Typically, they don’t have a huge need to forecast cash short term,” Iverson adds. “But companies are making sure that they are going to have cash and capital, regardless of their size, forecasting more frequently and in shorter time frames.“

“In buoyant times, businesses were reasonably sure that cash would automatically follow on from profitable trading,” says Flanagan of Planware. “This allowed firms to gear up and pursue higher sales without worrying unduly about getting paid or securing additional credit for working capital purposes.“

Flanagan continues, “The downturn has changed all this and the key issue has become the maintenance of cash flow. This is, in many senses, more important than profitability as more businesses fail because they run out of cash rather than generate losses. Cash flow forecasting has become critical in two areas. First, short-term planning for receivables, payables and inventory to ensure that working capital (cash) is managed effectively. Secondly, medium-term forecasting, e.g. for 12 months ahead, so that firms can anticipate cash flow problems.”

Forecasting cash flow is always difficult. The recession has exacerbated this because it has disrupted established trends and patterns.   However, when forecasting during a recession, Flanagan has two suggestions: First, concentrate on higher-level forecasts as these can be just as accurate or possibly more accurate than very detailed projections. Second, make forecasts based on alternative scenarios, for example, “most likely case” and “most probable worst case”.  Aim to hit the former but take actions that presume the latter will occur.

Prominent Placement

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Company
In 2001, Stacy Williams launched Prominent Placement, Inc. (“PPI”) with the vision of creating a preeminent search engine marketing company.  The company focuses on helping drive targeted traffic to their clients’ websites and generate traffic that converts to sales.  Stacy’s firm is at the forefront of the changes occurring in the online world of search engine marketing, ensuring their clients are up to date on the technologies and methods considered best practice.  But most of all delivering results that grow their clients’ revenue.

Situation
As an emerging growth company, PPI was at a crossroads on several key operational decisions that would impact the company financially.  Stacy and her team needed an understanding of whether the company could afford to make those decisions, including committing to lease office space.  PPI was looking to move from a pure virtual office to a hybrid model (office space and virtual office).  They needed to know how much space they could afford, when best to make the change, and how to fund it.

Solution
PPI hired the Numbers Coach (“NC”) to provide a comprehensive analysis of its financial operations.  NC used its Numbers Navigator™ to assist the PPI team in assessing its ability to fund the key business decisions.  Through a discovery session and gathering of financial data, NC gained an understanding of the key financial drivers of PPI’s business.

Results
NC provided Stacy and her team with a comprehensive financial report that outlined how PPI could implement its decisions and understand the financial impact.

  • A 20+ page financial report with key performance indicators (“KPI”) driving the business
  • An Executive Summary outlining PPI’s cash flow drivers and how to increase cash flow
    • The summary also provided recommendations on what decisions the company could afford to do.

 

“Understanding the financial end of my business has always been my weakest area.  After working with a variety of other financial advisors over the years, Mike Iverson was finally able to explain my own company’s financial data to me in a way that really made sense.  He has educated me on how decisions we make all year long will impact our cash flow at the end of the year (and every day).  I feel like, after nearly a decade in business, someone has finally shined a flashlight into our numbers so that I can really see and understand them.  I feel much more in control.”

Stacy Williams, President
Prominent Placement, Inc.
Strategic Search Marketing

Understanding Your Financial Story: The Numbers Coach’s Numbers Navigator

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I have heard many times that business owners feel that their financial statements are written in a foreign language or that their financials feel like peering into a big black box uncertain what it truly contains.  Others describe it as a fog where they see the outline of their business but it’s not clear how to navigate the rugged coastline.

Often a business owner will understand the income statement and the fact that if you have a positive number at the bottom of the report, it’s good.  The bigger the better!  But then I hear, “wow I had a good year but I don’t have any cash left to pay my bills or make other investments.”

Your financial story has two sides to it, not just one.  It has the income statement plus the balance sheet.  Your balance sheet story is important because if you don’t manage it properly, it can “rob Peter”- the income statement, to “pay Paul”- the balance sheet.  How you manage your working capital will ultimately tell you how much cash is left in your bank account.

Before we go further, let’s define key components of working capital that drive cash flow.  In most companies Accounts Receivable, Inventory, and Accounts Payable are key cash flow working capital components.  How you manage these three key balance sheet accounts determines how much cash is left over.  Simply put, you want to have the shortest payment terms possible for your customers (Accounts Receivable) and you want the longest payment terms possible to pay your vendors (Accounts Payable).   For your inventory, you want to turn it over quickly and not let it sit in your warehouse gathering dust.

By connecting the financial story of the income statement to the financial story of the balance sheet, you can effectively see how cash flow is generated and how much of it you get to keep.

The Numbers Coach’s (“NC”) Numbers Navigator™ helps lift the fog and navigates you to the safety of the harbor where your company can see how to re-fuel and get back out on the high seas of commerce.  Through Trillium’s financial coaching and data gathering process, we gain an understanding of the business model and its drivers to effectively recommend actions best suited for a company to increase cash flow.

NC’s Financial Coaching services and Numbers Navigator™ helped Prominent Placement, Inc. (“PPI”) learn what financial drivers would help the business generate more cash flow and achieve several key financial goals.  Click on the following link to learn more about how NC’s Numbers Navigator™ can help you:  Numbers Navigator™

“Understanding the financial end of my business has always been my weakest area.  After working with a variety of other financial advisors over the years, Mike Iverson was finally able to explain my own company’s financial data to me in a way that really made sense.  He has educated me on how decisions we make all year long will impact our cash flow at the end of the year (and every day).  I feel like, after nearly a decade in business, someone has finally shined a flashlight into our numbers so that I can really see and understand them.  I feel much more in control.”

Stacy Williams
Prominent Placement, Inc.

Which Business Structure is Right for you?

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by Glenn Lyon, MacGregor Lyon, LLC

General Partnership

One of the simplest and most common ways for small businesses to bring in additional capital or someone with sought-after complementary skills is in the form of general partnerships. In these types of partnerships, stakes are evenly divided among each partner unless otherwise specified in a partnership agreement. All gains and losses general partnership are routed directly through to the individual partners’ personal tax returns and the business is typically not taxed as a separate entity, although it must still file a return detailing the revenues and expense of its partners (Form 1065). And because payroll isn’t required for general partners, if a company consists entirely of partners and has no employees, the paperwork requirements can be much simpler than that of a corporation.

However, general partnerships have some distinct disadvantages. The most important of these involves the risk exposure to the partners, who are jointly and severally (individually) liable for any debts or judgments against the company, which means the partners’ personal assets (home, car, investments, etc.) could be vulnerable to creditors. Also, many state laws mandate that if any one of the partners leaves or dies, the partnership is immediately dissolved, which can make succession planning more and legally tenuous.

Limited Liability Company (LLC)

Started nearly 30 years ago as a hybrid between corporations and traditional partnerships, LLC’s have proven to be an increasingly popular strategy for small business owners. LLC’s allow multiple owners of a company to directly share in profits as they would in a sole proprietorship or general partnership while shielding their various personal assets from liabilities or debts incurred by the business, protections normally found only in fully incorporated companies. A simple Operating Agreement establishes the LLC and sets up the rules for governing the company as well as the rights and responsibilities of each partner, or member.” As part of an LLC, members have the flexibility to chose whether to pass-through company profits to their personal tax returns or to have the business taxed as a separate entity.

Subchapter S Corporation (S-Corp)

Similar to traditional C-Corporations in every way except for a different tax structure, S- Corps have become quite popular among many small business owners. This is because S-Corporations offer the same tax advantages of sole proprietorships or partnerships—where all income is passed through to the shareholders’ individual tax returns—as well as offering the liability protections inherent to a corporation. The downside of S-Corporations includes increased administrative costs, a much more extensive set of rules and by-laws to follow regarding corporate governance, and closer scrutiny by the IRS. Also, federal regulations require that all S-Corporation shareholder- employees are paid prevailing wages (subject to Medicare, FICA, and any applicable state income taxes), before any profit distributions can be made.

Business Planning: Having a Business Plan Helps Ensure Sweet Success

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by Tim Fulton

Quick. Name a product or service that you or your business will gain more satisfaction from while it’s being developed or produced than when it’s finished.

Your answer?

“My tax return?” (Wrong answer)

“Chocolate chip cookies?”  (You’re getting much closer)

‘OK, I give up.”

Your strategic business plan!  (“I never would have said that.”)

Well, don’t feel embarrassed. Most business owners and managers do not consider developing a Strategic Business Plan for their organization. In fact, less than 20% of all small businesses have any type of plan in place including operating plans, marketing plans, succession plans, etc.

They deny themselves such pleasure for a number of reasons:

  • “It’s far too difficult to do.”
  • It’s far too costly to do.”
  • “I don’t have the time.”

Imagine that you have hired a builder to construct your dream home. You have this rather vague picture of this house in your mind and you communicate this image to the builder.

Now imagine that your builder plunges into the construction of your home without any architectural plans. No drawings.

In a panic, you stop construction and ask the builder why he isn’t using any plans or drawings?

He responds, “It’s far too difficult to do.” Or “It’s far too costly to have done”.  Or “I don’t have the time.”

It would be crazy to build a home without plans. How long would that “dream house” of yours last if it was not built to any type of specifications? How long do you think your business will last without any direction or strategy?

Now back to my original question.

What is fascinating about developing a business plan is that the greatest satisfaction is derived from the development of the plan itself. Just like baking chocolate chip cookies. I get more enjoyment from eating the delicious cookie dough while I’m baking than I do from the baked goods upon completion. Sometimes I get halfway done baking and stop completely. On rare occasion, the dough never makes it to the oven.

The business plan development process includes the following three steps:

  • Analyze the business as it exists at this moment in time
  • Determine your 3-5 year vision for the business
  • Decide what you need to do to move towards that vision

As you go through this process you will be forced to examine your business, as you have probably never done before. You will uncover your strengths and weaknesses. You will identify market opportunities and threats. You will set goals and objectives and then establish an action plan geared to achieving them.

You will take that image of your “dream house” out of your head and onto paper where it belongs.

When you finish, you will feel exhilarated and motivated like never before. You will find new confidence in your business. If this is not the case, it’s time to bail out. Sell the farm.

Once your business plan is completed, it than becomes your road map for leading your business. You will use it to make sure that the “construction” of your business is just as you have planned for. You may even want to share it with others such as your employees, your banker, or even your family.

Just like chocolate chip cookies.

Health Check: Is Your Overhead Growing Faster than Your Revenue?

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As a Numbers Coach, we consult with many growing companies.  One unhealthy trend we often encounter is a company whose revenue growth is not keeping pace with the growth of its fixed overhead. This situation is manageable in the short term, but problematic in the long run.

In today’s economic climate, many businesses find it difficult to increase prices or find new sources of revenue. For those businesses, revenues are stagnant or perhaps even declining. At the same time, employee salaries and benefits, rent and utilities are all trending higher. So, what do do if you find your business facing this predicament?

Let’s take a look at two possible solutions for this challenge.

Possible solution #1: Lowering prices

Given stagnant or declining revenues, lowering prices to grab market share is one possible strategy. To increase revenues under this strategy, you need to increase the volume of products/services sold. This may be feasible, especially in mature industries where a fairly uniform set of product/service features makes differentiation difficult to achieve. In these circumstances, price can be an important differentiator.

  • Possible pitfalls:The tricky part is assuring that a price decrease results in more volume and, therefore, increased revenues. By offering lower prices, you bet that a reduced profit margin per sale will be more than offset by a volume increase. If you can’t accomplish that with certainty, you may cause a potential disaster – by lowering your gross profit to the point where it still doesn’t cover your overhead!

  • Our advice: Carefully analyze the financial ramifications of a proposed price change before implementing it.

Possible solution #2: Lowering Salaries and Benefits as a Fixed Expense

For many businesses, particularly those in service-oriented industries, employee-related expenses are the biggest part of overhead.   There are instances where cuts to employee expenses make a great deal of sense.

For example, consider a local plumbing contractor who has significantly less work than he had three years ago. Prospects for next year aren’t good, because construction starts here in the Atlanta area are still suffering. The contractor has to consider how to reduce his overhead, since revenue growth will be marginal at best.

  • Possible pitfalls: In theory, employee-related expenses are a logical place to look when overhead needs to be reduced. However, most business owners are very reluctant to make cutbacks in this area – with good reason. Cutting salaries produces immediate financial benefits, but those benefits may be offset by a loss of employee trust and loyalty. By following the advice below, it is possible to reduce overhead while retaining loyal employees.

  • Our advice: When there isn’t enough work to keep existing staff busy on a full-time basis, an employer has several options. First, he may choose to cut back the hours of all employees. Our plumbing contractor put his non-administrative staff on 30-hour work weeks. All the employees share the pain equally, but they still have jobs and they seem grateful for that. Another option is to identify employees who are under-performing and make necessary cuts. Every business has high achievers that need to be retained and rewarded. That is difficult to do in a poor economic environment, especially when other employees aren’t achieving nearly as much. For our contractor, eliminating a single position meant keeping five high achievers happy and motivated. From a long-term perspective, it was the right business move.

So when your fixed overhead expense growth outpaces your revenue growth, look to alternative pricing strategies or reducing selected overhead expenses to set you back on track. But remember: rational analysis trumps emotion when it comes to financial decision-making.

If you need an objective opinion about your options, just give us a call at (404) 370-6147 or send us an email, and we are happy to advise.

Metrics: It’s Time to Keep Score in Your Business

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by Tim Fulton

I enjoy playing golf but it can be a very frustrating game.

For that reason, I typically do not keep score when I play golf. I find that it makes the game more enjoyable when I leave the scorecard and the half-pencil in the clubhouse. I have also found that over the past three decades that I have played golf, my game has not improved at all. If anything, it has deteriorated over time. But then it is hard to tell because…I don’t keep score.

When friends ask what I normally shoot when I play golf, I usually respond with: “mid-90’s.” That sounds pretty good and seems about right. The funny thing is that when I do actually keep score, I usually shoot in the high 90’s to low 100’s. In other words, I don’t score as well as I presume I do.

Many small business owners manage their business just like I play golf. They don’t keep score. Their reasoning is very similar to mine as well. They say it just makes running their small enterprise that much more frustrating if they must look at monthly financial statements or weekly sales reports. In addition, since they work in the business every day they “know” how the business is doing. When I ask a business owner questions about profit margins, sales figures, specific ratios; I will either get a blank stare (bad sign) or a rough estimate. Upon examining their financial statements, I usually find that their “rough estimates” are overstated (sometimes dramatically).

I tell small business owners that the question is not whether or not they should be keeping score in their business. What they are operating is not a leisurely walk in the park slapping a silly white ball from tee to green. This is their livelihood. This is their dream. This is their business. . . Instead, I inform them that the key question is what to keep score of? What should they be measuring and monitoring on a regular basis? How can they check the pulse of their business on a day-to-day basis?

My dad was an entrepreneur. He was not the owner of the business but he had to think like an owner. He was in charge of operating a large warehouse distribution center. I can remember being in his office and always seeing a small piece of notepaper (this was before “Post-Its”) in the upper front corner of his desk. On that piece of paper there were three numbers scribbled down. On one occasion I asked my dad what those numbers were. Little did I know at that time that I was about to receive one of the best business management lessons I ever received (in or out of business school).

My dad responded that his bookkeeper brought him this sheet of paper every day with three (3) numbers written on it. The numbers included the past day’s total sales, this day’s bank deposit, and the amount of accounts receivable outstanding that particular day. He explained to me that those three numbers gave him the “pulse” of the business each and every day. This is how he kept score of his business. Through his experience in managing this business, he knew what to look for in these numbers. He knew what was “below-par,” “par,” and “above-par.” He knew when his business “game” was on and when it was off. No guesswork here.

No one day’s number would cause a panic. He was more concerned with patterns. Were sales increasing? Were receivables under control? He had a mental chart of each of these figures and would take action when action was necessary.

In addition to these daily reports, he would also receive weekly sales and inventory reports. He paid close attention to the monthly financial statements when they arrived. However, it was those daily reports that he relied upon most and allowed him to best keep score of his business. They were timely. They were accurate. They were critical to his ability to successfully manage this multi-million dollar operation.

What numbers should you receive every day? You decide. Possibilities include sales figures, bank deposits, inventory levels, employee timesheets, production reports, accounts receivable, accounts payable, and profit margins. Every industry has different areas of performance that need to be looked at regularly.

I think three is the magic number. Pick any three of these numbers and watch them every single working day. That is your mini-report card for the day. That is your scorecard. Set reasonable standards for each figure and be prepared to take action when necessary.

Keep score for your business and watch it improve and grow.

One Crazy Idea Can Revolutionize Your Business

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by David Shavzin

“We are too busy mopping the floor to turn off the faucet.”
Anonymous

Trying new things is always a good idea. We get stuck in ruts as individuals and as companies. “We have always done it this way, so why change?”   It can be hard to get out from under the day-to-day fires and step back to THINK.

Even in the best of times, we need to keep reinventing how we do things. But certainly during these challenging times! Even if the years since 2009 have been an economic anomaly, they have clearly changed the business environment, including every industry and every aspect of the economy.

You’ve likely heard the definition of insanity (attributed to various people, including Albert Einstein): “Insanity is doing the same thing over and over, expecting different results.” If you have not been hitting the sales targets you had set, are you going to keep doing what you have been doing? What are you going to do to ensure a successful year? What are your customers doing differently? How can that impact you? How can you adjust to take their new habits into account?

You cannot – and do not want to – change everything. But, how about one thing? Just one “crazy” idea.

Here is an example: Sales at The Home Depot were down due to housing market problems and lower consumer spending. Sound familiar? So, they decided to sell off parcels of their parking lots. They are taking pieces of those giant parking lots and selling them to retail outlets such as fast-food, pet stores and auto parts. Imagine being in the boardroom when that idea was suggested!!

Here is my advice: Get together with your partners, your management team, your employees or a couple of friends or colleagues. Brainstorm and come up with your “parking lot” idea.

Get in a room with a white board, a flipchart or paper and pen. Ask everyone to help you brainstorm new ideas…laughing is allowed, criticizing is not, everything gets Written Down, as reasonable or wacky as they sound. If you can, have someone facilitate to keep you on track – they should not participate but keep you focused. Alignment and agreement among the owners or the management team is critical.

The ideas may be slight twists on something you are doing today, or they may be the most ridiculous-sounding ideas you have ever heard – at first! They may have something to do with operations, finance, human resources, production, marketing, sales, customer service or any other part of your business. New markets, new products, new staff member, an improvement to your production or sales process.

How can you make at least one of these ideas fit your business this year? It may or may not work. If not, go back to that list and try something else!

David Shavzin is President of Shavzin & Associates, Inc., a Certified Management Consultant, and a master of crazy ideas. He can be reached at (678) 795-1750 or dshavzin@shavzinassociates.com