I think it would be fair to say that most owners of small businesses confuse the finances of their businesses with that of their own personal expenses. Many don’t draw a distinction between the two at all. This can have very serious consequences for your business – and for you – if you’re one of those people.

The effects of this are two-fold:

• It creates a false sense of security for the owner – he thinks he is earning a significant income because, subconsciously, he relates it to the cash inflows of the business – and,
• It creates a false sense of security about his business; – he thinks his business is doing well because he is living an above-average lifestyle.

One would think that a quick glance at the income statement will warn them that all is not well, but there are three main reasons why this doesn’t happen:

• The Income Statement is incomplete and hardly ever looked at anyway; and/or
• Personal expenses are written off to business expense accounts (which is illegal).
• The personal expenses of the owner may be allocated to a loan account, which ends up growing faster than the retained earnings of the business.

In order to cater for the increased demand on cash from within the business, creditors are usually compromised and agreed payment terms are extended – and most of the time it is not by agreement. If you are drawing R50,000 a month from your business that only generates a R30,000 per month pre-drawing profit, the surplus drawing can only come from one source – borrowings! If it continues unabated it will prove to be terminal.

It is vital that sufficient analysis is carried out – and this really doesn’t take long to do – to determine the following:

• Exactly how much profit (or loss) the business is actually making. (After excluding all those personal expenses which tend to creep into the monthly business cash flow!!!)
• Exactly how much you, as the owner of the business, need to live on.
• Whether the profit being generated is sufficient to meet those needs and still enable the business to grow organically.

It is my experience that this research is very rarely carried out.

The main motivating factor for managing their finances in this confused way seems to be the desire amongst many small business-owners to pay as little income tax as possible. This is sometimes so prevalent that I often find new business-owners trying to avoid tax when they haven’t even made a profit yet!

I am a firm believer in the right of each and every individual to order his/her finances in such a way as to pay as little tax as legally possible. There are still a number of ways of doing this without incurring the wrath of the Commissioner for Inland Revenue but it requires careful planning, discipline and the right financial structures in place.

If the business is financially well-managed, and all other things being equal, it will make a profit and grow. The income it generates for the business owner will also grow, in spite of the fact that income tax has to be paid. In fact, as a small-business owner, I would rather have a serious tax problem than a business in distress!
If the business is not financially well-managed, it will die – and no amount of tax evasion is going help.

My suggestion to small business owners then is this:

• Analyse your personal financial requirements in terms of your Obligations, Needs and Wants (ONW’s) – and prioritise them in that order.
• Measure those ONW’s against the income being generated by your business, after you have made adjustments for personal expenditure that has been included in your business’ records.
• If the profit being generated is insufficient to meet those ONW’s, make some changes to your personal demands – starting with the Wants!
• Allow sufficient profit to be retained in the business to cater for growth.
• Create a personal budget and open up a private bank account to monitor your personal expenses. Then draw a “salary” each month – and no more!
• Employ the services of a qualified tax practitioner to help you minimise your liability in this regard. The cost will be well worth it!
• After the profit has been made, and a reserve (war-chest) has been created, then you can begin to enjoy the fruits of your labours!

If they don’t supply on time it can disrupt your business and cost you money.

If they don’t supply at all because you haven’t paid your account, it could be terminal!

Most small businesses that are having financial problems, have very poor relationships with their suppliers. They treat them badly! When they want goods delivered they scream and shout, but when they’re expected to pay for those goods, they’re nowhere to be found.

Small business owners need to get their minds right about their relationships with their suppliers. Here are a few ways:

THE CREDIT AGREEMENT

When completing the Credit Agreement with a supplier, make sure that you have answered all the questions honestly and completely. Suppliers will ask for a number of things, to assist them in lessening their risk. The most common are:

• A set of your financial statements.
• A suretyship from yourself as surety and co-principal debtor for the debts of your business.
• Cession of the book debts of the business.

If you don’t want to supply these then don’t do so. Simply say ‘No’ to the request for financial statements, and cross out the sections that deal with sureties and cessions. If the supplier really wants your business, he’ll more than likely accept your amendments – the decision is actually his at the end of the day.

TREAT THEM LIKE SHAREHOLDERS.

Because that’s what they really are!

If you’re a small business owner, most of your larger suppliers will probably have injected as much, if not more, capital into your business than you did. They will have done this by extending credit to you and by carrying a degree of risk in doing so. As a result, they should have a right to know how your business is doing, so that they can monitor that risk.

They should, but they usually don’t.

Even though it’s generally not expected, extend them the courtesy you would to an investor by keeping them in the know. I would suggest that for your key suppliers, you make time to meet with one of their decision-makers and have an open and frank discussion about your business, some of the problems you may be facing, and what you can do about them. You may even get some unexpected assistance!

At the end of the day, it is vital that you see the marketing process being driven by a team effort – and that team is you and your suppliers.

KEEP THEM INFORMED OF DEVELOPMENTS

This is particularly important when your business is ‘in distress’. Suppliers will be very aware that something is wrong as soon as you start delaying payments or making excuses for not meeting your commitments. However, most of them will only resort to legal recourse when there is no other option. Experience will have taught them that the only people who win in those circumstances are those in the legal profession.

So – what are the kind of things they will want to know from you?

• Is your problem serious?
• Is it a short-term problem or something that will continue indefinitely?
• What are you doing about it?
• When can they expect some form of payment?
• How much can they expect?

If you don’t have accurate financial records you will not be able to answer any of those questions with any certainty. Uncertainty breeds suspicion and suspicion can result in unnecessary litigation – not to mention a loss of credibility which will affect you for a long time.

Make sure your records are up-to-date so that you can keep them informed of developments. They need to know that you are confident about the performance of your business and that you know where it is going.

There is also another way of keeping suppliers informed – indirectly – and that is through the auspices of some of the Credit Guarantee insurers. These insurers are being used by more and more suppliers today, to reduce the level of risk they have to carry. Before the insurers provide this cover they like to carry out a fairly detailed assessment, and in order to do this they require information. It’s the only way they can quantify the risk they will carry. Interestingly enough, many of these credit guarantee insurers make risk assessments without accurate information – and when this happens, you can rest assured that the assessment will not be in your favour. Quite naturally, this will be conservative and as a result, detrimental to the business being assessed. It is in your interests to provide them with as much relevant, and if possible, certified financial information – even if it hasn’t been requested. You will be surprised at the support you get.

NEGOTIATE A PLAN OF ACTION

Once you know you’re in trouble, you’ve got to find out what it will take to get you out of it. Once you know the parameters for turning the business around you can begin to negotiate with your suppliers on the basis that you need their support to make the plan work. Remember – you’re treating them as shareholders now!

Most suppliers will gladly give that support if:

• They are able to see the plan and can buy into it. I have known suppliers wait up to two years for their money, and even continue supplying on account, because they have felt confident the business will turn around.
• They have been involved from the outset and whatever has been planned has been adhered to.
• Whatever you have said you will do, you do. So, when making commitments, it would be wise to err on the conservative side, to give yourself some leeway in the event of an unexpected circumstance.

It is at a time like this that you will need to be able to fall back on those soundly-built relationships. Provided they have been based on mutual trust, this shouldn’t be too difficult.

I must add a word of warning at this stage. It is quite clear that LEGALLY, by admitting that you cannot meet the terms for payment of your account as laid down in your credit agreement (and you will effectively be doing this once you start to negotiate a payment plan.) you will be setting yourself up for some unscrupulous creditor to ‘have a go’ at you in court. He will have sufficient grounds to obtain summary judgement against you in respect of your indebtedness to him. If it is only one supplier it may not be too bad but this can have a serious domino effect if all the other creditors take fright and ‘have a go’ as well!

So, it would be wise to consider all your options – talk to all your major creditors and sign nothing until you are certain that they have bought into the plan. In my experience, I have only ever come across one creditor who was prepared to write off his entire (and quite considerable) debt, purely to have revenge! This is rare, but we must be aware that there are idiots out there willing to shoot themselves in the foot!

PRO-ACTIVELY COMMUNICATE

One thing that suppliers hate with a passion is the customer that won’t communicate. When businesses go through tough times, the person responsible for paying the bills invariably goes ‘walkabout’ to coin a phrase. He’s either “not available”, or “he’s in a meeting”, or “he’s off sick”, or “he’ll get back to you” – and then he doesn’t!

Or, – you manage to get through to him and he gives you a long story about why he can’t pay your bill and promises to come back to you the next day. And then he doesn’t!

It makes creditors very jumpy! And ‘jumpy’ creditors are liable to do irrational things which can have a seriously terminal effect on your business.

Once you’ve opened the lines of communication by informing them of developments, and then by negotiating extended payment terms with them, keep those lines open by being pro-active. Don’t wait for the creditor to phone you. Make it a habit to call every one of them, weekly if you must, but at least fortnightly, to let them know how the process is going. Tell them the truth! A creditor that knows what’s going on is a creditor that will support you all the way.

AND IF THINGS ARE REALLY BAD?….

Whatever you do, if things are really bad and the light at the end of the tunnel is the train coming your way, – don’t, and I must stress this again, – don’t keep buying from your suppliers, knowing that you will be unable to pay them. This is just dishonest and tantamount to theft. I have known people who continue to support their profligate lifestyles out of funds that are actually due to their business suppliers. Why, I don’t know – because common sense must surely tell them that it has to come to an end at some stage?

The courts are taking a dim view of company directors/members who carry on trading in insolvent circusmtances – they regard it as reckless trading. As far as the courts are concerned, reckless traders are corrupt and may be held responsible for the debts of the company in their personal capacities as a result.

I can heartily recommend a little book by Mark Sanborn called “The Fred Factor” which goes directly to the heart of this issue. Based on a true story and an actual person called Fred Shea, it made a significant impact on me – and in many ways helped to shape my view of work – and more particularly, the way in which I do business.

In summary, the story is about a real-life postman called Fred, and his attitude to the fast-disappearing concept called ‘the work ethic’. Mark Sanborn, the author, is a professional speaker who travels around a lot, and Fred became his postman when he moved to a new home in Denver, USA.

In the foreword to the book, John Maxwell says this:

“Let’s face it – if a guy named Fred, who has a less-than-glamorous job working for the US Postal service, can serve his customers with exceptional service and commitment, what opportunities await you and me to help others, and in the process achieve deeper personal satisfaction? If I were to write out a list of individuals who would benefit from reading The Fred Factor, here’s whom I would include:

• My employees and business associates – for they will learn the secret behind how to better serve customers.
• Professional acquaintances in management positions – for they will be shown how to inspire an entire organisation to see unprecedented levels of excellence.
• My family members – for they will discover the benefit of showing genuine appreciation to those they love
• Graduating students – for they will find extraordinary insights into achieving lifelong success not taught in classrooms
• Finally, I would wish to place the book in the hands of everyone I know who wants to turn the mundane into extraordinary experiences.

I’ve just bought a number of copies to hand out to my staff and associates. You can get them fairly inexpensively at the following link:

http://www.take2.co.za/books-fred-factor-the-3598945.html

But, here are also a few tips to keep in the forefront of your thinking when dealing with your all-important customers.

DON’T MAKE PROMISES YOU CAN’T KEEP.

Mrs Jones is in desperate need of a plumber because her electric geyser has sprung a leak and she can’t use any hot water. She phones the nearest plumber advertised in the Yellow Pages – Electric Plumbers. “Don’t worry, Mrs Jones, – I’ll get someone round there this morning.” The morning, and eventually the whole day, comes and goes. Two more calls to Electric Plumbers elicit no response. Electric Plumbers have not only lost the work from Mrs Jones, but they’ll never get any work from Mrs Jones’ neighbours, her family, her church or anyone else she comes into contact with.

If you can’t do the job in the time required, say so! If you can, get there on time and do a great job. Even if your business is struggling, this is the time to really deliver. The result will be ‘electric’!

DELIVER ON TIME

I was involved in the construction industry for a number of years and nowhere is it more important that goods and/or services be delivered on time, than in this industry. The cost to a contract of having labour standing around waiting for materials to be delivered can be enormous. The same can apply to an assembly line, or a manufacturing process.

Apart from the cost implications of late delivery, there is also the added frustration factor for the customer. Nothing irritates me more than waiting for a promised delivery that is late because it impacts on my own time management and can cause me to be late for a valued appointment.

So, – don’t promise delivery at a certain time and then be late. Rather give yourself some leeway and arrive early and you’ll have a happy customer.

INVOICE AT THE RIGHT PRICE AND ON DELIVERY.

There are some unscrupulous distributors out there who quote a certain price and then once the order has been given, invoice at a different price – usually more! Or, – they will oversupply on an order, hoping the customer will just accept it! When it is not justified, the distributor will take a chance that the customer won’t detect the increase, and if he does, – well, an apology and a credit note will do!

There are also some distributors who take orders for goods and invoice them immediately, even if the goods are only to be delivered in the ensuing month. This usually happens close to a month end when sales targets need to be met and it can help to speed up the cash flow process.

It creates additional work for the customer, wreaks havoc with your own monthly performance and is a great source of frustration.

You, as the owner of the business, may have nothing to do with it! It may be an unscrupulous employee. However, you’ll get tarnished with the bad reputation and it will eventually lead to your downfall. So, – be vigilant! Ask your customers to contact you directly if they experience any problems and deal with them immediately.

WATCH THAT QUALITY!

Develop a code of excellence in everything you do. (The Fred Factor). This will encourage your employees to do the same. This will filter through to customer service and, in particular, the quality of your service or products.

In South Africa, mediocrity is more acceptable than in other parts of the world (even though it shouldn’t be!) but if you want your venture to become a world-class business, you will have to determine to be the best. I remember two experiences in the past few years which illustrate this perfectly:

The first one occurred when I went to a large general wholesaler to purchase a bell which visitors could use to announce their presence at the electric gates outside my house. It was in a sealed ‘bubble-pack’ and priced at about R100. When I got home, I wired it up and then discovered that it was faulty. I then had to repack it, get in my car, drive the fifteen-or-so kilometres to the wholesaler, go through a lengthy ‘returned goods’ procedure and then collect another one. This time I asked the attendant to unpack it and test it before I drove off. It was really irritating!

The second one involved the replacement of the exhaust system on my motor vehicle by a well-known franchised exhaust shop. The modern concept of ‘fast-fit’ has to be a misnomer. The forty-five minutes that was promised turned out to be double that. As I drove away, I discovered that the new system was banging against the bottom of the vehicle so I had to go back again and wait while the fitter had another go at it. Eventually, over a few days, three visits later and a good R2000 worse off, the car was right. This was even more irritating!

In both instances, there was no apology, no attempt to reimburse me for the inconvenience or lost time – just the comment, “if you have any problems please bring it straight back.” As if that’s doing me a favour – as if that’s an indication of good service! PULLEASE! They missed the point – we should not have to go back and we should not have to be inconvenienced!

Now I’m not trying to suggest that one should never make mistakes – that’s not possible because we all do. But if you embark on a process of excellence and it becomes a culture in your business, you will become known as the supplier of choice. Once you’ve attained that lofty ideal, price almost no longer matters. (I said ‘almost’!) There is no substitute for quality!

FOLLOW-UPS

Have you ever received one of those after-service follow-up calls from your local motor dealer? It seems they are the only ones still doing it these days.

I like it! If I’ve had a problem it gives me an opportunity to voice my concerns. If I’m happy, I tell them. What concerns me, however, is what happens after I’ve told them I’m not happy with the service – quite often, nothing! This is usually because there is no link between the very pleasant female voice doing the follow-up and management responsible for action.

Make sure that wherever possible, you personally attend to the ‘action’ part. It helps you lead on to the next aspect of customer service, which is..

BUILDING CUSTOMER RELATIONSHIPS

This is commonly referred to as CRM (customer relationship management) these days. In the twenty-first century, I believe building great relationships with your customers is the key to business longevity and success.

In short, what we want to achieve is this: – we want our customers to rate us as their supplier of choice. We want them to order goods from us without giving consideration to price. They need to be confident that we will provide them with quality goods, at a reasonably competitive price and delivered on time. In order to ensure this level of confidence, we are going to have to work very hard at building strong, long-lasting relationships with them.

Most of us find ourselves in a situation where we do not have a captive market and so we’re all after a slice of the same pie. It has never been more certain that ‘if you snooze, you lose’, than it is today. Because the pie has got smaller! We don’t want customers going to the competition when we’ve worked so hard to keep them.

So how do we do this?

The first thing we must understand is that every sale must be considered an evolutionary process and not an event.

Perhaps the best way to describe this process is to draw an analogy to the construction of a house. When a house is built the most critical aspects are the foundations and the first cornerstones above the surface. If the foundations have been badly prepared and laid, the house will, at the least, develop serious structural defects, and at worst, fall down! If the cornerstones have been laid incorrectly, the walls will not meet and they’ll end up skewed.

The first sale is like laying the foundation to a building. It should happen with no hitches. The next few sales are the cornerstones of the wall. They set the pace for the relationship that follows.

Although the foundations of a house are so important, they soon get covered up and forgotten and all the attention is focussed on what can be seen above ground. In the same way, all the hard work that went into the initial sale is soon forgotten and every sale from then on is judged on its own merits. However, if the first sale was handled in an exemplary fashion, and the process continued thereafter, it is unlikely that a small mistake will chase the customer away.

The second thing we must understand is our customer’s business. Now, I don’t mean we have to become involved in the day-to-day running of his business, but I think we should be able to provide him with assistance that goes beyond just selling him the goods he wants to buy from us. I have a client who makes it a point of offering his customers sound advice whenever he thinks it will add value. That can involve sharing some winning ideas he’s come across or it can involve providing links to other customers to create synergy.

Thirdly, become familiar! Get to know him as a person and not just an organisation, get to know the names of his wife and children – socialise with him from time to time without living on his doorstep.

There is a universal principle that states: “As you sow, you will reap.” And any farmer will tell you that if you spend your life stripping the soil of everything it has to give, without putting anything back, you will eventually end up with nothing.

FULLY ENGAGED CUSTOMERS:

These customers are

• Responsive – this means that they pay their bills promptly;
• Positive – they show a consistent pattern of effective use of your business’s service infrastructure because they learn about your business, and they are willing to try any new products and services, that you may provide.
• Listeners – They are most likely to welcome any of your innovations and try new products and brand extensions.
• Fair – They are least likely to submit unreasonable restitution claims.
• Sustainable – They value long-term relationships with their brands and provider organisations – your business, as their supplier of choice.

A fully engaged customer sounds something like this:

“I thought that buying things was something that we just had to do, something to satisfy our basic needs.  But in the course of getting to know your products and being in contact with your organization I have learned that I can enjoy being your customer.  You have made me feel important and valuable; I can always count on you. I often ask myself this question: “Why didn’t I contact you before?”  You are not only the best there is – the way you make me feel as a customer is truly legendary.” (“Follow this Path” – emphasis – mine.)

ENGAGED CUSTOMERS:

These customers:

• Collectively represent 20 to 25 percent of a company’s customers.  This group also includes customers who contribute a lot of their business but have not allocated the greatest proportion of their business to a single organisation.
• Are sensitive to improvements in products as well as pricing policies.
• Represent primary targets for products and may expand into additional services if a stronger emotional bond is formed.

An engaged customer sounds like this:

“I’ve flown with you a hundred times in the last year.  I’m supposed to be a Gold Card member with you and yet I ask myself this question:  “Did you see how badly the check-in clerk treated me?”  Actually I don’t think she discriminates among passengers.  She just treats everyone badly.” (“Follow this Path”: Curt Coffman & Gabriel Gonzalez-Molina.)

THE NOT-ENGAGED CUSTOMER.

These customers:

• Reveal a pattern of relative indifference to the current engagement capabilities of a brand or an organisation.
• Are inattentive and unresponsive to additional products or offers due to low purchase levels and usage of brands and products, or because of poor or non-existent levels of personal interaction with the organisation’s service infrastructure.

The not-engaged customer can sound like this:

“It doesn’t matter to me where I go to buy what I need, as long as the price is good and the place is nearby.  I pride myself on being a good shopper and searching out bargains.  Every store has them; it’s just a matter of finding them.  When I do, I get a whole lot of satisfaction.  As far as sticking with one store goes, why should I?” (“Follow this Path”: Curt Coffman & Gabriel Gonzalez-Molina.)

THE ACTIVELY DISENGAGED CUSTOMER:

These customers:

• Account for the largest per customer service costs.
• Are resentful and will take advantage of any opportunity at their disposal to cause you harm, either directly or indirectly.
• Are resistant to any attempt by your employees to switch from a negative perspective, into a positive, restorative mood.
• Are very unprofitable when one combines the relatively high costs with usually lower levels of revenue.
• Are very hard to turn around.  It requires a significant effort or improvement in the experience to engage them, and many never become engaged.

The actively-disengaged customer sounds like this:

“This company is out to get as much as they can from customers; they mark up merchandise and then run “sales” to try to convince people they’re getting bargains.  I take pleasure out of pointing out to them that lower prices are available elsewhere, just to show them how wise I am to their tricks.  And I never think twice about complaining if the service or product isn’t up to par, which they usually aren’t.  You want to know why?  I hate these guys.  I won’t let my friends ever shop there.” (“Follow this Path”: Curt Coffman & Gabriel Gonzalez-Molina.)

Believe it or not – these guys actually exist!  Actively disengaged customers can be real trouble, and especially when you realise that as much as 20% of your customers may be in this category!

Remember, you don’t have to survey your customers to establish which category they fall into; you just have to know how engaged your employees are!  That will tell you all about your customers!

Research internationally has revealed that the scary thing about all this is the fact that almost half your work force will probably fall into the ‘engaged’ and ‘not-engaged’ category; and – when you add this to the ‘actively-disengaged’ category – it means there’s a huge opportunity for improvement.

The good news is that something can be done about it!

• Cash flow – because this is where reality bites!
• Being able to monitor your trading performance, through a simple but efficient business intelligence system
• Hiring, keeping and motivating good staff

Now we’re going have a look at the area that, for me, is probably the most important of the lot.  And it’s quite simple really – without customers you don’t have a business and the rest is of no consequence!

CUSTOMER SERVICE

 The latest terminology in this regard is “Customer Relationship Management” or CRM.  The market abounds with new software to make this task easier, but it doesn’t come cheap – especially for small business.

There are also hundreds of books on the market about marketing and customer service, – most of which will contain much more specific advice on the concept than I could hope to cover in a few short pages.   However, I do want to address a few basic aspects that I believe most small businesses tend to overlook, – aspects which I believe are vital to the health of a business (and particularly those businesses in distress), and which should not be under-estimated by management. 

These aspects can all be included under the heading of “engaging” your customers.  The Gallup surveys revealed one important relationship – there was a direct correlation between the level of engagement of employees and the level of engagement of customers!

So, – as much as you want to be engaging your employees, you want to be engaging your customers.  If you don’t get the first one right, you can forget about the second one!

To explain this in more detail, lets have a look at the categories of customer engagement as defined by the Gallup Organisation: (in the book “Follow this Path”by Curt Coffman & Gabriel Gonzalez-Molina)

FULLY ENGAGED CUSTOMERS:

These customers are:

• Responsive – this means that they pay their bills promptly;
• Positive – they show a consistent pattern of effective use of your business’s service infrastructure because they learn about your business, and they are willing to try any new products and services, that you may provide.
• Listeners – They are most likely to welcome any of your innovations and try new products and brand extensions.
• Fair – They are least likely to submit unreasonable restitution claims.
•  Sustainable – They value long-term relationships with their brands and provider organisations – your business, as their supplier of choice.

 A fully engaged customer sounds something like this:

“I thought that buying things was something that we just had to do, something to satisfy our basic needs.  But in the course of getting to know your products and being in contact with your organization I have learned that I can enjoy being your customer.  You have made me feel important and valuable; I can always count on you.  I often ask myself this question: “Why didn’t I contact you before?”  You are not only the best there is – the way you make me feel as a customer is truly legendary.” (“Follow this Path” – emphasis – mine.)

Ken Blanchard, in his book entitled, “Raving Fans: A revolutionary approach to customer service” says this:

Great service is not an accident. It starts when you decide what kind of experience you want your customers to have — when you articulate a clear vision. You keep it alive by empowering your people to go the extra mile for the customer. When it’s innovative and comes from the heart, great service keeps customers coming back again and again.

Blanchard goes on with:

Tony Hsieh, CEO of Zappos.com, understands what great customer service — or, as they call it at Zappos, WOW service — is all about. Once you read the following excerpt, you’ll understand two things. First, you’ll figure out why Zappos quickly became the biggest online shoe store. Second, you’ll know the company is not exaggerating in calling it WOW service.

Excerpted from Chapter 5 of Delivering Happiness: A Path to Profits, Passion, and Purpose – by Tony Hsieh

We receive thousands and thousands of phone calls and e-mails every single day, and we really view each contact as an opportunity to build the Zappos brand into being about the very best customer service and customer experience. Looking at every interaction through a branding lens instead of an expense-minimization lens means we run our call center very differently from most call centers.

Most call centers measure their employees’ performance based on what’s known in the industry as “average handle time,” which focuses on how many phone calls each rep can take in a day. This translates into reps worrying about how quickly they can get a customer off the phone, which in our eyes is not delivering great customer service. Most call centers also have scripts and force their reps to try to upsell customers to generate additional revenue.

At Zappos, we don’t measure call times (our longest phone call was almost six hours long!), and we don’t upsell. We just care about whether the rep goes above and beyond for every customer. We don’t have scripts because we trust our employees to use their best judgment when dealing with each and every customer. We want our reps to let their true personalities shine during each phone call so that they can develop a personal emotional connection (internally referred to as PEC) with the customer.

Another example of us using the telephone as a branding device is what happens when a customer calls looking for a specific style of shoes in a specific size that we’re out of stock on. In those instances, every rep is trained to research at least three competitors’ Web sites, and if the shoe is found in stock to direct the customer to the competitor. Obviously, in those situations, we lose the sale. But we’re not trying to maximize each and every transaction. Instead, we’re trying to build a lifelong relationship with each customer, one phone call at a time.

A lot of people may think it’s strange that an Internet company is so focused on the telephone, when only about 5 percent of our sales happen through the telephone. In fact, most of our phone calls don’t even result in sales. But what we’ve found is that on average, every customer contacts us at least once sometime during his or her lifetime, and we just need to make sure that we use that opportunity to create a lasting memory.

The majority of phone calls don’t result in an immediate order. Sometimes a customer may be calling because it’s her first time going through the returns process, and she just wants a little help stepping through the process. Other times, a customer may call because there’s a wedding coming up this weekend and he just wants a little fashion advice. And sometimes, we get customers who call simply because they’re a little lonely and want someone to talk to.

I’m reminded of a time when I was in Santa Monica, California, a few years ago at a Skechers sales conference. After a long night of bar-hopping, a small group of us headed up to someone’s hotel room to order some food. My friend from Skechers tried to order a pepperoni pizza from the room-service menu, but was disappointed to learn that the hotel we were staying at did not deliver hot food after 11:00 pm. We had missed the deadline by several hours.

In our inebriated state, a few of us cajoled her into calling Zappos to try to order a pizza. She took us up on our dare, turned on the speakerphone, and explained to the (very) patient Zappos rep that she was staying in a Santa Monica hotel and really craving a pepperoni pizza, that room service was no longer delivering hot food, and that she wanted to know if there was anything Zappos could do to help.

The Zappos rep initially was a bit confused by the request, but she quickly recovered and put us on hold. She returned two minutes later, listing the five closest places in the Santa Monica area that were still open and delivering pizzas at that time.

Now, truth be told, I was a little hesitant to include this story because I don’t actually want everyone who reads this book to start calling Zappos and ordering pizza. But I just think it’s a fun story to illustrate the power of nothaving scripts in your call center and empowering your employees to do what’s right for your brand, no matter how unusual or bizarre the situation.

As for my friend from Skechers? After that phone call, she’s now a customer for life. (emphasis – mine.)

One can see from that excerpt that fully engaged customers result from the efforts of fully engaged employees.

In the next Newsletter, we’ll have a look at the other categories of customer engagement – I think you’ll be surprised!

The following statement, though a little harsh, is a generalization:

Small business owners in South Africa do not tend to treat their people well. 

Many employees are generally regarded as just labour for hire – much the same as hiring a piece of equipment.     The prevailing attitude toward them by many small business owners is this: do the job and I’ll pay you, and that’s the sum of our relationship! 

Over the last 25 years, the Gallup organization has interviewed over a million employees, asking them hundreds of different questions on every conceivable aspect of the workplace.  Their aim was to sift out those few questions that were truly measuring the core of a strong workplace. 

They discovered that it can be simplified to twelve questions; “questions that measure the core elements needed to attract, focus and keep the most talented employees.” 

(These questions all form part of a number of books written by various members of the Gallup Organisation, such as “First, break all the rules”; “Now, Discover your strengths”; and a host of others.)

We have adapted these questions, made them into statements, and then we ask employees to either agree or disagree with the statements, as they experience it, in the workplace. 

As a small business owner, set this up in your own workplace, and hand out the statements to your staff, asking them to write down their views on a piece of paper.  In fact, take the series of questions below, and set them up on a spreadsheet.  (You can use it again and again, and thereby monitor the engagement of your employees.) 

You can then analyse the findings to ascertain just how engaged (or disengaged) they are.

This is very important. 

If you don’t measure up you will probably find that you have been unable to keep any superstars on your payroll or that you employ mediocre people who only care about their monthly pay checks. 

The statements are:

1. I know what is expected of me at work.
2. I have the materials and equipment I need to do my work right.
3. I do have the opportunity at work to do what I do best every day.
4. In the last seven days, I have received recognition or praise for good work.
5.  My supervisor, or someone at work, does seem to care about me as a person.
6. Someone at work encourages my development.
7. My opinions at work do seem to count.
8. The mission/purpose of my company does make me feel like my work is important.
9. My co-workers are committed to doing quality work.
10.  I have a best friend at work.
11. In the last six months, I have talked with someone about my progress.
12.  This last year, I have had opportunities at work to learn and grow.

“Much of the power of this measuring stick, then, lies in the wording of the questions.  The issues themselves aren’t a big surprise.  You may also be wondering why there are no questions dealing with pay, benefits or structure.  This doesn’t mean that they are unimportant.  It simply means that they are equally important to every employee – good, bad and mediocre.” (With thanks to Marcus Buckingham and Curt Coffman, co-authors of the book, First, Break all the Rules.)

 The authors go on to say:

“The results of such a questionnaire will determine whether your employees are either:

1.         Engaged – those employees who pack the biggest punch on all the important business outcomes such as productivity, customer retention, low turnover, safety, profitability, and growth.  They are involved in generating ALL of an organisations profits and customer engagement.  They represent the positive economic force that fuels an organisations profitable growth.

2.         Not engaged – those employees who may share the values and mission of their team and organisation but lack precision in terms of the expectations of their role. Many of them are just waiting for an opportunity to become fully engaged.

3.         Actively disengaged – This group accounts for most of the waste in terms of lost workdays, incredibly high safety costs, higher levels of staff turnover, low productivity and customer defection. They represent a negative economic force actively at work within organisations and to a large extent, undo the great work of the engaged employees. They stagnate the growth of a company and represent the most significant challenge to its profitability.  They are living and breathing obstacles to meeting customer requirements.  These people are real trouble!

The Gallup Organisation conducted a national benchmark of the engagement index in 2001, for eight countries. 

The results were sobering to say the least.  On average, 17% of employees were considered to be “engaged”, 65% were “not engaged”, and a scary 18% were “actively disengaged.” 

What this means is that over 80% of employees are just going through the motions, when they come to work – not much ambition, not much interest! 

Now I guess one could say that there’s more to business than the attitude of one’s employees.  However, the Gallup organisation has found that there is a direct correlation between the level of engagement of employees, and the level of engagement of customers. (and we’ll address this a bit later on.)

Clearly, if your employees are all scoring between 1 and 3 on each statement, you have a problem.  Consistent scores of 4 and 5 indicate a high level of engagement.

I have found that in many small businesses, employees are often not clear on what their duties entail, and that:

• very often, they do not have the wherewithal to do the job well;
• they get drawn into areas where they lack skill and therefore lose motivation;
• praise is the absence of criticism;
•  they have no idea that the business even had a mission in life other than making money;
• no one really cares about excellence or about personal growth and development. 

In fact, I have found that in most cases where businesses are struggling, it’s usually because of a people problem.  The problem does not lie with the people themselves – it’s a management/leadership problem.  People don’t leave businesses; people leave people!

 “Leaders create an environment where people come to work to prove themselves over again every day.  No one gets paid to budget their efforts or pace themselves.” (Dave Anderson)

Ultimately, it is the ratio of engaged workers to disengaged that drives the financial outcome of the organisation, particularly where active disengagement is concerned.  Your employees are actually all you’ve got.

If you’re not paying enough attention to them, it’s quite likely you’ll not have a business too much longer.

At the same time, I must emphasise that it is usually not by intent – it is usually by oversight, or even ignorance of the basics!

 THREE AREAS OF CONTENTION

There are three main areas of contention.

Firstly, many small-business owners in South Africa today, are very nervous about hiring anyone! 

 The Labour Relations Act in South Africa has to be one of the most liberal pieces of legislation around, and while it is certainly comprehensive, there is no doubt that it tends to favour the employee.  Now, I know that there are unscrupulous employers out there who manage to get away with ‘murder’ almost, when it comes to the way they treat their employees; but I also know that it is extremely difficult for employers – especially when they are small business-owners, with small budgets and even less time – to get rid of a troublesome employee. 

Almost without exception, any employee that has been dismissed – even for all the right reasons – still has the right to go to the CCMA (Commission for Conciliation, Mediation and Arbitration) and be heard – and will usually go there anyway.  This means that every employer will have to appear at the ‘hearing’ as well, all at great cost to them in terms of time and money.  The two words that made America great – “you’re fired!” – will never wash here!

Secondly, when it comes to hiring staff, small business owners tend either to employ people on trust and gut-feel, and not based on some sound selection criteria, or they tend to employ people based on what those people are prepared to be paid for the job.

Thirdly, small business owners tend to be guilty of not engaging their employees in the warp and woof of the business.  This has the effect of alienating employees – it makes them feel they’re not trusted and that they’re not appreciated.

HOW SHOULD YOU EMPLOY PEOPLE?

“The best time to fire people is before you hire them.” (Dave Anderson)

So, how should you go about employing people if you run a small business?

Personnel consultancies are expensive, charging as much as 20% of the annual salary of the employee, as a finder’s fee.  Even in the case where someone is being employed in a clerical post, the fee can seem enormous. (Placing a monthly salary-earner at a cost of R5,000 per month will attract a fee of anything between R7,000 and R12,000.)

 Most small businesses see that as far too much to pay and so they employ relatives, rely on referrals from friends of friends, gut-feel, etc.  At the end of the day, the cost to them can be far greater in terms of poor workmanship, poor productivity, poor attitude and ruined relationships.

 On the other hand, there are a number of Personnel Consultants out there who do not have the necessary expertise in every field of employment to fit the right person to every job.  They base their recommendations on the research they do, and a rather narrow band of selection criteria. 

If a person has built up a good referral base, consultants will be happy to recommend them – even if they may not ‘fit the bill’.  I have had occasion to use consultants a few times, and it has always irritated me when I receive a written report from them containing their opinion that “the applicant is ideally suited to the job”.

And this same opinion will be relevant to all four applicants they sent me, and which I now have to interview.  Well, which one really is ideally suited to the job? 

I have also been approached by Consultants for references on certain people who I have either worked for, or who have worked for me in the past.  I am appalled when the person asking me the questions is clearly just reading them off some standard questionnaire.  I wonder how they are able to get a true idea of what the prospective employee is really like, and in the right context?  I have had to comment on the work habits of some highly qualified people in fairly senior posts at times, and I’ve been conscious that the ‘interviewer’ representing the Personnel consulting firm, probably only has about five years work experience, and I doubt would be able to provide an objective opinion on the ability of the applicant.

We have managed to assist clients in quite successfully in the past, but only in the area of our own expertise – which is accounting and administration.  We follow a simple research process, and then rely on our own experience working in similar environments:

• We design the JOB DESCRIPTION (profile) in accordance with the client needs.
• We preview the applicants’ CV’s ourselves and create a short list.
• We get the client to do the same, and then we compare short lists.
• We get the short-listed applicants to complete a StrengthsFinder Profile test on the internet.  This can be accessed at http://www.strengthsfinder.com/113647/Homepage.aspx
• We match the Job profile with the applicant’s strength profile to get the best fit.
• We interview the applicants who match the profile the best, along with the client.

 Personnel consultants may be horrified at this – we may even be stepping on their turf – but so far it has worked pretty well. And, we don’t get involved in employing people outside our own field of expertise!

 Small business owners don’t have time to mess around trying people out only to find they don’t fit.  They also need to know that the new employee has the initiative and can innovate if need be.

I would suggest you adopt the following basic principle: – get a specialist in a certain field to hire someone for you to perform a special job in that field. The specialist should have a sound knowledge of how small businesses work, and the environment they work in, as well as knowledge of what will be required to get the job done.

EMPLOY THE VERY BEST PEOPLE YOU CAN!

John Maxwell, in a teaching series on Excellence in the workplace, recommends that entrepreneurs should make an attempt to employ the very best people they can in every position in the business.  In fact, he goes one step further – he recommends that we should employ top people, even if we do not have a job for them immediately. 

The best people, – the top people, – are net value creators.  In other words, they have the ability to create value greater than their cost to an organisation, – value that was not necessarily there in the first place. It won’t be long before they’re actually generating income which will not only cover their cost but increase the profits in the business as well.

 Dave Anderson, in his book, “Up Your Business” says

 “People are not your greatest asset; the right people are.  The wrong people are your greatest catastrophe. Mediocre people are your greatest drain on resources.”

In the next newsletter, I’ll cover the issue of how to retain those good employees.

This newsletter is the next in the series on “what we have to manage” if we want to avoid constant stress in our business lives.

BE PREPARED

Preparing for “war”.

There’s an old saying that goes, “if you want peace prepare for war.” (Sun Tzu). 

If we apply this in the business sense, we will see that it’s necessary to adopt a conservative approach to all our forecasts and planning as this will help create a bit of a cushion for the shocks which are bound to occur.  In many ways, one could say that it’s worthwhile planning for the worst, while expecting the best! It will also enable us to consider monthly provisions for those annual infrequent expenses, which crop up from time to time.

Have a War-Chest

In this regard, I also encourage business-owners to establish what I call a ‘war-chest’. 

This is quite simply a reserve of cash for those ‘rainy days’ – for those tough times that are sometimes beyond your control, which can occur every now and then.  As a guide, I believe this war chest should ideally consist of cash reserves equal to at least three months total overheads.  This may sound like a lot, but if you start small, it won’t be long before you have built up the necessary amount and this provides one with a great deal of comfort during those tough times.

Early Warning Signals

Sometimes small business owners have very little time to pour over copious screeds of financial reports, with row upon row of numbers, many of which might not mean much.  All they need really are a few key numbers – performance indicators – that will enable them to glance up, make a simple adjustment, and then carry on.  It’s rather like driving your car.  Every now and then, you cast a glance at the dashboard to check your speed, your temperature gauge, and to see that there are no flashing warning lights, and then you carry on. 

In business, it’s much the same.  Unlike a motor car, though, your business doesn’t come with a built-in dashboard – you have to create one.   This could be a simply one-page report which contains a half-dozen-or-so key ratios and trends, which are available each month from most accounting systems.  These dashboards can be purchased as ready-made software, or they can be easily created for you from your own system – customising them as it were.   The ready-made software is quite expensive and probably more intricate than most small businesses need, but it’s relatively simple to get your accountant to design one for you, within your existing system. Or, if you like, contact us and we’ll be glad to help.

Every system of internal control should provide a battery of early warning signals to management. 

They should happen automatically and not only when the business owner requests them. These signals should alert even the most non-financially-oriented business owner if all is not well!

The way to do this is to develop the dashboard based on accumulating data, which will provide the business owner with trends in certain areas of the business. Once-off indicators can be misleading, so we always advocate trends over time in this regard.  The best kind of dashboard, and one which grabs the attention of most people (and especially the busy ones) is made up of graphs and charts.

Using Graphs:

The best way to view this data for most people is by way of monthly accumulating graphs.  If you don’t really know your way around a spreadsheet, it is wise to get your accountant to set these up as standard charts for you so that they’re easily update-able.  (We can also set these up for you online if you want.)

Some of the more commonly used trend graphs may be:

• Debt collection period in days. –   This graph will plot the average number of days it takes for you to collect your money from your credit customers.   If the trend is upward, it could imply that the collection efficiency is dropping, or that you are allowing more credit than you should. (Or, that your sales are going down).  Either way, it will have a negative impact on your cash flow.  If the trend continues, it may prompt you to have a closer look at specific customer’s accounts, and this could prevent a major bad debt from occurring.
• Supplier’s payment period in days. – This graph plots the average number of days you take to pay your suppliers for goods and services bought on credit.  If this trend is upward it could show that cash flow is deteriorating, because you have to make your suppliers wait longer for their money, or that you are carrying too much stock relative to your production capacity.
• Stock holding period in days. – This graph plots the average number of day’s worth of stock you are carrying, at the average cost of the stock.  If this trend is upward is could imply poor stock management,  -that you are carrying too much stock ; or that you are carrying the wrong mix of stock; or, if you’re a manufacturer, that you’re taking too long to manufacture your goods for resale – all of which means more cash out of the game!
• Break even sales on fixed cost overheads. – If the BEP goes up on a trend basis, it could mean your overheads are increasing, or your gross margins are dropping, or it could be both!  There will be more on this very important subject in a future newsletter.
• Variable Cost % of Sales – Variable costs are those which are generally only incurred when you sell something – it’s a direct cost of sale.  This graph plots the efficiency of all direct variable costs in relation to sales.  Fluctuating trends here could imply all sorts of production-related problems and need to be closely monitored. (Amongst a host of others.)  One of the most important of these variable costs in a manufacturing environment, for example, is the consumption of raw material in goods sold.  Some manufacturers run their entire business on the basis of this one consumption figure!
• Budget versus Actuals for expenditure. – Budgets should be adhered to and not simply studied. Excesses should only be accepted if there is a very good reason for it.  And if the budget was only drawn up to keep your bank manager happy, then you’re really in trouble.  Budgets should be prepared as carefully and accurately as possible.  Any variances should be followed up.

In this instance, I am referring to employing suitably qualified and experienced people to maintain the financial records of the business on a daily basis. 

Far too often, I come across someone in the accounts department of a business, who has some form of general office experience but is not a trained bookkeeper or accountant.  This has happened largely due to the fact that the owner of the business was trying to keep costs down and has the attitude that since bookkeeping seems such a simple task, why bother with someone too ‘high-powered.’ (And consequently expensive!)

This attitude has been exacerbated by the prevalence of easy-to-use accounting software, which allows just about anyone with an atom of intelligence to capture data, – and the plethora of basic “bookkeeping” courses available from a variety of “training” institutions – which give people permission to call themselves bookkeepers when they are not! 

We don’t need data capturers – we need people who can extract information from this data ocean and use it to make vital decisions. 

As resellers of the very popular Quickbooks accounting systems, we often come up against people who have purchased the software and think that it makes them accountants! Wrong! Don’t underestimate the importance of accurate reporting.  One of the most mistakes that business owners make is to go out and buy this kind of software (and you can buy this off the shelf at a number of the mass market stores), and then because it seems so simple, they have a go at setting it up themselves.  There’s no problem with that, provided, you as the business owner, understand something about accounting, and also have an idea of what you want to extract from the data that is going to be captured.  Like most things in life, if you do the basics – the foundations – well, then it’s likely the rest of the job will stand up to anything.  If a house is built on shaky foundations it will eventually fall.

This is very dangerous!  And – it can prove to be extremely costly in the longer term, when someone qualified has to be brought in to fix things up!

The difference in cost between employing an excellent person and a mediocre one will be more than made up by the value created by the former, and in a very short time. Remember, – the other side of the coin is this – if you pay peanuts, you’ll likely get monkeys!

When specific skills are required for specific non-frequent tasks, outsource them. Even if the cost is quite high, it will be far more effective than if you tried to do the job yourself – and it’s a one-off cost too!

Now, – even though I’ve said that its important to employ the right people (and I must emphasise this), the advent of new technology and the Internet means that outsourcing this kind of expertise has never been easier.  For example, we can help clients – anywhere in the English-speaking world – by logging into their computers using the internet, and checking the work done by a small business-owner’s employees. (if you want to know more about this, check it out on our website.  It’s relatively inexpensive and all you need at your end is an internet account and an ADSL broadband line.)

Whatever you do, make sure that the information is reliable, regular, up-to-date and accurate.

INSTALL SIMPLE BUT EFFICIENT SYSTEMS OF INTERNAL CONTROL.

Accountants are notoriously pedantic when it comes to installing systems of internal control.  Don’t get me wrong – the systems they install WILL work. The problem with them is that they’re often designed for Accountants and as a result they’re often not simple for the average small business owner. 

And quite often, they haven’t been sufficiently customised to the needs of the business.

In a small business environment, it won’t be long before people start taking short cuts to make their lives easier. (including the Boss!).

Systems of internal control should be designed to achieve two main purposes –

• to enable the flow of funds in and out of the business to be properly managed relative to the skills of the people using the system, – and
• to cater to the leadership style of the particular business owner.  Some leaders love detail, and others don’t!

I have come across administrative systems that are so complex they dictate to the enterprise what needs to be done.  Systems are there to manage what you tell them to, and not the other way around. 

The system should be able to accurately record all transactions and enable the handling of all queries in the quickest possible time.  The use of paper should be kept to a minimum.  Developments in modern technology make this eminently possible.

At FINSERV we specialise in setting up such systems – they’re relatively inexpensive, and they work!

USE A COMPUTER.

It is surprising how many small business owners still avoid the use of a computer to assist in the management of their businesses.  Many of them still see it as being a modern accounting machine, to be used only by accountants and bookkeepers.  They have no idea that for the sake of an hour or two in front of the computer each day, they will be able to keep on top of the daily performance of every aspect of their businesses.

In an article written by Michael Plumstead for SUCCEED magazine he said this:

“Identify which daily or monthly tasks are critical to your very survival and then start talking to everybody you can find about the right technology to cover those important areas of your business… Start small and grow slowly.  If the technology saves you time, saves you money and enables you personally to work more efficiently, then buy it and learn to use it.  Do not over-learn…Technology is a means to an end – to grow and manage your business. It must not be used to plug weaknesses in your personal skills. Use it thoughtfully to improve your strengths and either to save you money or to increase your income.” (emphasis – mine!)

Today’s computers are cheap, efficient and provide a host of management tools to free up enormous amounts of a busy entrepreneur’s time.  Apart from financial record keeping, they provide Daily Planners, electronic banking, access to the wealth of data available on the world wide web, calculators, data storage & sorting facilities and a host of other features.  Modern software has also eliminated the need to be able to type quickly as programmes exist which enable voice-activated data capture.  Letters can be typed by just talking to your computer.

Most importantly, they have enabled modern business owners to analyse the performance of their businesses in a matter of minutes – a task that forty years ago would have taken hours and even days by a highly qualified accountant.

In this high-tech information era in which we live, we need as much (meaningful) information as we can get, to stay ahead of the pack in our enterprises. The comment “I’m old-fashioned about computers!” won’t wash with me any more.  And if you really feel strongly about not using one, then at least employ someone who will!  Either way, you can’t afford to be without one!

Today, margins are constantly under pressure; new products, new fads and trends are coming on to the market at an ever-increasing rate, so if a business owner wants to keep his head above water, he simply has to keep his eye on the numbers.

Many business owners don’t do this and operate on the basis of “as long as I’ve got cash in the bank, I must be making a profit.”   While this is generally true, to a certain extent it disguises the fact that the business could be under-achieving and any negative trends may not be seen until it’s too late. 

Most small business-owners have some idea of what the break-even point for their respective businesses is – it’s a sort of gut-feel!  They operate on the basis that as long as they’re exceeding their ‘break-even’ they’re doing alright.  That’s a very negative way of trading and is likely to cost a great deal in the long term.  Even though business is all about the bottom-line, it’s not just about the bottom line!  Does this sound crazy? Well, we do have to make a profit if we want our businesses to stick around and grow, but monitoring your trading performance is not just about checking on the bottom line.  It’s more about what happens between your sales and the bottom line that matters – because there’re huge amounts of opportunity lurking in every expense account, every product, every customer, every supplier – and even in the productivity of your employees.  Do this well, and the bottom line will take care of itself – and will surprise you!

The fact is most small business owners could be doing very much better if they knew how to apply a few basic rules.

With margins so low and competition so fierce, we need to know TODAY, how well we did, YESTERDAY! And we need to have some sort of financial analysis of our performance that will help us to fine-tune that performance for TOMORROW.

 John Maxwell, the popular author of a number of self-help and leadership books, penned a law of teamwork – called the Law of the Scoreboard, which states: “the team can make adjustments when it knows where it stands.” (The 17 Indisputable Laws of Teamwork – emphasis – mine.)  He goes on to say that the Scoreboard is essential to understanding, to evaluating, to decision-making, to adjusting, and to winning.  Simply put, he says that “When you know what to do, then you can do what you know.”

These are important aspects to consider and I want to unpack them a little more:

• Understanding. There are thousands of small business owners out there who know very little about basic financial management.  They rely heavily on an in-house bookkeeper, or a firm of practising accountants for information, but inevitably, these folk tend to be reactive in nature,  and they tend to only respond to requests from the employer or client; very rarely to pro-actively offer advice when its needed.  This is also largely because they only have sight of the financial information a long time after the fact.  So, – if you’re one of those business owners, then you need to get out there and attend a course on financial management for non-financial managers.  (If there isn’t one readily available in your town, contact us and we’ll make a plan for you.)  Get to know the basics; so that you understand the elements of costing, the difference between mark-up and gross margin; labour productivity, among others.  You may know your product better than anyone, and you may make it better than anyone, but if you don’t understand the financial concepts that go into it, you will lose out.
• Evaluating.  Once you have an understanding of how the various cost components come together, you can very soon see which products are the most profitable; whether you should be making certain products at all; whether certain customers are worth selling to, and whether your overheads and drawings are in keeping with your income.
• Decision-making.  Now, I don’t know about you but if I don’t know what’s going on in any given situation, then I find it very hard to make decisions; and what’s worse – this just leads to stress.  In fact, indecision is the mother of stress!  And, if you don’t know what’s going on, and you do make a decision, it may well end up being the wrong decision – and simply because you did not have the correct information to enable you to call it right first time!
• Adjusting. Once again, if you’re monitoring your trading performance on a regular basis, and you understand the fundamentals that make the business tick, and you’re able to evaluate the results and come to a decision – you can make the adjustments you need to, quickly! I can’t tell you the number of clients I’ve worked with over the years who vacillate on the important decisions, and it ends up costing them money.  If you’re bleeding and you make the decision to stop the bleeding – guess what? It won’t happen unless you make the relevant adjustments – unless you implement; or execute – unless you do something!
• Winning.  Well, this goes almost without saying doesn’t it?  If you’re on top of your game in this regard – you understand the business dynamics; you’re able to evaluate the results, make quick decisions, and implement your action plans – you will win; you will succeed!

With this in mind, there are a couple of basic requirements that I believe are non-negotiable for small businesses, if up-to-date and accurate trading results are going to be available.  In the next newsletter, I’ll go into those in more detail.