Archive for Small Business
As Curly says in City Slickers “you just need to know one thing..”
Posted by: | CommentsIf you are in business or looking to start a small business there are a million details, some important and some not so important. In my dealings with over 1,000 small business owners I have determined that there is a “1 Thing!”.
The sad part is that more than 95% of the small business owners I work with have never looked very closely at the “1 Thing!” . Not only have they not looked at it closely, they have no idea how to put together the information so they can look at it.
What’s the leading cause of business failure? Not low sales, not low prices, not bad employees, not taxes, not regulations. The leading cause of business failure? The business owner runs out of money before they have a chance to succeed.
What’s the 1 Thing……….Cash Flow.
Very few small business owners even know the difference between cash flow and profit. There is a huge difference. Many, many profitable businesses go bankrupt every year because they run out of cash. They ran out of cash, they didn’t run out of profits!
I talk to many small business owners who are shutting down their business because they ran out of money. I asked them the obvious question.. “when you went into business you had a plan, what went wrong with the plan?”
The most frequent answer, “I spent all of my time figuring out what the right product/service was and not much time figuring out what I needed to get that to market.”
Cash flow is easy to summarize. What cash comes in when?…What cash goes out when? If $10,000 in cash goes out on February 1 and you get $12,000 cash in on March 15th you have NEGATIVE cash flow of $10,000 for 45 days even though you have a $2,000 profit ($12,000 in – $10,000 out).
Know your cash flow! I can assure you that if you take care of your cash flow the profits will likely take care of themselves.
There IS a purpose to this story, read on..
I recently had work done on a weekend home we have (thanks again Ike!). The work was to repair/renovate the house because of the hurricane damage. I spent months talking to contractors about our options, code requirements, restrictions, etc. It took months because I got different answers from different people and I had to try to figure out who was right (or, as it turned out, who was closer to right). I won’t go into the details of how I picked the contractor, that’s for another post.
This post starts after I picked the contractor and we began the work process. What I discovered real early on is…. the contractor never wrote anything down and he apparently relied on his memory.
Or as he said a million times “no problem, we’ve done that a million times.” Well, I have decided that he’s done it “a million times” because it wasn’t done right the 1st time, 2nd time or sometimes 3rd time.
I’m sure this guy had a decent profit calculated into the estimates he gave me but I’m just as sure he didn’t have the “do overs” in the estimate. I just hope he wasn’t planning on using the profits to pay down his small business loans because I doubt there was much profit left at the end of the job.
It doesn’t need to be anything tricky for this guy to get organized. It could be as simple as using a service the I use Vitalist. They have free service that is easy to use but you actually need to write something down, I guess that could be an issue for my guy.
What did this guy miss or redo because he never wrote anything down and relied on his memory:
- He had to hang 2 large doors twice because he hung them to open in instead of out.
- He had to move 6 electrical switches 2 times each because he put them in the wrong place.
- He had to send his clean up crew 3 times because he had debris in different places and didn’t specify to the clean up crew the locations.
- He had to have doors delivered twice because he ordered a single door where a double-door was supposed to go.
- He had to remove a light that was installed in the wrong location.
- He lost an “add-on” sale because he didn’t write down that I wanted a separate quote for a section of fence to be replaced. I asked him twice for the quote, when he finally got back to me with the quote I had decided to hire someone else.
That’s 6 things that I know about, I’m sure there were others I didn’t notice. By my calculation the above items cost this guy (excluding what he could have made on the fence portion) at least 8% of the total price of the job. That’s 8% that would have gone to the bottom-line, but is now gone forever.
Wow, think about it. This guy could have increased his profit by 8% of sales without doing anything else except writing it down and doing it the way it was supposed to be done, the first time.
And a side benefit? He wouldn’t have a blog post written about him or have a customer who would be afraid to recommend him to others who might need his services.
So there is your 2010 New Year’s Resolution for small business owners… Write it down, even if you’ve done it a million times!