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March 7, 2009

Written by Thomas H. Judge, EA, RFC


You're the owner of a small business, its just a little past midnight and you can't sleep. A million things are running through your mind. Sales have dropped 40%, my retirement plan has lost $100,000, I can't collect my receivables and my vendors are hounding me for money. I don't know what to do and I feel that the whole world is falling apart.


Thousands of small business owners across the country are thinking this right now. There are steps you can take to get through this turmoil and in the end you will be a stronger person and business entity because of it.


There are many facets of today's bad news that you can do nothing about. You cannot change what is happening in Washington, Wall Street or in other countries. Stop dwelling and worrying about those issues. You need to focus only on your world and the people in it. For you can only affect the people and actions of those things that you take control over and make decisions about.


Since you own and operate a small business, let's start there. Let's get back to basics and relook at what has to be done when operating a business. All businesses have to focus on the following 5 items:


1. Sales and Marketing

2. Production (Getting out the product or performing the service)

3. Regular customer/client contact

4. Preparing and reviewing your financials

5. Collecting your receivables


I call this the Focus 5. If you regularly pay attention to these five things, your business will survive and succeed. Let's look at each one in depth.


Sales and Marketing


Do you have a sales and marketing plan? Is it in writing? If it's not written down, it doesn't count! What methods do you use to find and get new customers? How do you know it's working? How do you measure the results? Can you think of new ways to attract new business? Write them down and start a plan to initiate those ideas. One of the ways business owners start this is to write down every possible form of advertising, cold calling, direct mail, telephone solicitation, etc. they can think of. Then they take the list and cross off those items that do not pertain to their industry or just don't work for their line of business. They take the remaining items and prioritize them and then start a written plan to implement. Get others in your business to help you brainstorm, you'll be surprised what comes out of these meetings and a lot of it will be good ideas! Do you have a website? Don't make it just a brochure. Find a way to make your web site interactive to both customers and prospects.




Are you getting your products out to customers in a timely manner? Is the quality excellent? Do you have any checklists to make sure you have good quality control and control over timely shipping? Is your production area designed to be efficient and well organized?


If retail, do you have the right product mix on the shelves? Does it look full? Is the store bright and neat and clean? Are your employees cheerful and have an excellent understanding of your product mix to comfortably assist customers?


If a service business, is the service you are providing completed in a timely manner? Do you have control and checklists to monitor progress as the service tasks are started and completed? Do you know who is doing what and what stage of completion they are in?


Customer/Client Contact


What are you doing to stay in regular contact with your customers or clients? It's important to stay in touch, especially in bad economic times. You need to find a method to have your name and/or your business name constantly crossing the desk of your customers or clients. This can be done by using direct mail, telephone contact, email, letters etc. Even though customers and clients may be cutting back on purchases or services, when they are ready to buy, the person who has stayed in touch regularly will probably be the one they think of first. You want that to be you! Maybe you read an article that would be of interest to a customer. Send it to them with a brief personal note. Send newsletters, offer discounts, call them and ask how they are doing and is there something you do that may be helpful. Design and implement a written plan that clearly outlines the method and when the contact will be made. As an example, you email customers monthly, direct mail them quarterly, telephone them semi annually and visit them annually. You know your customers and industry, come up with a plan that works for you.


Preparing and Reviewing Your Financials


Review your financial statements at least quarterly and preferably monthly. What are you looking for?


1. Do you have a profit? You are in business to make money, not lose it. If you have a loss, what do you have to do to turn it around? If you have a profit, is it the right amount? How do you know? Did you know that the principal repayment of debt comes out of profit?


2. Do you have enough working capital? Are current assets greater than current liabilities? By how much? Is part of the current assets inventory? Back that out and then compare current assets without inventory to current liabilities. Your goal is to have current assets greater than current liabilities by 2 to 1 or greater.


3. How much debt are you carrying? Debt is the robber of wealth to both businesses and individuals. Look at your balance sheet and compare total liabilities to total equity. The target is for debt to be no higher than 3 to 1 of equity. Banks will usually not lend to businesses whose debt to equity ratio is higher than 3 to 1. Ideally you want to be debt free. If you must incur debt, make sure you are using the right form of debt. Credit lines are short term borrowings to help business get through cash flow crunches. Term loans and leases are used to buy assets and expand the business. Your goal is to keep debt at an absolute minimum!


4. Develop a budget and monitor it monthly. The process of developing a realistic budget gives you better insight and control on what is happening in the business. Sure it takes work, but it will be worth it in the end and you will have a better understanding of income, expenses and cash flow. When developing your budget, don't start with a sales projection. Start with profit. Your profit, at a minimum, is the amount of principal loan repayments each month. You should add to that for emergencies, downturns, expansion, opportunities, etc. Then look at every overhead item and add it up. Take the total of the overhead items and the profit and divide that by your average gross profit margin. That will give you the sales figure you need to meet in order to make the profit and to pay the overhead. If the sales figure is not realistic, then you have to go back and change the overhead numbers or the profit or both. Keep doing this until you have a plan you can live with and is realistic.


5. Meet with your accountant at least quarterly and discuss problem areas with him or her. Even if he has the numbers to look at, only you know what the real every day issues and problems are. Talking with a professional helps to focus on solutions and new ideas to solve those problems. Share your concerns and anxieties, dont keep them bottled up. The answers are almost never simple and probably require time and effort on your part. That's part of owning and running a business.


6. Review your prices and fees. When was the last time you raised your price or fee? Sure, you may be passing on vendor price increases, but what about your overhead items? Your employee benefits go up, insurance goes up, the rent goes up and so do utilities, freight & postage, professional fees, etc. If you do not raise your prices or fees at least once per year, then these overhead increases are being taken right out of your wallet! You have to cover these cost increases. I know what you're thinking, I cant raise my prices, and if I do my customers will stop doing business with me and go somewhere else. That mind set is all in your head. Never try to assume what a customer is thinking. Price is not the only factor why customers use you. The point is you have to charge enough to cover your costs and make a small profit.


7. Do you have the right number and appropriate employees? Good employees are becoming harder to find and they cost more. Personnel issues are one of the biggest challenges employers have. In New Jersey it is even more complicated because of the high cost of living. Employees need more money to survive here. They also want benefits. If you are going to pay people a decent wage with appropriate benefits, you have to find the right ones. This is another reason you have to review pricing and fees. Hired help is expensive here!


Collect Your Accounts Receivable


How much are your account receivables? Age them. How many are current, 30, 60, 90 or greater days old? Are customers paying according to terms? If not, why not? If you offer terms you have to find a way to enforce them. You are not a bank!! Monitor and collect your receivables. Divide the current receivables into total receivables. This number should be 1.5 or lower.


When times are good and there is money in the bank, no one seems to care about management and procedures. Well, that's not right. If you are in business long enough, you know that economics go in cycles. Nothing lasts forever, good or bad. The question is this: Are you going to run your business or are you going to let your business run you?

Recognize the problems, figure out how to fix them, make a plan and then take action. In tough times you have to take the initiative, roll up your sleeves and do something. Taking action starts the process. Your business will be more profitable and you'll sleep better at night!


By the way, if you have not taken at least a ten day vacation in the last several years, you are doing something wrong. Fix it! Successful business owners have a balance in their lives between the time they spend on personal issues and time spent on work.


By focusing on the topics in this article, you will be taking the steps necessary to run a better business and become more successful. You will be dwelling on things you can control instead of things you can't.


Get excited about who you are and what you do. Take action today and get back in the game! If you and other business owners across America do what they have to do in running their businesses, then there will be no time for worrying about things you cannot control, but instead you will be having fun overcoming the challenges that face business owners every day!


Are you having fun yet?


Written by Thomas H. Judge, EA, RFC



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