Our daughter just started at Campbell Law in Raleigh, NC. Even though the case reading load is tough, she loves it! She’s not worried about a job when she gets out because she’s had great internships before she started. Additionally, since my consulting firm advises law firms, we feel good about her chances of working for a boutique group when she gets out.
Monthly Archives: August 2012
Boomer Entrepreneurs Can’t Retire
It depends on what one means by “retire.” Stepping back is possible for many if they and their advisors can empower capable lieutenants. It’s important to differentiate between “owner” and “manager” in the second generation of leadership, as the boomerpreneur may choose to keep the business as an asset to be included in estate planning.
One of the things entrepreneurs plan for is the time that they will eventually sell their company. Currently many older business owners have found it difficult to reap the anticipated rewards of retirement. As the author of the Entrepreneur Exit Strategies for your Business pointed out, “it’s not enough to build a business worth a fortune; you have to make sure you have an exit strategy, a way to get the money back out.” If businesses were once very successful, the economy may have impacted their current worth. Even with what may once have been considered a strong exit strategy, plans may have been affected by the economic downturn.
Boomers trying to sell their businesses are receiving offers that are not enough to finance their retirement. In the Wall Street Journal article The Economy Stole My Retirement, it noted that one small business owner expected to sell for $2…
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Revenue, Cost & Capital in Your Business
Positive cash flow is desirable for everyone in business. It is achieved universally through generating substantial revenues, controlling costs, and structuring capital wisely. Some tips and techniques are shared below:
Successful businesses excel at making sales. You know the saying, “the rich get richer?” Well,the corollary is that those who have revenues get more revenues as a factor of customers wanting to be associated with a successful brand. One thought you should consider is to go after markets that are less susceptible to the uncertainties of interest rates and the economy. If you were a homebuilder (you’d be an industry famous for tracking closely with the economy), you would be wise, for example to pursue both upper-income retirees and “move-up” families. These two demographic groups tend to be less affected by economic turns and have demonstrated a time-tested pattern of purchasing homes in most any economy. Knowing the segments of your market well enough to follow suit and service the buyers with money to spend will position your company to operate for maximum profitability.
Successful executive teams know that targeting buyers with focused offerings is key to penetrating your ideal market. Regardless your market dynamics, the goal is to increase volume. With higher volumes come higher velocity cash flows. This increased velocity creates the favorable setting for financing terms that suit your financial model. Yet, it is clear that profit margins must be maintained else increased velocity exacerbate losses.
The focus of controlling costs is to optimize expenses as investments–not eliminate them! Cost management evaluates not only the amplitude of the individual expense, but its impact on organizational performance. While the general principle is to control the growth of costs, there are strategic advantages to be gained from choosing to incur the right expense for the right reason at the right time. Another major shortcoming in the financial management of many companies is the effort to wring cost out of processes and retain all of the benefit of the exercise in the hands of a greedy few. Passing along savings to customers is a great way to build a customer base advocacy. Not all of the profits, mind you, …but enough to become even more competitive.
If your organization does not have a process to monitor and eliminate waste, it needs one! Sharing items like technology, administrative labor, equipment, and offices/desks is “low hanging fruit” in this area. Most resources do not need to be dedicated to one person or department because they cannot be utilized enough to justify the additional expense. Look at ways to speed up the delivery of your product/service to market–scheduling and workflow management process improvements drive profits to the bottom line quickly, as well as freeing up needed cash flow.
Monitor invoices–make sure that payments are for things ordered and received by specification and terms. Evaluate reporting systems. Dashboard feedback on expenses, margins, and cash activity help executives manage rather than being managed.
Get a god fix on the financial capital structure of your business and how it compares to competitors. Doing so will drive planning relative to debt capacity, valuation, growth, and many other categories. Taking the approach that debt is always a short-term tool and is to be repaid as soon as possible will increase a company’s capacity to take on debt when absolutely necessary. Think through cash reserves and how they speak loudly to others as to your management acumen and company viability.
When preparing pro-forma projections of anticipated cash flows, make sure that worst case scenarios are considered. Money on deposit is a precious commodity and those who have it are in a position of strength. Having products or services in development that can be brought to market quickly is an asset for those well-capitalized, a liability for those who are not. Your unique debt to equity ratio should be stronger than your industry–and should reflect the commitment of the executive team to run the business according to thoughtful metrics and attention to details.
How Successful Businesses Create Positive Cash Flow
Successful companies generate positive cash flow through efficient operations and effective marketing. Generating revenue is not like raising funds for a charity–people will not offer you money simply because they agree with what you do. Businesses succeed when they are able to convince buyers that their products/services are superior to and of greater value than the offerings of other providers. Controlling costs is critical; make provisions for unavoidable cost variances and eliminate waste in areas where costs–or at least overruns–can be avoided. Planning for adequate capital structure is also essential; debt-laden companies cannot achieve the same level of success as companies with enough equity. Being able to bring in sufficient revenues and preventing large amounts from being paid out will lead to positive cash flow.
Effective companies generate positive cash flow consistently. The business is streamlined continually to narrowly defined core acutely focused on making sales, controlling costs, and structuring capital. Creating and maintaining positive cash flows is a continual goal of any business, and an ongoing reality in profitable ones. The exercise of staying profitable and successful requires more discipline than many executive teams are willing to enforce in their operations. For example, moving inventory in a timely manner is puzzle to many businesses that make products.; however, those who develop a formula for success in this area are well on their way to positive cash flows. Controlling costs, though, is not synonymous with eliminating costs. Eliminating costs in an arbitrary fashion can kill momentum and limit financial flexibility. Capital is a useful tool if its effects are controlled, and businesses able to avoid large debt loads are more consistently profitable.
While positive cash flow may seem like a lofty ideal to some teams, the investment and financial communities consider cash flow a distinguishing barometer of business stability. Companies with favorable cash flows can secure more favorable financing terms and receive more concessions from vendors and subcontract organizations. For example, businesses with positive cash flows can negotiate higher discounts when they are able to pay invoices early. Additionally, they can prepay materials and buy in volume for even steeper discounts. An enterprise that consistently demonstrates that it can cover more than its cost of doing business (as evidenced by positive net income) will rack up profits and retained earnings year after year and attract more customers, since buyers often feel that profitable companies are more likely to survive and meet their needs for the long run. Therefore, positive cash flow should be the goal of every employee in the business.
One of the most important things to remember when incurring financial obligations that affect your cash flow is to stay within acceptable industry ratios. Most industries have trade organizations that publish benchmarking data to help representative companies do a better job of analyzing how they compare with norms. The analysis should not become an end unto itself, however. Use the data to have productive conversations with your CPA, banker, and investors. Unless you want a very short day in the sun, avoid reliance on debt. To remain financially competitive, choose capital financing sources wisely and do not burden your operations and marketing teams with a weight too heavy to bear.
How Do Successful Businesses Manage Their Operations?
After working hard on the marketing plan and the financial plan, successful executive teams develop operating plans to implement them. These are the plans that ultimately result in successfully bringing one’s idea into the marketplace–and profits into the owner’s pocket. Staffing, office administration, and work flow supervision are the primary needs. Successful businesses anticipate problems and take steps immediately to improve workflow efficiency. Supervisors and budgets are assigned to control costs. If necessary, outside fractional help is secured to make sure that appropriate resources are allocated to the best potential outcomes. In addition, the top executive may recommend steps financial and marketing teams can take to enhance overall productivity–and, by extension, profitability. For example, organizations that offer and sell the same or similar goods or services over and over usually see fewer cost overruns and therefore generate more profit per unit of sale.
Staffing a business with the correct number and types of employees makes your workplace both productive and more enjoyable. Sprinkle in some training and development and you demonstrate care and concern for your people. Create feedback loops and engagement will soar. Successful organizations increase or decrease staff levels as operating plans require. Outsourced human resources–whether through independent contractors, fractional professional staff, or subcontracting–allows your company to optimize human resources for any level of work necessary. Making preparations to finish existing projects while beginning new ones and documenting how the work will be accomplished will focus your efforts.
Administering a variety of initiatives simultaneously places certain demands on office staff as well. A successful executive team thinks through the documentation needs of the organization and assigns responsibilities to appropriate personnel. Institutional knowledge is thereby captured for the benefit of all and adjustments become easier to make. Well-organized files–physical and electronic–are another vital component to smooth business operations and can eliminate wasted time and effort, as well as reinforce best practices!
Successful supervision of field (or plant or billable or development) personnel involves more than simply the “management by walking around” approach of yore. Think about technology as a means to do more with less. Creatively brainstorm as to how to maximize the benefits of being face-to-face versus virtual–it’s a trade-off of time, money, and precious additional resources. Recruiting and hiring should reflect an effort to add to the team those who are the best cultural fit rather than simply strong technicians who may undermine the esprit de corps. Compensation and performance management systems should reinforce your value system–not stand separate from it. Think of processes like equipping, quality management, customer service, coaching, mentoring, motivating as key factors in your success. When you do, plans can be made to enable your organization’s operations to become efficient and profitable.