STOP CHASING THE WIND potx

A business will have an excellent product or service but they don’t have the right strategies to hold onto the cash as it comes into the business.. Many times the business owner does not

STOP CHASING THE WIND

Don't wait for more customers, maximise your business profits today!

By Scott Richards

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Smashwords Edition

Copyright © 2013 by Scott Richards All rights reserved.

Smashwords Edition, License Notes

This ebook is licensed for your personal enjoyment only This ebook may not be re-sold or given away to other people If you would like to share this book with another person, please purchase an additional copy for each recipient If you’re reading this book and did not purchase it, or it was not purchased for your use only, then please return to Smashwords.com and purchase your own copy

Thank you for respecting the hard work of this author

All information herein is educational and not advice It is general information and has not taken into account your personal circumstances Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment The value of any investment and the income derived from it can go down as well as up Never invest more than you can afford to lose and keep in mind the ultimate risk is that you can lose whatever you've invested While useful for detecting patterns the past is not a guide to future performance Some figures are forecasts and may not be a reliable indicator of future results

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN

LIMITATIONS NO REPRESENTATION IS BEING MADE THAT ANY STRATEGY WILL

OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES

All rights reserved This Document may not be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, in part or in whole, without explicit written permission of Knowledge to the authors except where permitted by law

The elements of your mission:

You don’t have a business; you have a brand

Building brand equity

Delivering on expectations, keeping promises

Step 2: What are your Critical Numbers?

Measuring the Only Really Important Thing – Your Return on Effort The lifetime value calculation

A SWOT analysis

Step 3: Systemise & Strategise

The turnkey solution

How do you build a business that works without you?

What is Strategic Thinking?

Step 4: Find Your Unique Competitive Advantage

Looking at an online business:

Find your unique competitive advantage

Communicating your Competitive Advantage

Scenario

Step 5: Implement and Reflect

What is working? What needs improvement?

About Beyond the Numbers

Small Business Financial Strategists

Sunday morning is your favourite time of the week Every Sunday you go down to your local coffee shop for breakfast and to read the paper However, just as you are heading out the door the phone rings You answer it

“Hi, I have just called to inform you that if you come down to Generous Joe’s shop within the next

30 minutes you could win $100 To win $100 all you have to do is roll the dice and roll a six Are you interested?”

What is response? Are you willing to give up breakfast to drive 30 minutes for the possibility of winning $100? My guess is that a few people would make the trip but most would continue with their breakfast plans

However, before you get out the door the phone rings again

“Come quick! One of your staff members says he is going to hand out $20 notes to the next five customers who come into the shop!”

What is your response now? You go straight to Generous Joe’s shop to try and win the $100 Of course you don’t You would go straight to your shop to save your money

You may think this scenario is a little absurd However, this happens all the time in small business

A business will spend all their time chasing sales, while money is being given away from other areas of the business They are on what I call the small business carousel: forever moving forward but never actually getting anywhere with many ups and downs

A business will have an excellent product or service but they don’t have the right strategies to hold onto the cash as it comes into the business Many times the business owner does not even know why they are losing money and will continue to chase more sales to make more money

Please don’t misunderstand me I am not against trying to increase sales Marketing is extremely important and should be in everything you do in business However, marketing with poor financial control is futile It is like chasing the wind

This e-book is for those business owners who need to regain financial control of their business They want to stop handing money out and start maximising their profit at the level they are at now When the business has financial control increasing sales won’t like be chasing the wind but will be profitable and rewarding

This e-book outlines the process I used to help a business put strategies in place to maximise their profit These strategies increased their profit by 560% from $32,000 to $211,000 in just twelve months Unfortunately, there was no one silver bullet but a process of continual improvement I continue to use a similar process when working with small businesses If you would like to learn more about how I can help your business maximise its profit then please visit

www.beyondthenumbers.com.au

All the best,

Scott

Great Business, Poor Financial Controls

There’s a great challenge facing business owners today: It can always be found cheaper online That’s the new rule for the new internet age of business And while you offer something of value, your prospects are willing to pay shipping and handling if they can shave 20 or 30 percent off the price you charge Just ask Harvey Norman or Dick Smith Electronics or Borders Business models are hard to change – and the tendency is to cut prices and cut costs to meet the ‘new rule’ Which raises another challenge: how do you avoid going under water by taking these actions? A real problem when many business owners today don’t really know how their business is travelling day-to-day

US author Michael Gerber of E-Myth fame talks about the “Entrepreneurial Seizure”, where you as

a business owner fall victim to the “most disastrous assumption anyone can make” about going into business It is an assumption made by all people who have some skills and who go into business for themselves to leverage those skills That “Fatal Assumption” (Gerber’s words) is: “if you

understand the technical work of a business, you understand a business that does that technical work And the reason it's fatal is that it just isn't true.”

In fact, it's the root cause of most small business failures Most people are not all that literate in financial management Know the difference between cash and profit? Direct and fixed costs? How

to manage your accountant? Surprisingly, many business owners say no to these questions

Without financial management, you are driving a car without a dashboard

In today’s highly competitive climate where the internet is forcing the hand of business to be price competitive, SMBs can be blind-sided by financial statements and reports They get the statements from their accountant and focus only on what they need to pay the tax office

Few will actually do any financial analysis

Most people don’t particularly like or understand financial management They leave it to others That’s a problem In recent times customers are taking longer to pay, thus constraining cash flow The sale is not made until the money is in the bank

Getting the SMB to do any real financial analysis such as a debtor analysis, forecasting cash flow, and accounts receivable is crucial We can make it easier by graphical interpretation, using for example accounting software packages

Setting prices in a competitive framework requires analysis Matching prices to competitors may be necessary but discounting can be dangerous to the financial health of a SMB Some business

owners discount without fully appreciating the impact on profits You need to have a significant increase in volume

Consider discounting

Many business owners see this as a weapon to bat off competitors and to attract customers Few, however, appreciate the impact of discounting on their bottom line

For the average business a 10 percent discount would require something like a 30 percent increase

in volume to maintain profit levels

Pricing is very much a strategic financial issue You have a business to run and it needs to make a profit Exactly how much profit you want to make, and by when, should show up in your overall strategic objectives

The message: start looking at and beyond the numbers With accounting software and the

requirement for at least quarterly BAS/GST returns you will more than likely have a system that can produce timely and accurate financial statements If you already produce proper reports why not use them to make more money The traditional key reports are the balance sheet, which gives a picture of how well your investment in the business is performing; your income statements which informs you on cost of doing business, your gross margin and profits; and, finally cash flow budget which gives you a forecast of where your cash crunch times are likely

While the traditional reports are important in financial management they sometimes don’t provide enough information to help your business to grow exponentially Later in the book I discuss the lifetime value of a customer With your accounting software you are able to find out how much on average a customer spends and how often You can also use the software to test the Pareto principle (the 80/20 rule) to get your best customers Armed with this information you will be able to make more focused decisions that will lead to greater profits

What does financial management look like for the typical small business?

Financial management in a typical small business is about looking at the history of your actual sales However this is not enough It is important to look at your actual sales so you can accurately estimate your output and assess the differing sales between your various products and services Also it’s about determining how much profit you’ll make by selling Y amount of product at X amount of dollars over the same amount of time Discounting may be one way to meet the competition but if you can’t increase volumes you might consider trimming some fat away, either though hitting fixed costs, inventory or less profitable lines With financial analysis you may discover that there are some products or services that are costing you more to provide than you can ever recoup

You will want to run some different scenarios to determine the outcome of various price points for your product or service Not all business owners will opt for a discounting solution When your customer feels that the value they’re receiving from you is worth more than the money they are exchanging for it, there’s no real competition You should be able to find a price that will work both you and your customers

However, the successful small businesses know that financial management is more than just profit That true financial management is maximising your cash flow Profit is obviously a large part of maximising cash flow Cash flow also involves managing accounts receivables, stock, loan

repayments and asset replacement Every business owner needs to know that it is possible to go broke making a profit

Business should not be all that difficult

<> You need timely information and a system to produce reports

<> Today business needs to invoice quickly and have an efficient collection method You need to follow up

Scenario

The business was great at what they did The provided quality products and their customers

received great service In fact they had many raving fans

However, the business did not have the strategies in place to hold onto the money coming into the business They had grown organically over the years Procedures that generally worked while they were small were now creating giant leaks in their profitability While they were a small business

anything that was not right could be easily spotted and fixed straight away without too much drama However, the failures in the procedures became magnified but harder to control as they grew larger.

I have seen this many times over the years in small businesses The business will start off as a husband and wife operation The way they do things are fine as they are both committed to the business and they can fix any problems easily as they aren’t too big However, as they grow and hire more staff those flaws in those procedures become magnified They no longer have the

financial control over the business that they used to have Before long they find they are less

profitable then when they were small because of the poor financial controls

The previous year the business made a net profit of $32,000 on a turnover of $1.7 million This is a low net profit % of just under 2% By following a process and implementing profit strategies, the following year the business made a profit of $211,000 on a turnover of $1.8 million The net profit

% increased over 6 times to just over 12%

In the following sections we will use this scenario to outline the steps taken to maximise the

business’s profit You can follow these same steps to significantly improve your profitability and take financial control of your business I would also recommend seeking help from a professional business advisor A great business advisor will help you make more money, improve your cash flow and give you a significantly better business-leisure balance

Step 1: Develop a clear mission; build brand value through focus

The mission is the ultimate purpose to be achieved by the business The fans of Star Trek will remember their five year mission: to explore strange new worlds, to seek out new life and new civilizations, to boldly go where no man has gone before This mission is clear, easily understood and provides guidance to those who are responsible for its fulfilment Captain Kirk could use this mission as a reference point in all decisions he made

The business I worked with had been established for a number of years and already had a clearly defined mission The mission was clear and well communicated to everyone This made decision making, implementing strategies and communicating the need for these strategies much easier However, this important step is often overlooked by small business

If your business does not have a clear and articulated mission you need to prepare one before

following the rest of this process You will use the mission as a guide when analysing the critical numbers of your business Your business’s mission should be specific, easily understood and not too long

The elements of your mission:

<> Define your customers – Be very specific Too many businesses try to capture as many potential customers as they can Consider factors such as the common problem they have, where are your customers and their income level

<> Define your products or services – What are you selling that is solving your customer’s

problems? How are you positioning those products in the market?

<> Sales or Profit objectives – Create specific and attainable goals

Example: Here is my mission from when I first started The mission has changed as my business evolved However, it gave me a clear focus and a reference point when making decisions

To provide quality business advisory services to small to medium sized businesses in the North Brisbane area Business advisory services will help the business make more money, increase cash flow, improve sales and enable a better business-leisure balance Profitability is to be at least equal

to permanent position salary by the end of the second year of business.

I also defined certain key terms:

<> Quality will mean a high standard and not focused on cost

<> Small to medium business will include Mum and Dad businesses not in manufacturing and have been in business for at least 5 years

<> North Brisbane will include up to half an hour drive from home

<> Current salary is $80,000 This is to be adjusted with experience and market pressures

You don’t have a business; you have a brand

Your customers don’t see your business; they don’t really care about your ‘mission’; they ‘feel’ the experience of dealing with your enterprise and they ‘think’ brand Your brand is not just your logo and tagline If the sum of all the interactions, thoughts and feelings of the brand form the perception reality of the brand, then ultimately every single thing communicates the brand

This premise is fundamental to determining brand success By realizing that everything

communicates, then you realize that the role of communicating the brand to its audience is not just the role of a marketing department or an advertising agency

It takes every interaction at every level From the way a shop assistant delivers a service in a

department store, to the way a person signs for a loan document to buy their first home from a bank People, paper, websites, uniforms, product disclosure statements, forms, and systems operations everything forms an impression that results in how a person thinks or feels about a brand

This is why a laser focused mission is vital to your business The mission is your reference point that ensures all your marketing and communications is consistent It is this consistency that

customers want; they are comforted to know that their current experience will be the same as their last experience if they enjoyed it By using a mission your decision making will become easier, more effective and efficient For example, you will know if a marketing opportunity will target your ideal customer

Building brand equity

Example: The case of the missing coffee

How come when I go to a café that sometimes when I get bad service I don’t mind, but I when I go

to a different café and get the same bad service it really annoys me

This morning I went to a café that I’ve been going to for years, and today, they young girl who took the order forgot to order our coffees Its morning and I love coffee! I called her over and asked her politely if she’d put the order through, and she’d forgotten

Then our breakfast came, I received nice scrambled eggs, my son got his poached eggs, but my wife received nothing She’s forgotten to order my wife’s breakfast We asked for the order and we waited a little bit before it arrived

It’s a regular café for my wife, so the sum of all her previous experiences outweighed this singular poor experience of service It meant that the café’s brand had generated an amount of equity in her mind that allowed her to excuse poor service on this occasion However, if she goes back next week and experiences a similar performance, at what point does the negative impression outbalance the positive in her mind?

Delivering on expectations, keeping promises

The weekend before, I was at a quite expensive café, no table service and nobody at the register with three people lining up for service

Waiting for a few minutes only to be interrupted by a stressed out looking waitress asking me to move out of her way Why did this upset me more then not us not receiving our order at the other café?

It’s because I’m not a regular, my experience set is limited and people are quick to judge And this initial experience compromised my sense of expectation I could not justify the wait (and attitude)

to the expectation of service and price

Without a bank of positive experiences to draw back on, I was quick to judge and quick to leave You don’t get a second chance at a first impression So the brand comes to life at every single touch point, every single time In the way the coffee is made, the attitude of the staff the overall package

of the experience because everything communicates Can you see how that bank of good

experiences for the client is worth brand equity? That is, real goodwill value? (See later on the value

of Lifetime Customers)

What do you want communicated about your brand?

Step 2: What are your Critical Numbers?

Some business owners go for the cost cut as a makeover strategy Every expense to a business is listed as a cost (overhead) in the budget When increased profitability is called for, quite naturally the owner focuses on the list of ‘expenses’ attached to the business The easiest thing to do is to reduce expenses and move dollars down to the bottom line In fact such behaviour does not require any special talent, effort or increased analytical skills Typically, the greatest cost savings are made

in the first year So what will happen to this business every subsequent year?

For instance, compelling suppliers to provide cost savings of 10% across the board would add

$38,000 more profit at the end of one financial year Whilst this is some sort of financial

achievement it is rather short lived Indeed, the impact of such behaviour is most vividly felt in the second and subsequent years where the same amount of ‘squeezing’ brings diminished returns and

noticeably reduced quality of service and/or product to customers, thereby adversely affecting sales

I have seen a remarkable number of small businesses (and large) fall into this pattern and have the life choked out of them

Slashing overheads is a time consuming task and doing so can serve to weaken the unique selling proposition of a business by cheapening quality of services or products What’s more, all customers have a threshold of how much dilution in service or product they will tolerate within a business An annual drive to ‘cut back’ eventually sees a business reach that point

Generally, there is a noticeable speeding up of customer desertion rates and an ever more rapid slide

in turnover But what is certain is that all businesses on this drive do eventually perish Sadly, the many who then attempt to sell out before they ‘hit the wall’ also discover a double whammy – that

is, as sales slide, so too does the capital value of a business

There is an alternative approach that builds structural health into a business and solidly grows sales

It requires developing a new perspective in thinking, a modicum of patience, and the belief that this alternative is also a time-tested method (albeit by fewer proponents)

Measuring the Only Really Important Thing – Your Return on Effort

What is important is your return on investment (ROI) After all, the only real reason you’re setting

up, running and managing a social media campaign is to make money, right? As there are very few

costs associated with social media campaigns, it’s about return on effort where each hour of your

time costs a certain amount

So, you need to measure your time and convert that to a dollar cost and then measure the leads / sales you are getting from the campaigns you are doing

One of the principles that we assert here is that it’s not about the next sale to a customer; rather a customer has (or should have) a lifetime value That’s the amount of revenue you’ll generate from one customer over the lifetime of your engagement with them minus your costs to acquire them and then service them over time

Let’s say you’re a mobile phone service provider and you know that the average customer spends

$100 a month on your service Over the course of 12 months, you generate $1,200 from the typical customer But that customer doesn’t stay with you for just 12 months; they stay with you for 3.5 years The revenue you generate from them over the time that they remain your customer is $4,200 ($100/month x 12 months x 3.5 years)