Dear Friends,

We’ve come to the end of 2010 – for many South Africans, quite a significant year with the Soccer World cup and all its implications.  Some of those implications are not going to be good, and there’s no good fooling ourselves about it!  Someone is going to have to pay for all the fancy stadiums, – many of which have largely been empty since the event, – and the enormous ongoing cost of their upkeep.  I can’t help but feel that a few people have scored big-time out of this – not to mention the money FIFA made – and that the South African taxpayer is going to be footing the bill for a number of years to come.

We go into the next few years in our country with some serious unresolved issues.  I believe the main ones are to do with the ever-increasing gap between rich and poor, and a shrinking middle class that are tending towards the latter group.  The land issue is a rumbling volcano – and it’s not just about farms!  The education issue is another time-bomb waiting to go off, with the standard falling – not just in the quality of education provided, but in the outcomes for students.  I believe that some 70 to 80% of all young people who enter the job market nowadays will be unemployed! Creating positions of employment for people in government is not really addressing the unemployment issue, when those positions are not really productive.  Having more people doing less work just costs the taxpayer more, slows down the administrative process, and will result in more labour unrest, until inevitably, the money runs out – and then, as Lord Rutherford once said, “..Now we’ll have to think!” And – the non-delivery from central and local government on basic services is reaching crisis with our water, power and sewerage systems at dangerously inadequate levels.

In short, these are all leadership issues – and that’s where our country probably has the biggest problem right now.  It seems to me that those in power are in a frenzy to make as much as they can, as quickly as they can, while the taking is good! The atmosphere and culture of entitlement is staggering!

From a business perspective, I think we’re all going to have up our game, individually and collectively.  Innovation and initiative will be crucial, and attention to detail – qualitative and quantitatively – an absolute must.  In the midst of adversity however, – and I believe that there will be adversity, and globally – not just in South Africa (in fact, I believe that business in the West could be faced with its biggest challenges ever!) – there will be opportunities.  Entrepreneurial thinking and snappy execution will be the triggers for success.  It’s not all doom and gloom!  Many are going to go to the wall, but it doesn’t have to be you – if you’re well prepared!

With that in mind, I would like to encourage all of you to go out there in the New Year and make tracks, set the pace, blaze the trail – become the standard everyone else aspires to.  South African entrepreneurs are bold, courageous and always ready to adapt.  There’s no reason why we should throw in the towel – just as things get exciting!

I pray that you and yours will have a restful, and peaceful, holiday during this time – from all of us here at Finserv.    Please note that our offices will be closed from midday on the 23^rd December, and we will be re-opening on Monday the 10^th January 2011.

After nearly 40 years in the marketplace, and some 14 of those helping small business owners, I am convinced that this is one area where most small businesses just don’t cut it!  I will even go so far as to say that the greater majority of these small business owners never start with a properly structured plan, nor do they bother with one later on; not nearly enough attention is paid to even the most basic business plan.  In fact, I think it’s safe to say that the only time most small business owners prepare a plan of any kind, is when it is demanded of them by their banker or potential lender.

 Think about it for a minute! 

 The biggest investor you have in your business is you.  It’s quite likely that you have ‘hocked’ yourself to the back teeth to finance the venture. It’s also quite likely that you have no idea whether the business will survive or not. It’s ‘seat of the pants’ stuff. Its ‘a wish and a prayer’ stuff!

 Not so long ago, I asked a small business owner a question about where he thought his business was headed.  His reply was simple:

 “I just have to make it work.”

“How do you anticipate doing this,” I asked.

“I just have to get out there and find the business – I have no option!” he insisted.

 While I understand the tenacity, I think its folly. (And he certainly does have an option – he could even close the business down and start something else!).   It has to be the biggest waste of time pounding away at something that may never work.  And it can be exhausting too.  Imagine you’re in a jungle, hacking away aimlessly at the bush surrounding you, hoping you’ll get to a road or river so you can find your way?  Imagine how you’d feel if you realised that just 100 meters away there was a road, which you’d be able to see, if you just stopped hacking, climbed a tree, and looked around?

 There are a number of Proverbs that speak volumes of wisdom about the need for planning. I’m going to take the liberty of quoting some of them here:

 “For lack of guidance a nation falls, but many advisors make victory sure.”

 “The way of a fool seems right to him, but a wise man listens to advice.”

 “Plans fail for lack of counsel but with many advisors they succeed.”

 “Make plans by seeking advice; if you wage war, obtain guidance.”

 “A plan in the heart of a man is like deep water, but a man of understanding draws it out.”

 Paul Yongi Cho, who heads up what is probably the largest Christian church in the world today, says that “…if you fail to plan, you are planning to fail.  Plan to succeed and you’ll succeed with your plan.”

 I believe that the main problems these business owners face are two-fold:

• Finding the time in their busy days to put the plan together, and
• knowing how to put it together!

 There are a couple of key fundamentals to consider when writing out your business plan.  Owners must realise that it’s harder these days for established small businesses to get a banker or investor interested in reading—never mind funding—their business plans. Here in South Africa we have a New Credit Act, commonly referred to as the NCA.  This has resulted in a great deal more scrutiny by lenders than ever before, and credit is now significantly more difficult to obtain, from anybody.  Venture capitalists too, are becoming increasingly finicky about the types of small firms they will back with expansion capital.

Certainly, most of these venture capitalists probably read only one out of ten plans that cross their desk. One of them even went so far as to say: “Lenders want to see solid, incisive business plans that clearly demonstrate an entrepreneur’s credit-worthiness and his ability to build and manage a profitable company.”

So what are these fundamentals?

• Don’t make outrageous claims of financial potential.

Who are you trying to fool?  You won’t fool a canny lender, and it makes no kind of sense trying to fool yourself.  The business world is no place for foolish dreamers – imagination and innovation, yes! Determination and tenacity, Yes!  But, always grounded in well-informed reality!

The investment community is still looking for the basics—a balance sheet, cash flow, sales-and-profit projections, market forecasts, summaries of managers’ experience and so on. But, I don’t think they put too much credence in the financial projections anymore.  In my own experience, I have rarely found a financial projection that pans out with any certainty – especially if there’s no yardstick on which to measure the projection.  Any potential investor is going to be more interested in how you propose to solve an important problem for customers with your niche product or service; how you plan to reduce their transaction costs; or how you plan to improve on the quality and service of the product they currently use.

•  Know how much money you really need.

Most small-business owners don’t have a clear idea of how expensive it will be to build their product or service, and more importantly, to expand their sales and distribution network. Investors will look them in the eye and ask for detail, and they need to be clear about these details. They will ask hard questions such as, ‘How much time will it take to develop this product? How long will it take you to get the quality you will need?’

Entrepreneurs also fail to honestly estimate how long it will take to get enough revenues flowing – good old-fashioned cash flow – to get a good return on their investment. Any investor will have questions such as, ‘Do you have customers for your new widget? Have you talked about pricing with them? How many additional sales representatives do you plan to hire?’ Business owners need to know the answers to all these questions.

• Make sure your marketing and distribution plans are simple to implement, and easy to maintain

These need to prove that you understand the competition and can offer something superior in your niche market; and that you can establish the right sales channel for reaching customers. It might mean forming a strategic alliance with another company that can help you distribute your product, and you may need to have strategies for expanding your brand and product line in place, as well as plans for broadening relationships with your customers.

• Make sure you have a management team that can actually manage!

Investors demand solid management experience, and they want to see team members that have at least three or four years’ worth of operating experience in the industry you’re targeting.  This is not the time to employ cousin Bob because he’s been out of a job for a few years!  Nor is it time to employ Bongani just to meet some BEE criteria in the hope you’ll attract government work! And it certainly isn’t the time to take people on because their salary demands are low. If you pay peanuts you’ll usually get monkeys.  Remember this too – it’s now much harder for a 28-year-old with little experience to secure funding to start or expand a company.

• Understand your competition, and what makes you different from them.

Many business owners just slam their competitors without offering real facts. This turns investors off, and proves not only that you’re ignorant but arrogant too. You need precise data showing why the competition cannot meet the needs of your target market.

IF YOU’RE TRYING TO RAISE FINANCE:

If you’re preparing a business plan to raise investment and/or loan capital, please bear the following in mind:

• Don’t use the shotgun approach!

Nobody looks closely at a business plan that arrives in the mail addressed to “Whom It may Concern”.   The most important thing is to get an introduction to the prospective funder through someone you know. Any introduction, – even a casual one, through a friend of a friend—is better than none. If you don’t know anyone, hook up with other entrepreneurs who’ve received funding.

Once you’re introduced, follow up with a phone call or e-mail message—without being irritating, of course.  You’re dealing with busy people – never forget that – and they don’t like having their time wasted!    When you call to set up the meeting, offer to send along the one-page executive summary of your plan. This summary must be clear, short and sweet! It should show

• how your company differentiates itself,
• what the market is, and
• Why the management team is uniquely prepared to drive your company to success.
• Also submit names and phone numbers of customers who will verify your reputation and the solidity of your business.

Don’t hand over a daunting document.

Keep the packaging professional but pointed.  No one likes a massive tome which repeats and repeats your dream list.  Quite the contrary!  I would advise that you build the key points in PowerPoint, which forces you to be crisp, tight, and clear. The first few slides should contain the 30-second elevator pitch, which defines the product or service, the market opportunity vis-à-vis the competition, and the value proposition. Some of this can be done very convincingly with graphics. In addition to the PowerPoint presentation, you should have additional documents covering the financial details and background on the team.

Remember to submit resumes on your key staff members. Investors will want to review detailed resumes for each member of your management team, including their job history, job titles, and their specific responsibilities and achievements. After that, make sure you are always reachable, whether by e-mail, cell phone, or at home. Investors won’t phone twice!

IF IT’S NOT ABOUT THE FINANCE:

Even if you’re not trying to raise money for expansion, and for launching a new business venture, as the largest investor in your business, with the most to lose, you should be addressing all these issues for your own peace of mind.

 They can be summarised as follows:

• How will you reduce your customer’s transaction costs?
• How will you improve on the quality of the products they already use?
• How long will it take to develop your product and market?
• How long will it take to get a good return on your investment?
• Do you understand your competition? How do you differ from them?
• What plans do you have for broadening relationships with customers and expanding on product lines?
• Do you have access to the necessary experience?

If you haven’t got the time or the know-how to do all this, employ the services of a specialist to help you.  It may cost you a few thousand Rand (anything between R5,000 and R15,000 for the average small to medium sized business.) but it could save a fortune – literally – in the long run!

Well, – the end of the first decade of the 21st century is in sight. I can’t believe how fast the past ten years have gone – it seems just like yesterday that everyone was panicking about Y2K, and the prophets of doom were forecasting a meltdown of all our information systems!

In retrospect, sometimes I wish it had happened!

I don’t know about you but I get so many emails – most of which are some form of advertising – so many invitations to join some or other new social networking service – and the worst of the lot, all those ridiculous scams advising me about the millions of dollars I’ve won, by people calling themselves Dr Peter McWealth, or some other ridiculous name! And then there are genuinely funny emails – rip-offs of all and sundry, funny pictures and anecdotes – and which I’ve also had occasion to send to everyone on my mailing list from time to time.

But have you ever sat down and evaluated how much time and concentration gets sucked up, just opening and reading these mails, not to mention what happens if you decide to forward them to your mailing list? And the time that’s wasted every time a new email pops up on your screen? I’ve been in a meeting with a client, and in the middle of a conversation, when one of these emails pops up on his computer screen, and involuntarily, he reaches out for the mouse, clicks, and reads the mail – even when it appears to be irrelevant to his business. I think it’s a form of subliminal diversion – subversion for short – and it brings new meaning to the word.

The Wikipedia definition is: “Subversion refers to an attempt to overthrow the established order of a society, its structures of power, authority, exploitation, servitude, and hierarchy; examples of such structures include the state. It is an overturning or uprooting.” I have a sense that this is exactly what is quietly, unobtrusively, but very definitely happening in the world today.

The point of this though, is really to highlight the fact that we need to use a lot of that wasted time on more value-added pursuits, within our businesses. I’ve become concerned of late how little value small business people place on annual budgets; and even if they do have budgets, how rarely (if ever) they actually use them. Sound business planning, followed by sound implementation, has been subverted. “We don’t have time for that sort of thing anymore!” is the cry. I’m also seeing less and less value placed on the importance of accurate and regular financial reporting by these same small business people. As long as the off-the-shelf accounting software manages sales and debtors, they’re happy. Benchmarks and targets are not set. Actual expenditure is not monitored against budgets, until cash flow becomes a problem – and clearly, cash flow is a very real indicator that something is not right in the state of one’s business!

Then, all hell breaks loose! Sales are generated at any cost, credit terms are violated, cost-cutting is implemented without any thought to whether the costs cut, are value-adding costs. And someone has to be to blame – employees, customers who don’t pay, the bank, unreasonable suppliers who insist on being paid on time! The list goes on… And this is what happens with subversion.

Now I’m not suggesting that all our business woes should be laid at the door of the internet and email. That would be ridiculous! But the time we spend, unthinkingly, on this entire information overload, is taking us away from more important business activities – like planning.

We are about to go into a new calendar year, and here in South Africa, a new financial year for most businesses, within three months. Traditionally, many manufacturers close their factories for half of December and January each year. As a result, traditionally, business is much quieter in the latter part of January and February each year. This is a good time to set aside a couple of days – even a week if possible – to brainstorm where your business is, where it’s going, and where it fits in the whole economic situation we find ourselves in. Once the brainstorm is done – and I would suggest using your own key people, and one or two objective value-adding outsiders, in this process – then prepare your budget for the next three years. This can then be reviewed at the end of each year.

Many small business owners lack the financial skills and experience to facilitate these brainstorming sessions, and to prepare these much-needed budgets. This is where we come in, and we’re good at it! So, – if you would like to make use of this opportunity, and the quieter period leading up to the end of the financial year, please let us know, so we can set aside the time now. We already do this for a number of our clients, as a matter of course, and the available time is filling up fast, so we look forward to hearing from you shortly.

Don’t forget, – and on the positive side of internet and emails – we can do this for anyone, anywhere in the world, so – just because you’re not geographically close by, doesn’t mean we can’t help. Give us a call….

 Our coaching team has grown again. 

 I have come to realise over the past few years that no one person can speak into every situation in a business with total confidence.  As a coach, helping business owners to grow their businesses to success (and then hopefully on to significance), I have sometimes found myself in unfamiliar territory – needing areas of expertise that are specific to a certain situation, and finding that my knowledge is general at best and non-existent at worst, to properly deal with that issue. 

 And it’s no good trying to fake it ‘til you make it either!  Because the client’s business could be at stake!  And it’s always been my desire to offer the very best management and leadership skills to our clients.   One of our stated values is:

 “Being alert to change; to opportunities to offer something different and new; dreaming up new ways of doing it; and then doing it consistently and to the highest standards, – adding each client to an ever-growing list of very different businesses – solid, paying attention to the fundamentals, shunning the limelight, creating jobs, generating wealth, and making a contribution to society.”

 On my own, this is almost an impossible goal to achieve; in a team – a team of highly competent, and complimentary professionals, – well, this could well be possible.  And – this means a great deal more value-add for our clients.

 The team is now comprised of a number of complementary skills.  Murray Nel and Mark Allen have joined Stuart Holliday and myself, and together, we can safely say we have almost 120 years of combined business management experience to offer our clients.

 Murray is well known in banking circles, where he has been directly involved in originating all sorts of different financing options for businesses, big and small.  He also continues to operate his own successful financing enterprise known as Excalibur Finance.

 Mark specialises in new business development/drives, competitor and customer analysis, correcting price points, as well as marketing/branding/launches; and identifying key, and the most profitable, target markets.  He has on numerous occasions set up complete sales structures and controls for businesses, including the appointment of external agents.  He has also been responsible for re-designing existing structures in businesses, where necessary, and then training up sales teams to maximise efficiencies within those structures.    Mark has also been extensively involved in production, warehousing, logistics and the supply chain, and their integration with sales.

 Big business generally has access to these skills on a full-time basis.  Small to medium businesses simply cannot afford them in that way, so very often do without; or they try to muddle through on their own.  We’ve positioned ourselves in the market to provide these very important management skills, on a full-time basis, but at a fraction of the cost.  We’re “Business Buddies”!

 How do we do this?  Well, – when I say full time, I don’t mean that we’re going to be on the client’s premises every minute of every working day; but I do mean that we’ll be available to take calls, emails, skypes or whatever clients want to use, so that they feel we’re there with them all the time!  It can get very lonely trying to run a small business without someone around to help, be a sounding board etc. 

However – we will also continue to be available on a part-time basis to provide the necessary financial & structural disciplines, and sales and marketing expertise, to enable each business to reach new heights.

 All of this will continue to be backed up by our highly qualified and professional back-office team of accountants, tax practitioners and administrators, based in our offices at Hilltops Office Park in Pietermaritzburg.  Their support and the ever-increasing opportunities offered by the internet and the world-wide-web mean we can really work anywhere in the world (as long as our clients can understand us!).

 If you would like to chat some more on what we have to offer, please contact us.

I’m excited to announce the launch of our new website at www.finserv.co.za. This is something which I have been working on for some time, and with the assistance of new technology, we can now offer a number of our services direct from this site. With the new site, comes a new logo and new business livery. I really like the new look, all of which is courtesy of the team at Temple Creative (www.templecreative.com)

The site is aimed at providing small-to-medium sized business with a number of useful tips and guidelines to developing and sustaining a profitable business; and it will also address the needs of those who are not in business, but who find money management a real grind. I would welcome any comments/criticisms aimed at making this service even better – one of our goals is not just to meet expectations but to raise the standard.

One of the most powerful aspects to this service will be the ability of clients to gain access to our expertise and counsel on a number of financial and general business management issues, at the click of the mouse. Not only that, but we will be able to manage your financial records by remote; all of which saves time (and inevitably, money!)

You will automatically qualify to receive our regular newsletter/blog and will be added to the list of subscribers, by virtue of the fact that you are already one of our existing clients. If you know of anyone you feel would benefit from the services we will offer on the site, please feel free to bandy our name about!

Looking forward to some exciting and innovative times ahead with you

Kind regards

GARY SMITH