Gearing Your Business to Survive and Thrive

Gearing Your Business To

Survive and Thrive

Authored By: Glenn Williams

Business Advisors of Texas

March 18, 2015


www.localsalesleadspro.com

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Foreward

If your (retirement) plan is to start your own business…..STOP, and ask yourself several

critical questions. What do you hope to achieve? How much time and money can you afford to

invest, and maybe lose? Is there a profitable market for your product or service? Will the

economics of the business work? How much competition is there already? These are just a few of

the hard questions you need to ask, and answer for yourself, before attempting to start your own

business.

So why read another “How To” article? After all, isn’t there enough free “advice” out there

already (hint: yes, there is)?

Over the past 13 years I have had the opportunity to work with both new and established

business owners, in multiple industries, including residential and commercial construction, glass &

glazing, manufacturing, printing, pharmaceutical consulting, and others; and I have found that

there are no shortage of mistakes being made.

Whether the business is a start-up, or has been established for several years, I have seen

plenty of reasons why businesses struggle and/or fail, but the two most common reasons are:

1. Failing to research and test the prospective market to determine if the economics of the

business will work, and

2. Failing to run the business as a system of integrated parts that work together, much like

an automobile engine.

The stark reality is that 50% of all businesses will fail within the first two years, and of

those that survive most will not see their 5th anniversary. Not great prospects, especially if you are

investing money you had previously saved for your retirement.

I wrote this so that you could avoid some of the common mistakes that limit, and

in many cases threaten, the success of a business based on real-world experience. And

as a business owner myself, I really want to help tilt the odds in your favor!

If you are thinking of starting a business, you need to RESEARCH and TEST your target

market first to see if you have a product or service that people are willing to pay (enough) money

for. There is no need trying to create a market where none exists, build a fancy website, print

business cards, find office space, or any other number of money-wasting things I have seen new

business owners do that just drain their life savings, and kill their dreams.



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If you don’t have a market that is scalable, and can take advantage of the “digital

marketplace,” then you are just throwing your money away. Do your research, talk to people,

spend some money with a business consultant to get some good advice, but RESEARCH and

TEST your target market BEFORE making a significant investment! Determine if the

economics of the business will work. Can you sell your product for enough money to pay all of your

expenses, including a salary for yourself, and still have money left over as profit?

Secondly, businesses are an integrated system of moving parts that include goals,

marketing, sales, operations, finance, customers, and employees; and I have yet to meet a

business owner that is an expert in all of these areas. Generally, they are very good in one, or

maybe two areas, and this is where they focus most of their time and effort, but all of these parts

are critical to the success of a business. So, don’t be afraid to seek outside expertise and admit

your limitations. Get a second opinion!

Sounds easy enough, right? Well, if it was that easy then we would all be wildly successful

business owners living the dream of luxury on a beach somewhere warm year-round. And, sure,

some do! But owning a business is hard and takes a lot of work, patience, goal setting, a plan to

achieve them, some trial and error, a lot of sweat and tears (wait until you have to make a

payroll), and some plain old luck.

This guide isn’t intended to satisfy investors, except you, or other funding sources, but it is

intended to have you focus on the critical areas I have seen ignored, or mismanaged, in far too

many businesses. I hope this basic guide helps you, the business owner, as it is my deepest hope

that you will take a few of the things I discuss and implement them in your business.

To Your Great Success!

Glenn A. Williams

[email protected]

Your Business “System”



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So You Want To Own A Business?

Congratulations! You are now facing the most unpredictable - and perhaps perilous -

economic environment in recent memory. Some of the many challenges you will be facing in

today’s economy include:

• Sourcing new customers

• Generating enough revenue

• Improving company profitability

• Hiring & resolving employee issues

• Maximizing the cash flow of the company

• Paying federal, state, and local taxes on time

• Improving customer satisfaction and retention

And the biggest challenge- surviving the economic storm and keeping the dream of

business ownership alive.

Historically statistics1,2 indicate that over 50% of small

businesses will fail within 5 years of startup, for many reasons3

including business conditions, financing, tax issues, and personal

reasons……but it doesn’t have to be this way! As in life there

are no guarantees in business, but without a clear vision of your

goals, a plan of action, and a map to help get you there, your

journey on the road of business ownership will be marked with

wrong turns, detours, roadblocks, and ultimately, failure. It’s

challenging to own a small business--if it was easy then everybody

would own one--but it doesn’t have to be a constant struggle either.

A well organized, and implemented, business and marketing strategy will help you to

navigate the road hazards and improve the odds of arriving at your desired destination. Without it,

you will most likely find yourself in an undesirable place--out of business. The plan4 does not have

to be complicated, nor do you have to spend months and thousands of dollars developing it, unless

you are seeking capital/investment financing. But, you do need to organize your thoughts and

actions into a coherent strategy. The plan is not all “science”--no magic formulas for success exist.

There is some “art” involved, but formulating your thoughts and actions WILL pay positive

dividends on your journey to successful business ownership!

“If you don’t know where you’re going, how will you know when

you get there?”



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Operating Your Business As a System

There are 7 key elements of a business that need to be integrated and operating together for a

business to be successful:

1. Setting of both business and personal Goals,

2. Developing a Marketing System that generates new customers and sales opportunities

while leveraging the digital marketplace,

3. A Sales Process that convinces potential customers to buy your products & services,

4. An Operations & Delivery execution system that delivers “on time” and within budget,

5. A Financial Report Card that shows the company’s financial health in real-time,

6. A Cash Management System that makes the best use of the company’s cash, and

7. A Customer management process that ensures you say what you do and do what you say to meet & exceed their expectations, and responds timely when you don’t.

You will also need a navigation system that tracks your progress in “real-time” so “course

corrections” can be made quickly. Tracking of Key Business Indicators (KBI) weekly and monthly to

your goals will help to ensure that you maintain momentum, stay on course, achieve your goals,

and fulfill your dream of successful business ownership. I have included a few of the screenshots of

the key business indicators that I have used in several businesses that helped to ensure the

business remains on track to meet their goals.

Let’s get started.



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1. Define your business and personal goals for the next 1-2

year period. The business is “an end to a means” that supports a lifestyle that you want to achieve

in your personal life, which may include more time with your family, the ability to travel, pursuit of

hobbies, or maybe even real retirement. Your goals may also include the eventual sale of the

business, in which case a strong operating business will help to achieve a successful sale. And ask

yourself “if I don’t know where I’m going, how will I know when I get there?”

Define what your business does in a single sentence.

Develop (realistic) monthly, quarterly, and annual revenue, expense, and profit goals (use spreadsheet models- see below). What annual sales/revenue will you need to live comfortably?

Items to

Include How many hours in/out of the business do you need? Who is going to run the business if/when you are unavailable? You will have to learn to delegate! Hire people with complimentary skills.

Chart your key business indicators, including sales revenue and other key metrics, to visually track progress to your key business goals.



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2. You will need a marketing system (funnel) as it will provide the

business with a steady stream of potential new customers. There are a

variety of marketing channels available to reach your potential customers

including Google, Facebook, YouTube, LinkedIn, company website, landing

pages, direct mail, and print advertising to name a few (they are NOT all

created equal). The marketing system needs to be as automated as

possible, and in many cases, is best delegated or outsourced.

Define your market niche (be very specific, don’t try to be all things to everyone).

Complete a thorough market/customer/competitor and pricing analysis.

What makes you unique? Why should customers buy from you and not your competitor? What problem(s) do you solve for them? Connect with your market.

Test your product before making a major investment to determine if customers will want it? What price will you charge? Will it be profitable? Is it scalable? Can it be sold online? Will you sell locally, nationally, and/or internationally?

Items to

Include

Your marketing efforts should be directly measured in new business. Track your CPC (Cost Per Click), CTR (Click Through Rate), and CPA (Cost Per Acquisition) numbers. Determine your marketing ROI.

Closely track your customer acquisition costs to determine your marketing ROI.



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3. The sales process moves your potential customers through the marketing funnel

and turns them into customers who buy. Create a lead magnet (free report, video,

newsletter, etc.) to develop an ongoing relationship, either directly (via phone

contact or email) or indirectly (using an autoresponder series5) to help them

become paying customers. Know how many quotes and ad clicks convert into

paying customers to ensure that sales will meet your financial objectives.

Set sales targets by product/service line to meet overall revenue goals.

Determine how the business will sell its products, i.e. web, company website, direct/indirect sales force, call center, etc.

How/when will you introduce new products or services?

Items to

Include

Track your sales weekly (see below). If you provide custom quotes, track how many are provided and how many convert to sales.

Set your annual revenue goal and track your progress; how much is needed to meet your goal? How many weeks remain in the year? How much do you need to sell?

Track revenue progress weekly, monthly, and quarterly; adjust your sales strategy as needed to meet your total revenue goal.



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4. Operations and delivery (where the rubber meets the road)—and where

many businesses often fail to “deliver the goods.” A streamlined operations

process delivers raw materials when needed, minimizes inventory, scrap and

rework, and utilizes a production scheduling system that meets the delivery time

promised to the customer. Other factors include balancing the workforce to

maximize production while controlling your variable costs, and introducing new products and

services as they are developed.

Who will fulfill customer orders? Develop a work plan that delegates order fulfillment to others so that you can work on growing the business.

Determine staffing levels within your budget. Be sure to include total cost/employee (wages + benefits + payroll taxes). Your employees cost more than you think.

Document workflows, identify opportunities to streamline the process to optimize the workforce, reduce cycle-time, and eliminate rework and scrap.

Implement an aggressive inventory management plan (raw materials, WIP, finished goods); can the business utilize a JIT (Just-In-Time) materials delivery system? Track how many orders were completed on time, as late deliveries tend to increase your costs!

Items to

Include

Create a production management system that links to the accounting system for job cost tracking (variable costs) and make sure your actual costs < your estimated costs.

Orders completed late increase costs and impact customer satisfaction.



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5. A correctly structured financial system is absolutely critical (and often

overlooked) in knowing how the business is performing in real time. Analyzing a

P&L (profit & loss) report can quickly identify issues a business is having with their

pricing structure, accounts receivable, job costing, and profitability. Each year your

business operates, you should develop a new operating budget forecast based on

the marketing and sales assumptions that are being made. It is also important that

you retain access to the accounting system AND strictly limit who can sign company checks

(obvious, I know, but you’d be surprised what I have seen happen).

Select, structure, and utilize an accounting system capable of providing you with a real-time status on the financial (P&L) health of the company.

Link the accounting system to the production management system; track job costs to determine if they match your pricing assumptions.

Develop a pricing method that captures your variable and fixed costs, and a net profit to meet your financial goals; adjust these quarterly.

Items to

Include

Implement an accounts receivable (AR) management process that ensures timely collection of accounts; manage your AR < 30 days (see below).

By allowing customers to take more than 30 days to pay you are financing their purchase—YOU ARE THE BANK!



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6. Often ignored in a business is a cash management system that forecasts the

timing of money “in” (receivables) vs. the money “out” (payables) in real-time.

This step takes some effort but the benefits are significant. It is better to

know ahead of time when bills (payables) and monies (receivables) are due

so that proactive steps can be taken to mitigate situations like having to pay

taxes or vendors late. The use of multiple bank accounts and accruals will help.

Establish 2 bank accounts; operations and liability, accrue future liabilities (sales taxes, payroll taxes, unemployment taxes, etc.) in the liability account to pay when obligations become due.

Implement a cash management system (see below) that forecasts when bills are due (incl. wages, vendors, taxes, etc.) and monies are due from customers; identify gaps so that proactive steps can be taken.

Items to

Include

Establish/review company policy on payment terms and discounts. Should you require deposits on larger sales? Should you accept credit cards? Consider the fees and adjust your pricing accordingly.

Cash collections less than forecast—what happened? Focus on collections to keep your bank balance in the black.



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7. The customer is THE ultimate arbiter of your business, they pay the bills,

and if a business takes care of their customers they will be on the road to

success. The true character of a business is not revealed when things go right,

but when things go wrong, and responding quickly is crucial. Disappointed

customers are far more likely to tell others about your company when things

go bad than when they go right. So, remember to ALWAYS be responsive to your customers and

their needs. Measure your customer’s satisfaction (surveys, calls, etc.) frequently and don’t be

afraid to admit when you could have done better. Continually strive to improve the customer

experience.

Develop a customer escalation/resolution process (negative comments can easily be posted online in social media like Yelp that can hurt your reputation).

Periodically survey your customers to determine how your business is doing to meet their needs. Find ways to make your products or services better (they are ALWAYS there).

Are there follow-up services that your customers need (i.e. extended warranty plans)? One of the most successful strategies to increase revenue is to market to your existing customers.

Items to

Include

Stay in touch with your customers and email them periodically with new offers and/or updates (autoresponders are a great tool for this).



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Summary

If your business is not achieving the success and prosperity it should, it is most likely that

the economics do not work for your business/market, or your business system is operating

inefficiently (or may be broken). Regardless of the reason, you need to reassess your business

quickly to determine what changes need to occur BEFORE you run out of money. If the economics

do not work don’t try to force fit your business into the market, cut your losses and move on.

If your system is broken or inefficient then sit down and find out why. In most cases owners

fail to implement a marketing or cash management system, so this is a good time to review how

you are generating revenue and managing your cash.

Failed businesses are faced with the painful process of:

• Closing and (possibly) declaring bankruptcy

• Laying off loyal employees

• Sacrificing their entrepreneurial dream

• Returning to corporate America

• Losing their retirement savings!

Take the steps to plan for your business’ success by establishing your

goals, implementing a marketing system that consistently puts

your products and services in front of (prospective) customers,

develop a selling system that converts, an operating system that

delivers products on time and within budget, a financial system that tracks your profitability in

real time, a cash management system that collects timely payment (use your cash very wisely),

and a customer feedback system that continually measures your customer’s experience.

Implement and track your key business indicators weekly and continuously improve your business.

Easy stuff!

The 5 P’s Rule: Prior Planning Prevents Poor Performance



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About Business Advisors of Texas

Business Advisors of Texas provides businesses with integrated marketing, sales, operations, and

finance methodologies that improve company performance and enable owners to generate millions

of dollars in cash flow. That’s our only business. We understand the unique challenges owners of

small and mid-size businesses face, and unlike most advisor firms, we work with you over the short

and long term, understanding your goals and designing an integrated system to achieve them. We

also consult with you weekly to ensure your plan is implemented and continually tracked, and

recommend changes when needed. Your success is our goal!

Sources & Notes

1US Census Bureau- Business Dynamic Statistics “What Matters More: Business Exit Rates or

Business Survival Rates?” - Authors Brian Headd, Alfred Nucci, and Richard Boden.

2U.S. Small business Administration Office of Advocacy, September 2009 Survival and Longevity in

the Business Employment Dynamics Database, Monthly Labor Review, May 2005. Redefining

Business Success: Distinguishing Between Closure and Failure, Small Business Economics, August

2003.

3Small Business Administration report 95-0403 “Financial Difficulties of Small Businesses and

Reasons for Their Failure” - Authors Teresa A. Sullivan, The University of Texas; Elizabeth Warren,

Harvard; and Jay Westbrook, The University of Texas. Data is based on a study of 3,377 non-farm

business bankruptcies filed in the United States in calendar year 1994.

4The concepts presented apply to all (small) businesses and are intended for internal use only;

businesses seeking to raise capital or funding is beyond the scope of this article.

5Autoresponders, such as those from 1ShoppingCart and Aweber, provide a way to stay in touch

with both prospective and current customers through periodic automated email messages.

Documents

Gearing Your Business to Survive and Thrive