Business Insights from Legacy Blog

How to More Effectively Convert Your Accounts Receivable into Cash

Terry H Hill — 2008-03-10T09:41:05Z

Converting accounts receivable into cash is a critical process in the development of a healthy cash flow. While booking a receivable is accomplished by a simple accounting transaction, the process of maintaining and collecting payments from your customers requires a steadfast commitment to a systematic process of Accounts Receivable Management. To more effectively convert accounts receivable into cash it's essential that the credit and collection process be highly efficient in order for you to shorten the accounts receivable cycle time.

The accounts receivable cycle starts with a sale (credit sales) which in turn creates a receivable (monies due your company), and then, ultimately converts into cash. The length of time that it takes your company to complete this cycle, from sale to accounts receivable to cash, is the collection period. The shorter the collection period, the less time cash (capital) is tied up in the business process, and thus the better for your company's cash flow.

Try to limit outstanding accounts receivable to no more than 10 to 15 days beyond your credit terms. If your credit terms are net 30 days, then the collection period should not extend beyond 45 days. Keep in mind that average collection periods do vary because of industry standards, company policies, or financial conditions of the customer. Comparing your company's actual days of collection to the average days of collection within your industry is a wise business practice. Benchmarking your actual days of collection to that of your target days of collection (no more than 10-15 days over credit terms) is also advisable.

Your company's average collection period is calculated by using an Average Collection Period Ratio. The ratio is referred to as an Activity Ratio; it measures how quickly your company converts non-cash assets to cash assets.

Average Collection Period (ACP): ACP = Accounts Receivable / (Credit Sales/365))

A high Average Collection Period implies that your company may be too liberal in extending credit to your customers and too lax in the collection process. A low number of days in your collection period could imply that your credit and collection policies are too restrictive. This restrictive position may be repressing your sales.

Accounts Receivable Turnover Ratio (ART) is an accounting measure used to quantify your company's effectiveness in extending credit, as well as, collecting its debts. This ART Ratio is considered a Liquidity Ratio; it measures the availability of cash to pay debt.

Accounts Receivable Turnover (ART): ART = Net Credit Sales / Average Accounts Receivable

A high Accounts Receivable Turnover Ratio implies that, either your company operates on a cash basis, or that its extension of credit and collection of accounts receivable is efficient. A low ART Ratio implies that your company should re-assess its credit policies in order to ensure the timely collection of monies due from the accounts receivable ledger.

A key requirement for effective Sales and Accounts Receivables management is the ability to intelligently and efficiently manage your entire credit and collection process. Greater insight into a customer's financial strength, credit history, and trends in payment patterns is paramount in reducing your exposure to bad debt. While a comprehensive collection process greatly improves your cash flow, your ability to penetrate new markets and to develop a broader customer base hinges on the ability to quickly and easily make well informed credit decisions and, to set appropriate lines of credit. Your ability to quickly convert your accounts receivable into cash is possible if you execute well- defined collection strategies.

Credit Process:

The initial requirement of an effective credit management process is to have each company that you plan to do business with, complete and sign an Application for Credit form. Your Application for Credit form should include, the "terms and conditions of sale," space for the prospective customer to provide information on company background, a list of principal owners with their percent of ownership, three to five trade credit references, and the name of their bank(s).

It is important to personally review with the prospective customer their projected product purchases - in both dollars and in units. This review helps to initially assess the amount of credit necessary to purchase the projected products. This review also helps to determine inventory requirements based on a projected sales forecast

Collection Process:

An efficient and effective collection management process includes well defined policies and procedures that facilitate a more expedient, sale–to-cash cycle. The collection procedures require "attention to detail" and should include:

Billing: Preparation, recording, and delivery of invoices as soon as the product/service is delivered or installed.
Statements: Preparation, recording, and delivery of follow-up statements that indicate aging of outstanding balances.
Accounts Receivable Aging Schedule: Preparation and distribution of an Aging Schedule that lists all of the customer accounts that have outstanding balances. These outstanding balances are then categorized into 4 categories of time: 1 to 30 days, 30 to 60 days, 60 to 90 days, and over 90 days.
Telephone Calls: Placement of courteous and professional telephone follow-up calls to customers with past due, outstanding balances for the purpose of establishing a date of payment.
Collection Letters: Preparation, recording, and delivery of collection letters with an urgent message that demands payment and provides details of the action that will be taken if payment is not received by a certain date.
Recording Payments: Posting of the amount of payment to the appropriate customer account. If possible, it is advisable that the person performing the collection duties not be involved with the posting of payments.
Deposits of Collected Funds: Preparation of the deposit ticket, along with accompanying funds, should be deposited in the bank on a timely basis.

Factoring as an Option:

Very simply, factoring is short-term financing that is obtained by selling or transferring your Accounts Receivable to a third party - at a discount - in exchange for immediate cash. In most cases, the third party, a factoring company, audits your accounts receivable to determine their collect-ability. If the factoring company feels that your receivables are bona fide then, they will offer to purchase the current ones at a discount. A factoring company may also, under the right circumstances, purchase your future receivables at discount off the face value of the receivables. The percentage discount depends upon the age of the receivables, how complex the collection process will be, and how collectible they are.

Once the factoring company collects a particular receivable, they will pay you the remaining balance of that receivable's face value, less their fee. Fees vary widely from one factoring company to another. So, it is recommended that you do your due diligence before engaging the services of any particular company. Factoring fees are not insignificant when compared to the amount of interest you might pay to a commercial lender. For this reason alone, you should view factoring only as a short-term solution rather than a regular outlet for collecting your receivables.

Many businesses, that need an immediate infusion of cash in order to survive and/or to bridge their cash flow gap, could benefit from the process of factoring accounts receivable. Since failing businesses regularly turn to factoring as a last resort, factoring may be viewed by many people as a negative. Although factoring may be a great way to generate cash quickly, you should consider the perception that factoring may convey to your customers and to others in your industry. Your good judgment here should dictate if your company could benefit from the quick cash flow that factoring provides, or whether or not it would be just adding to your company's financial burdens.

Shortening the accounts receivable cycle time generates the healthy cash flow that is required to sustain your company's growth and prosperity.

Terry H. Hill is the founder and managing partner of Legacy Associates, Inc, a business consulting and advisory services firm. A veteran chief executive, Terry works directly with business owners of privately held companies on the issues and challenges that they face in each stage of their business life cycle. To find out how he can help you take your business to the next level, visit his site at http://www.legacyai.com

To download a copy of this article, click on this link:. http://www.legacyai.com/Article_Convert_A_R.html

How to Create a More Positive Cash Flow

Terry H Hill — 2008-03-10T09:41:26Z

If, as many experts agree, that the golden rule of business is "cash is king," then happiness in business is a positive cash flow. Cash flow is the movement of money in and out of your business over a defined period of time (weekly, monthly, or quarterly). If cash coming into your business exceeds the cash going out of your business, your company has a positive cash flow. However, if your cash outflow exceeds the cash inflow, then your company has a negative cash flow. To create a positive cash flow, generate more cash and collect the cash in a more timely manner and at the same time, maintain or reduce your expenses.

Positive cash flow does not happen by accident; it happens because a well-defined financial management technique called "cash management" is functioning. A good cash management system helps to efficiently and effectively manage the activities that produce cash. Maintaining an optimal level of cash that is neither excessive, nor deficient is of the upmost importance. Accelerating cash inflows wherever possible is a mandatory practice. Two activities that accelerate cash inflows include invoicing customers as quickly as possible and collecting cash on past due accounts. Delaying cash outflows until they come due is a critical step in good cash conservation. Negotiating extended payment terms with suppliers also delays cash outflows. In addition, investing surplus cash to earn the highest rate of return is a good business practice.

In order to understand the magnitude and timing of cash flows, plotting cash movement, with the use of cash flow forecasts, is critical. A cash flow forecast provides you with a clearer picture of your cash sources and their expected date of arrival. Identifying these two factors will help you to determine "what" you will spend the cash on, and "when" you will need to spend it.

Your financial reporting documents should include an Income Statement, a Balance Sheet and a Statement of Cash Flows. Your "cash flow forecast" reflects the same three types of cash flow activities that appear in your Statement of Cash Flows. The three types of cash flow activities are:

Cash Flows from Operating Activities: This is the cash flow that is generated which is the direct result of the sales of your product/services.

Cash Flows from Investing Activities: This is the cash flow that is generated from non-operating activities, such as, investments in plant and equipment or other fixed assets.

Cash Flows from Financing Activities: This is the cash flow that is generated from external sources--- lenders and investors.

These three types of cash flow activities are interrelated. They depend on, and affect each other. The cash flow forecast should take this into account, and provide a complete picture of where cash will come from and how it will be used for the period being forecasted. The relationships between the different cash flow activities may depend on the nature of your business, the stage of development of your business, as well as, general economic conditions, or conditions within the market or industry in which your business operates.

Cash outflows and inflows seldom occur together. In most cases, cash inflows seem to lag behind cash outflows, leaving your business short on cash. This shortfall is your "cash flow gap." The cash flow gap is the period (number of days) between your business payment of cash for goods and services purchased, and the receipt of cash from your customers for goods or services sold. In other words, inventory days on hand + receivables collection period – accounts payable period = the cash flow gap. This interval, the cash flow gap, must be financed. Keep in mind the fact, that for each day your cash flow gap is extended, so too is the amount of interest being accrued. Even when interest rates are low, the cost of financing can add up quickly.

Here are three ways your company can narrow its cash flow gap:

Stretch out your payment terms on purchases for inventory. In most industries, payment terms are largely determined by tradition and vary from industry to industry.
Shorten the collection period. The faster your company can collect money for products and/or services sold, the smaller its cash flow gap will be.
Increase inventory turnover. The faster your company moves inventory, the less cash it needs. The key to managing inventory successfully is to continuously monitor your daily sales activity to your inventory on-hand.

Profit growth does not necessarily mean more cash on hand. Profit (or net income) is the difference between your company's total revenue and its total expenses. It measures how efficiently your business is operating. Cash flow measures your company's liquidity (the ability to pay bills and other financial obligations on time). You cannot spend profit; you can only spend cash to pay suppliers, employees, the government, and lenders.

Many small business owners have discovered that profitability does not guarantee liquidity. Over time, your company's profits are of little value if they are not accompanied by a positive net cash flow. To create a positive net cash flow, generate more cash and collect the cash in a more timely manner and at the same time, maintain or reduce your expenses.

The four ways that can help your company to generate more cash, are:

Increase sales by attracting new customers. Your business cannot sustain itself without the addition of new customers. New customer acquisition is a process that combines market data with direct marketing tools to identify and reach high-potential prospects and convert those prospects into customers.
Increase sales by selling additional product/services to existing customers. It is far less expensive to generate additional business from your existing customer base than it is to generate new business from new customers. A regular review of your customers' buying history and frequency of purchases can reveal some interesting facts about your customers' buying habits.
Generate more cash from each dollar of sales. More cash is generated because of increased profit margins made possible by increasing selling prices and reducing costs of goods sold.
Reduce overhead. Overhead costs generally include facilities, equipment, administrative and management personnel. The key is to produce a larger volume of business at a lower cost.

Ideally, during your business cycle, money flowing into your business should be greater than money flowing out of it. The buildup of a surplus cash balance is important because it enables you to plug cash flow gaps when necessary, to pursue expansion initiatives, and to reassure lenders and investors that your business is in good financial health.

Copyright 2008 Terry H. Hill

Terry H. Hill is the founder and managing partner of Legacy Associates, Inc, a business consulting and advisory services firm. A veteran chief executive, Terry works directly with business owners of privately held companies on the issues and challenges that they face in each stage of their business life cycle. To find out how he can help you take your business to the next level, visit his site at www.legacyai.com

To download a copy of this article, click on this link:. http//www.legacyai.com/Article__Cash_Flow.html

How to Successfully Navigate Your Business through an Economic Downturn

Terry H Hill — 2008-02-20T18:04:03Z

An economic downturn is a phase of the business cycle in which the economy as a whole is in decline. This phase basically marks the end of the period of growth in the business cycle. Economic downturns are characterized by decreased levels of consumer purchases (especially of durable goods) and, subsequently, reduced levels of production by businesses.

While economic downturns are admittedly difficult, and are formidable obstacles to small businesses that are trying to survive and grow, an economic downturn can open up opportunities. A well-managed company can realize the opportunity to gain market share by taking customers away from their competitors. Resourceful entrepreneurs capture the available opportunities, from an economic downturn, by developing alternate methods of doing business that were never implemented during a prior growth period.

The challenge of successfully navigating your business through an economic downturn lies in the realignment of your business with current economic realities. Specifically, you, as the business owner, need to renew a focus on your core clients/customers, reduce your operating expenses, conserve cash, and manage more proactively, rather than reactively, is paramount.

Here are best practices that will help you to successfully navigate your business through an economic downturn:

Goals:

The primary goal of any business owner is to survive the current economic downturn and to develop a leaner, more cost-effective and more efficient operation. The secondary goal is to grow the business even during this current economic downturn.

Objectives:

     • Conserve cash.

     • Protect assets.

     • Reduce costs.

     • Improve efficiencies.

     • Grow customer base.

Required Action:

        • Do not panic… History shows that economic downturns do not last forever. Remain calm and act in a rational manner as you refocus your attention on resizing your company to the current economic conditions.

        • Focus on what YOU can control… Don’t let the media's rhetoric concerning recessions and economic slowdown deter you from achieving business success. It´s a trap! Why? Because the condition of the economy is beyond your control. Surviving economic downturns requires a focus on what you can control, i.e. your relevant business activities.

        • Communicate, communicate, and communicate! Beware of the pitfall of trying to do too much on your own. It is a difficult task indeed to survive and to grow your business solely with your own efforts. Solicit ideas and seek the help of other people (your employees, suppliers, lenders, customers, and advisors). Communicate honestly and consistently. Effective two-way communication is the key.

        • Negotiate, negotiate, and negotiate! The value of a strong negotiation skill set cannot be overstated. Negotiating better deals and contracts is an absolute must for realigning and resizing your company to the current economic conditions. The key to success is not only knowing how to develop a win-win approach in negotiations with all parties, but also keeping in mind the fact that you want a favorable outcome for yourself too.

Recommended Best Practice Activities:

The Nuts and Bolts… The following list of recommended best practice activities is critical for your business' survival and for its growth during an economic downturn. The actual financial health of your particular business, at the outset of the economic downturn, will dictate the priority and urgency of the implementation of the following best practice activities.

     1. Diligently monitor your cash flow: Forecast your cash flow monthly to ensure that expenses and planned expenditures are in line with accounts receivable. Include cash flow statements into your monthly financial reporting. Project cash requirements three-to- six months in advance. The key is to know how to monitor, protect, control, and put cash to work.

     2. Carefully convert your inventories: Convert excess, obsolete, and slow-moving inventory items into cash. Consider returning excess and slow-moving items back to the suppliers. Close-out or inventory reduction sales work well to resize your inventory. Also, consider narrowing your product offerings. Well-timed order placement helps to reduce excess inventory levels and occasional material shortages. The key is to reduce the amount of your inventory without losing sales.

     3. Timely collection of your accounts receivable: This asset should be converted to cash as quickly as possible. Offer prompt payment discounts to encourage timely payments. Make changes in the terms of sale for slow paying customers (i.e. changing net 30 day terms to COD). Invoicing is an important part of your cash flow management. The first rule of invoicing is to do it as soon as possible after products are shipped and/or after services are delivered. Place an emphasis on reducing billing errors. Most customers delay payments because an invoice had errors, and therefore, will not pay until they receive a corrected copy. Email or fax your invoices to save on mailing time. Post the payments that you have received and make deposits more frequently. The key is to develop an efficient collection system that generates timely payments and one that gives you advance warning of problems.

     4. Re-focus your attention on your existing clients/customers: Make customer satisfaction your priority. A regular review of your customers' buying history and frequency of purchases can reveal some interesting facts about your customers' buying habits. Consider signing long-term contracts with your core clients/customers which will add to your security. Offer a discount for upfront cash payments. The key is to do what it takes to keep your current customers loyal.

     5. Re-negotiate with your suppliers, lenders, and landlord:

          i) Suppliers: Always keep your negotiations on the level of need, saying that your company has reviewed its cost structure and has determined that it needs to lower supplier costs. . Tell the supplier that you value the relationship you have developed, but that you need to receive a cost reduction immediately. Ask your supplier for a lower material price, a longer payment cycle, and the elimination of finance charges. Also, see if you can buy material from them on a consignment basis. In return for their price concessions, be willing to agree to a long-term contract. Explore the idea of bartering as a form of payment.

          ii) Lenders: Everything in business finance is negotiable and your relationship with a bank is no exception. The first step to successful renegotiations is to convince your lenders that you can ultimately pay off the renegotiated loan. You must point out to your lenders why it would be in their best interest to agree to a new arrangement. Showing them your business plan and your action plan that includes your cost-savings initiatives, along with "the how" and "the when" of the implementation of your plan is the best way to achieve this goal. Explain to them that you will need their cooperation to insure that you can survive, as well as, grow your business during the economic downturn. Negotiated items include: the rate of interest, the required security to cover the loan, and the beginning date for repayment. A beginning date for repayment could be immediate, within several months or as long as a year. The key is to realize that your lender will work with you, but that frequent and continual communications with them is critical.

          iii) Landlord: Meet with your landlord. Explain your need to have them extend the term of your lease at a reduced cost. Make sure you have a clause in the lease agreement that entitles you to have the right to sublet any or all of the leased space.

     6. Re-evaluate your staffing requirements: This is a very critical area. Salaries/wages are a major expense of doing business. Therefore, any reduction in the hours worked through work schedule changes, short-term layoffs or permanent layoffs has an immediate cost saving benefit. Most companies ramped up hiring new employees in the good times, only to find that they are currently overstaffed due to slow sales during the economic downturn. In terms of down-sizing your staff, be very careful not to reduce your staff to a level that forces you to skimp on customer service and quality. Consider the use of part-timers or the current trend of outsourcing certain functions to independent contractors.

     7. Shop for better insurances rates: Get quotations from other insurance agents for comparable coverage to determine whether or not your present insurance carrier is competitive. Also, consider revising your coverage to reduce premium costs. The key is to have the right balance-to be adequately insured, but not under or over insured.

     8. Re-evaluate your advertising: Contrary to the other cost-cutting initiatives, evaluate the possibility of increasing your advertising expenditures. This tactic realizes the advantage of the reduced "noise" and congestion (fewer advertisers) in the marketplace. The downturn period a great opportunity to increase brand awareness and create additional demand for your product/service offerings.

     9. Seek the help of outside advisors: The use of an advisory board comprised of your CPA, attorney, and business consultant offers you objectivity and provides you with professional advice and guidance. Their collective experience in working with similar situations in past economic downturns is invaluable.

     10. Review your other expenses: Target an across-the-board cost-cutting initiative of 10-15%. Attempt to eliminate unnecessary expenses. Tightening your belt in order to weather the downturn makes practical, financial sense.

Proactively managing your business through an economic downturn is an enormous challenge and is critical for your survival. However, through well-planned initiatives, an economic downturn can create tremendous opportunity for your company to gain greater market share. In order to take advantage of this growth opportunity, you must act quickly to implement the above best business practices to continue realigning and resizing your company to the current economic conditions.

Copyright © 2008 Terry H. Hill

You may reprint this article free of charge in your newsletter, magazine, or on your website, provided that the article is unedited, and that the copyright, author's bio, and contact information below appears with each article. Articles appearing on the web must provide a hyperlink to the author's web site.

An author, speaker, and consultant, Terry H. Hill is the founder and managing partner of Legacy Associates, Inc., a business consulting and advisory services firm based in Sarasota, Florida. A veteran chief executive, Terry works directly with business owners of privately held companies on the issues and challenges that they face in each stage of their business life cycle. Contact Terry by email at www.legacyai.com or telephone him at 941-556-1299.

An Entrepreneur's Business Performance Dashboard

Terry H Hill — 2008-02-14T15:14:17Z

As a business consultant, probably the number one recurring question that business owners ask me is, "What are the keys to survival in this competitive small business environment?" My response to this question has remained unchanged over the years. My reply is simple, practical, and straight-forward advice – advice, which if implemented, would dramatically increase a business owner's odds of survival and success.

My answer to the question is… "Try to emulate what other businesses have done over time that has made them successful." Notice how simple, practical, and straight-forward this advice is. This advice incorporates a process that bankers, CPAs, and consultants, like me, have used for years to determine the strengths and the weaknesses of a particular business as compared to that of other businesses. It is the process of benchmarking.

Unfortunately, most business owners do not use this valuable method of analysis, or perhaps, they are unaware of available sources to obtain the necessary data in order to benchmark their company's performance. The Business Performance Dashboard (BPD) is a valuable source of information for the business owner to use to help determine how his/her business measures up to other businesses within their industry.

The Business Performance Dashboard is a new tool from Entrepreneur.com. With this tool, a business owner can easily compare his/her business in regards to size and age with that of the average business in their industry. This BPD pinpoints areas of the business that need improvement and also, pinpoints the areas where they excel. BPD focuses largely on sales issues which include sales-per-employee statistics, sales by business age, and more. For more information, visit http://www.entrepreneur.com/benchmark/index.html.

Business Training Starts With You the Business Owner!

Terry H Hill — 2008-02-07T17:34:31Z

The game of business is not unlike any other game - there are winners and there are losers. The stakes are high and the competition is fierce. As the business owner you need to know if your business is in a position today that will enable the business to effectively compete, to profitably grow, and to become the dynamic business you would like it to be in the future.

Over half a million U.S. small businesses will fail this year according to statistics from the U.S. Small Business Administration. For every one business that succeeds, ten will not. Business failure is not only common with new start-up companies but also with businesses that have been around for some time.

An analysis by Coleman Management Services Inc., found that less than 17% of the reasons cited for business failure are due to outside influences such as inflation and economic reasons, or union problems. 83% of the reasons a business fails are within the control of business owners and managers.

What can business owners and organizations do to ensure they will survive and flourish? Where do successful companies invest their funds and attention? One area proven to result in long-term stability and expansion is business training. There is a direct correlation between the level of investment in company training and increased levels of productivity and profitability.

According to ASDT's (American Society of Development and Training) industry report shows that training and development initiatives at all organizational levels transform organizations. The knowledge gained can lead to increased productivity, profits and business success.

Business training starts with you the business owner. Initially, you need to assess your own set of business skills to determine what specific skills you lack and/or need to improve. Then, the same process of assessment needs to take place for each of your employees.

Don't Underestimate the Effects of Your Company Culture!

Terry H Hill — 2008-02-04T21:24:58Z

Whether you are aware of the fact or not, your "company culture" can attract or repel those whom you need the most to build a prosperous business. Most experts agree that business is about people ---people, as in employees, customers, suppliers, lenders, and investors. In order to attract the most talented employees and the most profitable customers, your company's culture has a large impact on your success.

However you define it, your company culture is critical. Whether performance is defined in terms of customer satisfaction, attendance, safety, or productivity, research clearly indicates that culture influences organizational performance. A strong company culture aligns your entire organization with its shared set of goals and objectives, and simultaneously empowers employees to make decisions in their areas of responsibility.

In the business environment, culture is a system of shared values and attitudes that focus on how work gets done and how people and materials are affected. Webster’s Dictionary defines culture as "the integrated pattern of human behavior that includes thought, speech, action, and artifacts, and depends on man’s capacity for learning and transmitting information to succeeding generations." It is a set of shared beliefs, practices and assumptions that we base people's behavior on. When people come together with a shared purpose, a culture is created.

In order for your company to grow and prosper, a "company culture" must be created which clarifies your identity, your values, and your beliefs. A culture must also be created so that a company is able to not only attract quality people, but also – and even more importantly – to keep them. As your company attracts the best and brightest people, it is wise – and ultimately beneficial to the company as a whole – to view these new employees as long-term employees, rather than short-term. One cannot over emphasize the significance of the planning stage in the development of the foundation for a company's culture. A well-established "company culture" empowers employees, drives revenues, and optimizes your future.

Creating a culture for your company is about cultivating passion in your employees. Your company culture can only begin to take shape when people beyond you, the business owner, begin to articulate the company's principles and reflect them in its actions. As the business owner, you can take actions to create a strong company culture, but it is your employees and their actions that bring the company's culture to life.

The individual who leads the company is the one who establishes values and sets the vision and strategic direction. In small companies, it is almost always the personalities and values of the founders, owners, and general managers that determine the company culture. Over time the company's personality mirrors that of the leader's personality. The employees emulate what they perceive to be the values of the “boss.” As the business owner, it is important that you fully understand this phenomena and its impact on your organization.

Be sure to align your culture with the type of work you do. Cultures that are right in one context can be disastrous in another. Is your culture a casual, loosely organized group of developers or designers in an environment that encourages collaboration and innovation? Or, is your culture a hard-driving sales environment that rewards competition and individual performance?

Many people believe strong cultures equate to strong performances; and, strong performance attracts the best and most talented employees and the most profitable customers. This is true if your company is moving in the right direction. Failure to move in a strong culture direction will simply fast-forward failure. Check the strength of your culture. Make sure it supports the work you do. If it does not, realign it to better serve your customers, and to attract quality long-term employees. Your business life depends on it.

You may reprint this article free of charge in your newsletter, magazine, or on your website, provided that the article is unedited, and that the copyright, author's bio, and contact information below appears with each article. Articles appearing on the web must provide a hyperlink to the author's web site.

An author, speaker, and consultant, Terry H. Hill is the founder and managing partner of Legacy Associates, Inc., a business consulting and advisory services firm based in Sarasota, Florida. A veteran chief executive, Terry works directly with business owners of privately held companies on the issues and challenges that they face in each stage of their business life cycle. Contact Terry by email at http://www.legacyai.com or telephone him at 941-556-1299.

Strategic Planning is not only for Big Businesses

Terry H Hill — 2008-01-02T16:26:40Z

Strategic planning is by far the most important task of any management team. Unfortunately, far too many entrepreneurs believe that strategic planning is an exercise that is meant only for big businesses; when in fact, strategic planning is equally applicable and critical to small businesses.

Strategic planning is a way to identify and move your organization toward its desired future state. Strategic planning aligns the strengths of your business with the available opportunities. It is the process in which you develop a vision, set objectives, craft a strategy, implement and execute the strategy, and finally monitor and evaluate the desired outcome.

The benefits of planning are quite evident. An organization simply cannot know what it is currently doing, where it is going, or what it intends to do to get there, unless the organization periodically establishes and monitors its goals. Strategic planning enables people to influence the future by focusing on the important resources of time, talent, and money, while properly allocating these resources to provide the most benefits.

The very act of strategic planning implies a proactive style of management that anticipates future events before the events actually take place. Proactive management eliminates the possibility of being over-run by the event, and sets plans and procedures in place to cope with this type of event should it present itself. Your strategic planning process develops a frame of reference for your sales forecasts, operational expense budgets, and capital requirements.

A strategic business plan is the end result of the strategic planning process and it becomes your "roadmap" to success. It is your strategic business plan that allows you to better articulate your vision while providing the necessary documentation to support your claims. Your stakeholders (lenders, customers, suppliers, and employees) gain a greater sense of security that evolves from a better understanding of the opportunities, the obstacles, and the ability that you and your company's have in order to adapt more effectively to an ever-changing business environment.

Copyright © 2007 Terry H. Hill

You may reprint this article free of charge in your newsletter, magazine, or on your website, provided that the article is unedited, and that the copyright, author's bio, and contact information below appears with each article. Articles appearing on the web must provide a hyperlink to the author's web site.

An author, speaker, and consultant, Terry H. Hill is the founder and managing partner of Legacy Associates, Inc., a business consulting and advisory services firm based in Sarasota, Florida. A veteran chief executive, Terry works directly with business owners of privately held companies on the issues and challenges that they face in each stage of their business life cycle. Contact Terry by email at http://www.legacyai.com or telephone him at 941-556-1299.

To Satisfy the Customer is the Mission and Purpose of Every Business...

Terry H Hill — 2007-12-28T12:44:18Z

Why do businesses spend as much as 80% of their marketing dollars to seek new customers and clients rather than to nurture, retain, and maintain the customer relationships that they already have?

Your customer base is one of your most valuable assets. It goes without saying that, next to employees, your customers are your most valuable stakeholders. They buy your products, use your services, and keep you in business. And, they depend on you to treat them fairly and to deliver a quality product/ service at an appropriate price.

The management guru, the late Peter Drucker stated that, “A business is defined by the want the customer satisfies when they buy your product or service.” He further emphasized the point that, “To satisfy the customer is the mission and purpose of every business.”

Your customers are motivated to buy your products or services because of the benefits that they will receive. The benefits help solve problems or simply meet the customer's desires. In considering your customer's needs and wants, ask yourself the following questions:

• What benefits will my customers realize from my products/services?

• In which specific ways will my products and services meet my customers' needs?

• What changes might I make to my products/services to better meet my customers' needs?

Customers, like any valuable asset, must be appreciated, protected, and cherished. If not, they could fall into the wrong hands---the hands of your competitors.

Making the Transition from an Entrepreneurship to a Professionally Run Business

Terry H Hill — 2007-12-19T10:58:36Z

Starting a new business is an exciting venture, full of challenge, opportunity, and excitement. Especially, if your entrepreneurial concept gains traction and generates growth. When it does, the next step is transitioning from an entrepreneurship to a professionally run business.

However, here is the irony. At this transition point—precisely the one you want to reach—is where many small businesses run into trouble. Because while the entrepreneurial skill set is great for creating and building new businesses, it is not as well suited to transforming fledgling businesses into long-term companies.

As a business grows beyond the startup stage, the ingredients that made for a winning start become a recipe for disaster. This is where entrepreneurs often make big mistakes. As Bill Gates observed, “Success is a lousy teacher. It seduces smart people into thinking they can’t lose. “

Smart people can lose. And many entrepreneurs do every day. The key is to understand the business lifecycle and how to move from one stage of the lifecycle to the next. Transition is a natural part of the process. A rapidly expanding company can quickly outgrow its infrastructure. Suddenly the informal management style that worked so well in the beginning no longer gets the job done. The organization’s existing infrastructure cannot support the next stage of growth, and the fallout is upheaval.

In truth, rapid growth and expansion place an incredible strain on resources. The gap between the
infrastructure you will need and the infrastructure that has evolved becomes painfully evident. If your business is to succeed, you need systems and processes that will stabilize your company and support future growth. This is why a well-planned transition strategy is so important.

In most cases, with an entrepreneurially run business, management is more growth-and innovation-driven and less profit-driven. The emphasis is on creativity and innovation rather than structure or operations. Planning is haphazard rather than systematic. The organizational structure is loosely defined. Budgeting is implied. In essence, an entrepreneurially run business is an adolescent in the business lifecycle, pursuing growth, change and opportunity but is desperately in need of stabilization.

On the other hand, a professionally managed organization is one with formal, thoughtfully-developed systems and processes and a disciplined, profit-oriented approach to doing business. In professionally managed organizations, management techniques have evolved beyond the spontaneous, reactive mentality typical of startups. Management styles are established. Professionally managed organizations are more democratic (typically consultative or participative). Professionally managed enterprises are based on clearly communicated objectives, expectations, and accountability.

To advance beyond an entrepreneurship business, the entrepreneur must take stock and implement systems, develop processes, and hire people who can steward the company into the future. This transition requires formal planning, meetings, systems, and clearly defined roles, responsibilities, and processes.

The first step in advancing from an entrepreneurship to that of a professionally run business is to recognize that the business has reached a new stage in its business lifecycle. The second step is to acknowledge that it is now time for change. The third step is to enlist the help of outside professional business advisors to assist you with the transition.

With a professional general business advisor, you obtain an accurate and an unbiased diagnosis of your entire business. Only then can you develop and implement an effective strategy to transition from entrepreneurship to a professionally run business. The professional general business advisor assists you with the development and implementation of the following:

• Assess your organizational infrastructure to determine how well existing systems, processes, and structure support future needs.

• Know where you are headed so you can communicate to your employees the direction that your company will take in future developments.

• Draft a development plan that maps out how you will build the competencies you need for the next stage of development.

• Create or revisit your business plan and use it to guide and monitor your progress.

• Develop training and mentoring programs to cultivate the management team’s capabilities.

• Implement realistic systems for planning, organizing, managing, and increasing accountability.

• Standardize the various processes for the best efficiency.

• Define the roles and responsibilities of each employee.

• Establish and communicate objectives, goals, measures, and rewards to your stakeholders.

• Let go, and let the experts do their jobs.

When companies transition from startups to professionally managed enterprises, founder/entrepreneurs often arrive at a crossroads. As the business owner, you need to consider if you should step back and hand the reins over to an experienced, professional management team? Or, should you stay and attempt to adopt a more structured management style?

The decision is yours. However, keep in mind, that the skills it takes to hatch a business concept … identify a market … develop a product or service …and assemble the resources and operations to bring it to market are not the same skills you need to shepherd a company into the future.

The Entrepreneur and the Gymnast

Terry H Hill — 2007-12-18T17:55:16Z

In many ways, an entrepreneur is not unlike a gymnast. The act of balancing is critical to each and every one of his/her performances. The gymnast must counteract the forces of weight and motion. Likewise, the entrepreneur must also balance the distribution of his/her time and resources. Without the ability to adequately balance the elements of weight, motion, time, and resources, the entrepreneur and the gymnast would be hard-pressed to succeed in their particular endeavors.

An entrepreneur must seize opportunities and minimize risks. To accomplish these tasks, the entrepreneur must clearly specify the objective of his/her business venture or project, and identify the internal and external factors that are favorable and unfavorable to achieve that objective.

An effective tool that assesses and identifies opportunities and risks is a SWOT analysis. A SWOT analysis is a strategic planning tool used to evaluate the strengths, weaknesses, opportunities, and threats involved in a business venture or project. Once a clear objective has been identified, a SWOT analysis can be highly effective in the pursuit of the objective.

The Shortest Distance Between You and Your Dreams...

Terry H Hill — 2007-12-12T15:17:57Z

Businesses review their financial performance at different times of the year: monthly, quarterly, and annually. These reviews typically focus solely on the numbers. Though the financial performance is the barometer of accomplishment in business, performing a little self-examination at this point in time can pay lasting dividends.

As an entrepreneur, the shortest distance between you and your dreams is your ability to set and accomplish objectives in a timely fashion. An action plan can help you stay organized, coordinate your activities, and keep your projects on schedule.

The action plan specifically outlines the steps or tasks that are necessary to achieve objectives. It includes a schedule with deadlines for significant actions, resources necessary to achieve objectives, and methods to measure these objectives. Preparing action plans addresses potential problem areas, considers the cross-functional impact of the actions, and ultimately increases productivity.

Business Process Management

Terry H Hill — 2007-12-10T09:42:03Z

A business process is best defined as any function within an organization that enables the organization to successfully deliver its products and services. Every business has a series of core business processes that define the business model that the company uses. A company’s business model forms the basis of the company’s competitive advantage.

The quality of a company's products/services is the result of having easily reproducible and repeatable processes. Standards, such as ISO 9000, characterize quality as "consistency". Quality is not an objective, quantifiable measure. However, if you can easily repeat a certain result consistently over time, then you have quality.

The key to obtaining consistent results from a well-defined process that can be measured, analyzed, and adjusted over time – this is the essence of process management. Business Process Management (BPM) is a systematic approach to improving an organization's business processes. BPM activities seek to make business processes more effective, more efficient, and more capable of adapting to an ever-changing environment. With controlled policies and procedures, policies, you have laid the foundation for building quality business processes.

The Nuts and Bolts of Running Your Business

Terry H Hill — 2007-12-05T15:28:07Z

There are three key processes in operating a small business—management, strategy and operations—all of which are tightly integrated. The management process provides a framework for hiring, training, and managing people to produce results. The strategic process defines your short-term, as well as, your long-term goals---where you want to take your business (earnings, sales, and revenues) and how you will get there. The operational process provides the roadmap, tools, and resources for getting there.

Effective business processes depend on standardization--- setting standards of how things should be done and formalizing processes for getting things done to meet those standards. With basic systems in place, jobs, tasks and decisions are easily performed rather than becoming confusing challenges.

One of the most common causes of business failure is the lack of standardized systems. Fly-by-the-seat-of-your-pants management generates chaos and inconsistency. However, if you create basic systems and processes for performing day-to-day tasks that can be easily replicated, then you are well on your way to building a business that produces consistent results.

One of the greatest entrepreneurial success stories is that of McDonald’s, a complex, well-run business system that is operated by ordinary employees who serve over 45 million people every day. Its founder, Ray Kroc, didn’t invent the McDonald's concept, but he did revolutionize the food service industry through automation, attention to detail, exceptional efficiency, and the highest standards of safety and cleanliness.

Standardization of processes is a necessary part of the transition from a fledgling company to a professionally managed enterprise. As your business grows, standardization of processes and procedures is essential to future growth and success.

Early stage entrepreneurships are characterized by informal management, ad hoc procedures, and, at times, a total lack of systems, processes, and procedures. At some point in the business lifecycle, standardization becomes critical. Very few businesses can manage by exception or flourish because they do not have a system for getting things done.

Standardization means creating a prototype of how your business should run, charting an organizational path, identifying key functional areas, and establishing positions to support them. It means hiring, training, and acculturating people. It means creating a system of standard processes, procedures, and guidelines that inform employees how to deliver goods or services and formalize the steps in an operations manual.

One of the goals in producing a policy and procedure manual (operations manual) is to document the core business processes that produce an optimal business model. An optimal business model should be easy to understand, should be repeated on a continued basis by other employees, in other offices, over time. Optimal models generally produce consistent results, increase profits, and improve employee morale. Consistency reduces risk and uncertainty while producing a more stable company.

Business growth does not have to equal complexity. Success sometimes hinges on elegant simplicity. Many times, when companies expand as a result of rapid, unplanned growth rather than a carefully orchestrated plan, complex inefficient operations result. Organizations find themselves with staff, resource, and equipment redundancies, lack of formal systems, duplicated efforts, and no clear line of sight to the strategy driving the business.

In order to safeguard your business from becoming too complex and inefficient, streamline your business processes. Here are some tips to help you streamline your company's workflow processes:

• Analyze each existing business process.

• Identify gaps in efficiency and productivity.

• Develop a solid plan to redesign and formalize processes.

• Nurture cooperation from partners, investors, managers, and employees.

• Prepare your company for inevitable changes.

• Establish performance benchmarks.

• Roll out the plan using a phased approach.

• Monitor and evaluate progress.

• Consider outsourcing processes that you cannot handle in-house.

In today’s competitive market, the processes that you employ to deliver your products and services are often what differentiate your company from your competition. Therefore, make sure your company is as efficient, responsive, and as productive as it can be.

Financial Management

Terry H Hill — 2007-12-04T18:42:32Z

You may be profitable at the end of the year, but if you don't have the cash you need during the year, your business may not survive. You can't pay payroll taxes with accounts receivable.

Every business must be profitable to stay in business, but cash flow can at times be more important than a profit on the Profit and Loss Statement.

Business owners have to develop at least basic skills in financial management. Expecting others in your organization to manage finances is clearly asking for trouble. Basic skills in financial management start in the critical areas of cash management and bookkeeping.

Financial management is the process of managing the financial resources, including accounting and financial reporting, budgeting, collecting accounts receivable, risk management, and insurance for a business. Financial management is a key tool in controlling and directing the resources of any business organization. You can use this tool to generate and analyze the financial information that is essential to decision making in your business.

The first step in developing a financial management system is the creation of financial statements. To manage proactively, you should plan to generate financial statements on a monthly basis. Your financial statements should include an income statement, a balance sheet and a cash-flow statement.

Keeping Your Bottom Line Strong

Terry H Hill — 2007-11-20T13:52:54Z

Henry Ford once said, “Money is like an arm or leg—use it or lose it.” There is a lot of truth in Mr. Ford's statement. One of the biggest challenges that entrepreneurs face when building a business is getting, keeping and managing money.

In fact, of all the aspects of creating, establishing and growing a small business, financial management is the most problematic for small business owners. When it comes to launching and growing a business, sound financial management practices are also the most critical predictor of success.

Without a positive cash flow or a steady source of working capital to pay the rent, utilities, employees, repay debt, or expand your infrastructure, your company won’t be in business for long—much less positioned for growth. In fact, poor financial management is usually a fast track to insolvency.

While managing finances may not be one of your strengths, it is critical that you keep your eye on the bottom line. Even if you have hired experts to account for and manage your money, you still need to understand how to analyze your company's performance and assess your business’s financial health.

Maintaining good financial records is critical to the success of your business. Accounting and finance are fundamental tools for setting goals, measuring results, and making decisions that depend on sound record-keeping. According to a report by the Small Business Administration, an appropriate record-keeping system can make or break a new business. And, if you’re in business already, an appropriate record-keeping system can increase your chances of staying in business.

Good record-keeping provides the foundation for financial reports that are required by banks and government agencies. While these financial reports provide you with a means to better monitor your company's performance, your basic record-keeping system should be easy to use, reliable, and accurate.

There are three financial reports that give you an accurate read on the health of your business, tells you - at a glance – exactly how your business is performing, tells you how well you are managing cash flow, and tells you whether or not you are operating at a profit or at a loss. These reports depict your company's net worth.

The three financial reports are:

• Cash flow statement: Cash flow statements report a company’s inflows and outflows of cash. This is important because a company needs to have enough cash on hand to pay its expenses and to purchase assets. While an income statement can tell you whether or not your company made a profit, a cash flow statement can tell you whether or not your company generated cash. A cash flow statement shows changes over time, rather than absolute dollar amounts at a point in time. The cash flow statement uses information from a company’s balance sheet and income statement. The bottom line of the cash flow statement shows the net increase or decrease in cash for a specific period.

• Balance sheet: A balance sheet provides detailed information about a company’s assets, liabilities and shareholders’ equity. Assets are "things" that a company owns that have value. Liabilities are amounts of money that a company owes to others. Shareholders’ equity, sometimes called capital or net worth, is the money that would be left if a company sold all of its assets and paid off all of its liabilities. This leftover money belongs to the shareholders, or the owners of the company. A balance sheet gives you a snapshot of your company’s assets, liabilities, and shareholders’ equity at the end of the reporting period. It does not show the flows into and out of the accounts during the period.

• Income statement: Also known as a profit and loss statement, an income statement is a report that shows how much revenue a company earned over a specific time period (monthly, quarterly, semi-annually, and annually). An income statement also shows the costs and expenses associated with earning that revenue. The literal “bottom line” of the income statement shows your company’s net earnings or losses and tells you how much your company earned or lost over the period.

It is a good idea to examine your business operating ratios and compare them with similar ratios within your industry on a regular basis. The Almanac of Business and Industrial Financial Ratios, published annually by Prentice-Hall, is a good source of financial ratio data that is representative of most businesses in the U.S.

Financial ratios are analytical tools that enable you, your investors, creditors, and shareholders to quickly appraise the financial health of your company, pinpoint strengths and weaknesses, identify trends, and create forecasts. A ratio represents simple arithmetic—the relationship of one number to another. In the world of financial analysis, ratios make it easy to compare performance from year to year, or against other companies or the industry as a whole.

Many different types of financial ratios can be derived from balance sheets and income statements. Examples of balance sheet ratios include current, quick, cash and debt-to-worth ratios. Income statement ratios include gross and net margin ratios. Business efficiency ratios include sale-to-assets ratios, return on assets, return on investment, inventory turnover, inventory turn days, accounts receivable turnover, average collection period, accounts payable turnover and average payment period.

Not all types of financial ratios are as significant, or as relevant, to all businesses. The following financial ratios are some of the most important financial ratios for all types of businesses. Using these financial ratios helps you to answer a few critical questions about your business.

Is your business solvent?

Current Ratio = Current assets : Current liabilities

The Current Ratio is a test for solvency. It provides a clue to the magnitude of the financial margin of safety for the business. The standard guideline for this ratio is 2:1 or higher.

Is your business liquid?

Quick Ratio = Cash & accts receivable : Current liabilities

The Quick Ratio is also known as the Acid Test Ratio. It’s used to determine the company’s general liquidity (its ability to pay its current debts). A general standard for this ratio is 1:1 or higher.

Has your business borrowed wisely?

Total debt : Net worth

This operating ratio reveals the extent to which the business has borrowed money. Too much debt may indicate insufficient capital and could weaken the business’s competitive position.

How is your business performing?

Working capital : Sales

This ratio shows the relationship of working capital to business transactions. Compare this ratio with averages in your industry and related businesses to determine business performance.

Are your products selling?

Cost of sales : Inventory

This ratio shows the number of times the inventory turns over. A comparison with industry and related business averages can be revealing. Slow inventory, relative to similar businesses within the industry, could indicate problems that will show up in future profitability.

How is your management doing?

Net profit : Net worth

This ratio shows the return on invested capital. Compare it with industry and related business averages. Also compare this ratio with the rate of return you could expect to receive in the equity or financial markets. The risk of running a small business is not worth mediocre returns on investment capital.

Is your business earning a profit?

Net profit : Sales

This ratio measures the profit margin of the business. Compare it with industry and related business averages to see how well your business is doing.

Are your profits adequate?

Cost of sales : Sales

If this margin appears thin compared to the industry average, it could mean future trouble. This indicates how much money is available to pay expenses. Even a small decline in sales for a company with a weak ratio may have serious consequences.

Gains and losses in assets and liabilities that appear on the balance sheet are also reflected in the revenues and expenses that you see on the income statement. Cash flows provide more information about cash assets listed on a balance sheet and are related, but not equivalent, to net income shown on the income statement. No one financial statement tells the complete story. But combined, the cash flow statement, income statement, and balance sheet provide very powerful information for you and your investors to assess the financial health of your business.

Copyright © 2007 Terry H. Hill

You may reprint this article free of charge in your newsletter, magazine, or on your website, provided that the article is unedited, and that the copyright, author's bio, and contact information below appears with each article.
Articles appearing on the web must provide a hyperlink to the author's web site.

"An author, speaker, and consultant, Terry H. Hill is the founder/ managing partner of Legacy Associates, Inc., a business consulting and advisory services firm. By signing up for Business Insights from Legacy eZine at http://tinyurl.com/2t4fxs you can keep abreast of the latest tips, tactics, and best business practices. You will, also, receive the free eBook, Jump Start Your Knowledge of Business.

Contact Terry at http://www.legacyai.com"

12 Business Skills You Need To Master

Terry H Hill — 2007-11-20T13:50:38Z

Developing a small business into a successful enterprise demands more than passion. Unfortunately, facts speak for themselves. Over half of new businesses fail mainly because the entrepreneur is unable to translate their passion into practical business skills. Success demands more than hard work, resilience, and expertise in your field. In order to succeed, you need to understand and to become proficient in a set of fundamental business skills.

Running a small business requires that you become a jack-of-all-trades. It is important to know early on which skills that you have and those that you will have to learn or delegate to others. When it comes to the skills that you lack, you can learn these skills over a period of time by yourself, you can hire employees who are strong in specific areas, or you can engage the help of a professional business advisor.

Here are the essential soft skills (people skills or anything that is not a technical skill) that you will need to learn or import to help you to succeed in your business:

• Delegation Skills -- Delegation involves assigning responsibility to other people for the completion of work. The ideal position that you want to obtain is one where your staff carries out all the routine activities of your business. Effective delegation involves achieving the correct balance between effective controls and allowing people to complete their job effectively. The key element is knowing how to make your business work, rather than your business working you!

• Communication Skills -- Communication is an important part of life and is one that is often taken for granted. When you think about it, almost everything you do requires improved communications. To be effective in business, you have to communicate well. When you hire a new employee, good communication skills help you select the right person. When you communicate with your various stakeholders, you need to be clear about your expectations and to be sensitive when dealing with problems. The key is to know how to effectively communicate your vision with passion and conviction.

• Negotiation Skills -- Almost everyone negotiates informally on a daily basis without even being aware of it. Formal negotiation is a skill that can be learned through experience and practice.   People who negotiate frequently tend to be more skilled at it than people who have not participated in many formal/informal negotiations. Experienced people are more likely to know what to say, when or when not to say it, or when or when not to make concessions. The key is to know how to develop a win-win approach in negotiations with all parties, but at the same time keeping in mind that you also want to obtain the most favorable outcome possible for yourself.

• Strategic Planning -- Strategic planning is a very important business activity. Strategic planning is a process of defining your company's strategy or direction and making decisions on allocations of resources of capital and people. The key is to know how to project your company's future performance, within a three-to-five year framework or more, supported by your well-defined business plan.

• Leadership Skills -- Leadership is a process of getting things done via people. Leadership, a critical management skill, is the ability to motivate a group of people toward a common goal. Leadership is also the ability to take charge, assemble, mobilize, and motivate teams. The key is to know how to forge long-term relationships with prospects, customers, suppliers, employees, and investors.

• Team Building Skills -- Team-building and teamwork skills are essential for an entrepreneur in today's workplace. People working at their potential in teams generate better solutions and more productivity than individual members working independently. The key is to know how to build teams of employees, partners, advisors, and investors that will help you take your business to the next level.

• Analytical Skills -- Today’s workplace is becoming more technologically advanced and complex. With this rapid increase of technology, the need for analytical thinking also increases. Analytical thinking is the ability to objectively assess the present state of your business, to determine where you want to be in the future, and what to do in order to close the gap between the present and the future growth of your business. The key is to know how to gather, review, and evaluate data that is necessary to formulate and express compelling arguments.

• Sales and Marketing Skills -- Establishing successful sales and marketing methods and policies - from pricing and advertising to sales techniques - are essential in growing your business. The ability to analyze your competition, the marketplace, and industry trends are critical to the development of your marketing strategy. The key is to know how to craft and communicate a compelling message to the right target audience that generates new business, and in turn, builds profitable revenue streams.

• General Management Skills -- Management involves directing and controlling a group of one or more people for the purpose of coordinating activities that will accomplish a goal. Management encompasses the deployment and direction of human resources, financial resources, and technological resources. The key is to know how to develop and implement a workable management system that will manage daily operations, nurture stakeholders, and support business growth.

• Cash flow Management Skills -- Cash flow is generally acknowledged as the single most pressing concern of the small and medium-sized businesses. In its simplest form, cash flow is the movement of money in and out of your business. Cash flow is the life-blood of all growing businesses and is the primary indicator of business health. The effect of cash flow is real, immediate and, if mismanaged, totally unforgiving. The key is to know how to monitor, protect, control, and put cash to work.

• Financial Management Skills --The activity of finance is the application of a set of techniques that individuals and businesses use to manage their money, particularly the differences between income and expenditure and the risks of their investments. The need for timely budgeting and reporting of financial performance is of the upmost importance. The key is to know how to interpret and analyze your financial statements, in such a way, as to identify the items that are adversely affecting your profitability.


• Time Management Skills -- Time Management is a set of related common-sense skills that help you use your time in the most effective and productive way. Time Management is a very important skill to master. Learning this skill will empower you to achieve more and to use your time wisely. The key is to know how to manage your time efficiently and to focus on the activities most likely to deliver value to your business.

Copyright © 2007 Terry H. Hill

You may reprint this article free of charge in your newsletter, magazine, or on your website, provided that the article is unedited, and that the copyright, author's bio, and contact information below appears with each article.
Articles appearing on the web must provide a hyperlink to the author's web site.

"An author, speaker, and consultant, Terry H. Hill is the founder/ managing partner of Legacy Associates, Inc., a business consulting and advisory services firm. By signing up for Business Insights from Legacy eZine at http://tinyurl.com/2t4fxs you can keep abreast of the latest tips, tactics, and best business practices. You will, also, receive the free eBook, Jump Start Your Knowledge of Business. Contact Terry at http://www.legacyai.com"

20 Business-Building Practices

Terry H Hill — 2007-11-20T13:51:15Z

You have nurtured your idea, created a business plan, and secured financing. Now for the make-it or break-it question: How do you continue to grow your business year-after-year?

Building a better "mousetrap" doesn’t guarantee that the world will beat a path to your door. And, contrary to the inspiring message in the movie, “Field of Dreams,” there are no assurances that, “If you build it, they will come." Increasing demand for your products/services and growing your business is realized by the creation and implementation of well-defined strategies.

Two major factors of marketing are the recruitment of new customers (acquisition) and the retention and expansion of relationships with existing customers (customer relationship mangement). Once you have converted the prospective buyer, customer relationship management (CRM) takes over. The process for CRM shifts from that of being the marketer, to that of being a builder of relationships. Building customer relationships involves nurturing the links between you and your customer, enhancing the benefits that sold your customer in the first place, and continuously improving the product/service in order to protect your business from competitive advancements.

The marketplace is ever changing; therefore, a marketing strategy that works today does not necessarily mean that the same strategy will work in the future. These changing environments necessitate the need to continually analyze and measure the results of each and every one of your promotional efforts. A system that tracks and monitors incoming sales inquiries, by the lead source, is imperative.

The basis of your business development strategy is the recognition of the concept that marketing is a process and not an event. Building a business is, in fact, building a brand. Building your brand is a process that consistently broadcasts your message through a number of different channels to a targeted audience. The trap in event marketing is that it creates the effect of start and stop marketing and produces gaps in the frequency of your promotional efforts.

The need for a written marketing plan is critical. The American Marketing Association (AMA) states, “Marketing is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational objectives". Your marketing plan is your road map that guides you through the marketing process.

There is a variety of ways to generate greater demand for your business. Whether you are starting a new business or jumpstarting an existing one, you need to identify at what stage of the business life-cycle your company is currently in. This information will impact your choice of strategies. Here are twenty (20) effective business-building practices:

Review your unique selling proposition: The Unique Selling Proposition (USP) is your biggest marketingweapon and the key to differentiating your business. What is a USP? In essence, it is a simple statement that sums up the unique features, benefits and value that you provide, that no one else can. You arrive at your USP after you identify the features, benefits, and advantages of your company's products/services. After you apply the same process to each of your competitors' products/services, then compare and isolate the elements that distinguish you from your competition.
Establish a marketing communication budget: Determining and allocating a specific amount of money to fund your marketing strategy cannot be overstated. Whether you use the affordability method, percentage-of-sales method, competitive-parity method, or objective-and-task method to determine the amount of your marketing budget, you must pre-establish an amount of money that you will spend on marketing activities to achieve your sales/revenue projections.
Incorporate integrated marketing communications: A management concept that is designed to make all aspects of marketing communication such as advertising, sales promotion, public relations, and direct marketing must work together as a unified force. In practice, the goal of IMC is to create and sustain a single look and message in all elements of your marketing campaign.
Utilize indirect marketing: Needless to say, putting more "boots-on-the-ground" in your sales and marketing activities can pay huge dividends. Some of the more popular indirect marketing methods are networking, strategic alliances, independent sales representatives, affiliate marketers, and dealers/distributors.
Ask for referrals: You know the importance of referrals. But, if you do not continually ask for referrals, you will not generate them. It makes good business sense to always ask for referrals. Just ask your customer if they may know of other companies that could utilize your products/ services. You may be pleasantly surprised by their reply.
Explore different markets: If your products/services are presently being sold to one or two different markets, then it is time to explore the opportunities that may be available to you in other markets. A little brainstorming with your staff about this often produces a good "hit list". As they say, "think outside the box".
Consider additional channels of distribution: There are a number channels of distribution that may work for you. For example, selling direct, such as via mail order, Internet and telephone sales. Companies also use sales agents who sell on their behalf and/or distributors (also called wholesalers) who sell their products to retailers. And finally, there may be possibilities of selling direct to retailers and end users.
Expand your geographic reach: Additional channels of distribution are often needed for you to expand geographically. You may want to consider the possibility of franchising or licensing others to promote and sell your products?
Increase product/service offerings: This is a very common method to increase sales/revenues. Important considerations when evaluating a new product/service offering are: Can the new product/service be sold to your existing customer base? Does the new product/service complement your existing products/services?
Differentiate your business: Differentiating your business means that you define your company in relationship to the competition and that you communicate to your customers the value added benefits of doing business with you, versus doing business with your competition. Differentiating your business also means that you continuously make improvements to sustain a leadership position.
Identify your customers' competitors: A great source for new prospective customers is your customers' competition. In most cases, these competing companies have the same or similar needs as that of your existing customers.
Survey your customers: In order to effectively differentiate your business, you need to look at your business from your customers/prospects’ perspectives. A customer survey is a great avenue for your customers to express their opinions, to air their complaints, and to voice their satisfaction with your business. The information collected from a customer survey provides the foundation for your marketing strategy.
Profile your competitors: A competitive analysis lists your leading competitors. It summarizes their products and services, promotional strategies, distribution methods, strengths and weaknesses, locations, offerings, prices, and branding. A competitive analysis also outlines strategies for gaining an edge and defines a course of action to take in order to keep competitors out of your market. The analysis helps you expose the competitor's weaknesses and areas of vulnerability. With this information, you are better equipped to craft competitive and marketing strategies that you may choose to fine tune your brand and your messaging.
Acquire new customers: This is a given…your business cannot sustain itself without the addition of new customers. New customer acquisition is a process that combines market data with direct marketing tools to identify and reach high-potential prospects and convert those prospects into customers.
Mining your existing customers: It is far less expensive to generate additional business from your existing customer base than it is to generate new business from new customers. A regular review of your customers' buying history and frequency of purchases can reveal some interesting facts about your customers' buying habits.
Create customer loyalty programs: As the marketplace continues to be more competitive, more and more businesses are offering loyalty programs. These programs help to transform first-time customers into repeat customers by rewarding them with incentives, coupons, certificates or discounts.
Up-sell: Capitalize on the untapped value of your existing customers by promoting related or more expensive products/services. As an example, your customer who regularly buys golf balls is a strong candidate to purchase golf clubs, apparel and other golf accessories. Make a routine practice of recommending additional items that can be added to your customer's order.
Merge or acquire a competitor: The benefit of combining your company with another company creates an immediate sales growth opportunity simply from the acquisition of their existing customer base. And everything else being equal, the new "combination business" should have the potential to become even more profitable than the two businesses operating independently. This potential for increased profitability comes as a direct result of both sales increases and operational efficiencies (opportunities to reduce total costs) that accrue from combining the two businesses.
Use SWOT analysis: SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats. It is an assessment technique that paints an accurate picture of how your business stacks up based on those four factors. SWOT can identify your venture's pros and cons, so that you can align internal strengths and weaknesses with external opportunities and threats. This exercise is essential to sound strategic planning. With SWOT, you can identify and prioritize the issues that will accelerate success.
Revisit lost customers: According to the research in the book, How to Recapture Lost Customers and Keep Them Loyal, written by Jill Griffin and Michael Lowenstein, a firm has a 60% to 70% chance of successfully repeat-selling to an active customer. A 20% to 40% chance of successfully repeat-selling to a lost customer and only a 5% to 20% chance of successfully closing the sale on a brand new customer. These statistics suggest that a key opportunity exists for businesses to increase or maintain a customer base by mining and evaluating their database of defected customers. Bernd Stauss and Christian Friege make this argument even more convincing in a case study entitled, Regaining Service Customers. Their findings show that the net return on investment from a new customer obtained from an external list is 23% compared with a 214% return on investment from the reinstatement of a customer who has defected.
Dead prospect files: Dig out your old prospect files and make a "hit list" comprised of all of the old prospects that you think may still have life. Contact each one of them. Express your wish to discuss their present-day wants and needs, as well as, the opportunity to explore the possibility of you servicing their needs.

Which of the above business-building practices have you, can you, or will you implement in your business development strategy?

Copyright © 2007 Terry H. Hill

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Alone at the Top

Terry H Hill — 2007-10-04T11:12:43Z

Your role as business owner can be a lonely one. Although you may be surrounded by a good staff, it would not be uncommon for you, at times, to experience feeling "alone at the top" or to wish that you had an individual with whom you could brainstorm new ideas or strategies.

Too often, you, as the business owner, may be reluctant to share problems with your employees because you do not want to cause them undue concern or worry. Or, since you yourself, perhaps, are not necessarily confident in your own solution to a particular problem, you may have a tendency, therefore, not to communicate with your employees openly about the problem. It is also easy to become entrenched in a situation where you may not “see the forest for the trees,” thus making it difficult to think of solutions or innovative ideas.

There are many business challenges you, the business owner, can handle on your own. However, with the daily distractions of owning and managing your business, putting out fires, and dealing with the crises, many times the challenges seem overwhelming.

Incorporating business professionals from the outside to act as a "sounding board" can be advantageous to your company's success. Selecting external advisors wisely is important because they will provide unprejudiced opinions of a situation from a variety of perspectives. Also, these external advisors bring to the table a wealth of knowledge about the best practices and strategies that have proven to be successful for other companies.

For any new and growing company, securing the right external advice and support is fundamental and critical to the success of the enterprise.

The Importance of Supplementing Your Skill Sets

Terry H Hill — 2007-10-01T17:42:23Z

It is highly unlikely or unrealistic for one business owner to have all of the necessary skill sets to effectively manage and control a business. While an owner might understand or be proficient in several required disciplines—sales, marketing, management, organizational control, financials, logistics and operations—a proactive business leader realizes that he must surround himself with individuals who have greater expertise in the areas where he lacks experience.

Michael Dell, the founder of Dell Computer, has said, on more than one occasion, that he realized early on that he needed to surround himself with a strong management team that had the skills and experience that he lacked. The success of Dell Computer speaks for itself.

Unfortunately, for most entrepreneurs, the costs associated with hiring and employing a staff of individuals that possess the skills and experience that the entrepreneur lacks, can be high. However, there are a number of cost efficient means that you can use to supplement your lack of experience, to solidify your organization, and to obtain the support that you may need to manage and strengthen your company both tactically and strategically.

The following methods can lower costs and improve your firm's talent shortage:

Interim Management: Interim management is the temporary provision of additional management skills and resources. Interim management is viewed as a short-term assignment with a proven heavyweight executive manager. A variety of business situations that could merit the need for an interim manager are: crisis management, sudden personnel departures, changes or transitions, IPOs, mergers and acquisitions, and project management.
Temporary Employees: Temporary employees are often referred to as "contractual" or "seasonal" or "temps." Depending on the case, this classification of employees may work full-time or part-time. Many temporary employees work for agencies that specialize in a particular profession or a field of business, such as accounting, health care services, general industrial labor, technical or secretarial skills. Businesses that require frequent adjustments of staffing levels are best serviced by the use of temporary employees.
Outsourcing or Sub-Contracting: Outsourcing is a familiar practice of using outside firms and/or individuals to handle work normally performed within a company. More and more businesses routinely outsource their payroll processing, accounting, distribution and many other important functions -- often because they have no other choice. The decision to outsource is often made in the interest of lowering your firm's costs or to make more efficient use of labor, capital, technology and resources.
Outside Consultants and/or Advisors: These are resources that smaller companies - without experienced management teams - can access. Larger companies can use outside consultants and advisors to supplement their internal management. Securing an outsider's perspective - one that is experienced and impartial - can be an invaluable advantage and may avoid costly mistakes. If you select the right advisor, then the cost of working with the experienced advisor can provide a significant return on your investment.
Board of Advisors: This is yet another strategy employed by both small and large companies alike. Depending on the size of the company, an advisory board usually includes the business owner and a limited number of employees. In addition, there are usually two to four external members of the board—typically the owner’s banker, attorney, accountant, and consultant. Advisory board meetings generally take place monthly or quarterly, last no more than two hours, and incur minimal board fees.

Business owners who realize the importance of supplementing their skill sets and surrounding themselves with individuals who can “see the forest through the trees” are taking the first steps to successful business management and development.

Business opportunities…how are you responding to those that come your way?

Terry H Hill — 2007-09-26T11:46:16Z

The business world is full of opportunities…opportunities that are missed, opportunities that are squandered, and opportunities that are seized.

Ultimately, when you make any decision, the two most important factors are risk and return. But unlike many other daily decisions that you must make, decisions about business opportunities are among the most difficult to assess in terms of both risk and return. Everyone wants a low risk opportunity that offers high returns. But there is no such animal.

By definition, risk is a chance or possibility of danger, loss, injury, or other adverse consequences. The key word in this definition is danger. Danger can strike fear in the best of us. For some entrepreneurs, fear can have an effect on the timeliness of making decisions or even so far as to make no decision at all. These entrepreneurs live in a world of missed opportunities.

Other entrepreneurs may be fearless and have a higher tolerance for risk, but they tend to make more hasty decisions without due consideration. These entrepreneurs have good ideas; however, they do not perform their due diligence or homework and consequently, the idea or venture falls short of success. These entrepreneurs then prematurely abandon their initial idea(s) and now live in the world of squandered opportunities.

To become an entrepreneur that seizes viable opportunities, you must first determine your realistic level of tolerance to risk. Then you must develop a systematic process that analyzes factors that could impact the outcome of your decision based on both internal and external factors. Recalling former business experiences does not necessarily mean that you can always apply the "been there, done that" approach to good decision making; this approach applies only to internal factors.

The need to examine and to determine whether or not a particular business opportunity and/or idea has any chance of success prior to financial commitment is critical. The questions you need to ask are: What are the costs? What are the manpower requirements? How much time do you personally need to commit? Does the opportunity, idea, or project complement your existing business? What is the likelihood that the opportunity and/or idea can work and produce a good return on your investment of time and money?

A feasibility study is a great business tool that helps you assess the likelihood for success of a given opportunity, idea, and/or project. A feasibility study provides a framework for your systematic decision-making process and also provides the answer to the question of whether or not a particular opportunity is likely to be practical, successful and cost effective.

If you envision yourself as an entrepreneur that seizes viable opportunities, then be wise and incorporate the use of feasibility studies in your decision-making process.