Posts Tagged ‘Profitability’

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My Dad: Lessons In How NOT to Own A Small Business

March 3, 2011

My Dad: Small Business Owner Mickey PowellToday is the anniversary of my dad’s passing. I learned a lot from him, many lessons to share with all of you about small business ownership. In summary: do not do it the way my Dad did!

First, to alleviate any perception that I am speaking ill of him, I want to share what a fine man he was. My love of community service comes from him. His dedication to making this world a better place is clear in this tribute:

http://www.fedflyfishers.org/Default.aspx?tabid=4520

Even his business ownership was, in a way, community service. He was ‘saving the family business.’ http://www.davidlnelson.md/FFF_FlyTyingGroup/Buszeks/BuszekHistory.htm

Now, on to telling the truth. As a child I watched my father work, work, work, and then work some more. He came home late for dinner, went back to work at night, and worked most weekends. Even our few vacations were often spent at work-related fly fishing conclaves or networking conferences. Both of my parents worked, hard, yet we never seemed to have any money. We weren’t destitute; dinner was always on the table. But money was always an uncomfortable issue. Always having a keen sense of numbers and business, even at a young age it was apparent to me that something wasn’t right. I often wondered, weren’t business owners supposed to be rich?

As a teenager, I became the bookkeeper for my dad’s business, and my childhood observations were clarified. The business was barely profitable. My dad either trusted me enough to let me see his truth, or he thought I was so inexperienced I wouldn’t get it. It wasn’t my place to ask.

But the questions I kept to myself then are the exact kinds of questions I ask clients now. And they are questions I want you to ask yourself if you own a business, no matter how large or small. Yes, even a side Tupperware business, or a little consulting gig, or do a bit of wedding photography. These are all businesses, and they do impact your family!

Here are 12 questions to ask yourself.

  • Do you spend less time with your children, spouse, or friends as a result of your business?
  • Have you ever paid an employee late?
  • Are there months that your business doesn’t pay you?
  • Do you ever put off buying basic things your family needs because your business needs the money more?
  • Have you ever lied (or avoided the truth) about your business’ finances to your spouse?
  • When was the last time you took a real vacation?
  • Do you avoid asking for professional advice about your business’ health?
  • Do you truly know how profitable your business is?
  • Is your business contributing to a retirement fund?
  • Do you have partnership agreements that aren’t in writing?
  • How much have you borrowed against your family’s home, retirement, savings, children’s college fund or inheritance?
  • Does your spouse’s income support your business?

If you don’t like your answer to more than a couple of these questions, it’s time to find a trusted advisor, a business coach, an external CFO, or a mastermind group and tell the truth. Print this blog out and put it in the front of a binder titled “Making My Business Better.” Make an action plan. Make it better. In six months, ask yourself the questions again. Then repeat.

What would my dad’s answers to these questions have been? 100% not good. In the 32 years I watched him run his business, I only saw his business run him. I’ve taken these lessons and have been committed to reverse engineer his mistakes into a balanced plan for running my business. I haven’t always been successful, but one of my life’s quests is to be just like my dad when it comes to community service, and exactly opposite my dad when it comes to small business ownership.

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2011: Is your plan in place?

December 10, 2010

Winter is a time of reflection, both personally and for our businesses. How did this past year go? Did I meet my goals? Um, did I have goals? What do I want next year to look like? What do I have to do to get there?

At Creating Answers, it is the time of year we are busy working with all of our clients on 2011 goals and budgets. It is one of my favorite times of the year because you get to do two really fun things: analyze how last year went, and draw the financial road map to follow next year. It’s financial art at its most fun.

If you think of this work as a chore, I invite you to reframe your beliefs about planning and numbers. I invite you to think of it as a game, or a puzzle. Make it a date with yourself. Go to your favorite coffee house, or pour yourself a bottle of fine wine. And then…start asking yourself questions.

What percentage of your total income goal did you reach this year? 120%? Great! 85%? Not so great. What do you need to do differently in 2011? What amount of marketing dollars would have closed that 15% gap? Do you need to increase your networking time? Upsell existing clients? Raise your prices?

“If you think of this work as a chore, I invite you to reframe your beliefs about planning and numbers.”

Take a look at your discretionary areas of spending? How much did you spend on marketing and advertising? What were the financial results? Professional development? Results? Equipment? Results?

How much did you spend on staffing and/or outside consultants? Did they work at capacity? Did you generate revenue from your staff? How much? A great rule of thumb to start with is three times their cost.

While it is difficult to assign numbers to each of those questions, the exercise of trying will create answers. What if you spent nothing in each of those areas? What if you spent three times as much?

Most importantly, don’t overdo the process. It’s more effective to do a really thorough look at your 15 most critical spending areas consistently than it is to look at all 60 of the expense accounts you have in Quickbooks. (And if you have 60 expense accounts in Quickbooks, you should give us a call!)

Find out more about what we do at http://CreatingAnswers.com.

Here’s to a prosperous new year full of financial clarity!

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Emotionally Investing in Your Business

April 26, 2010

I recently had the privilege of working with a client who is opening her own business. It’s rare that entrepreneurs seek financial advice before they leap. Most people, if they looked too hard at the realities of business ownership, wouldn’t do it.

One of the goals in our pre-launch work is to find some financial clarity about what her investment is, and what an acceptable rate of return is. If you buy $10,000 of mutual funds, it’s fairly simple to determine if your investment is earning 10%, 5% or losing 25%. But investing in a business has so many other components to it.

  • The lifestyle component: how much you would be willing to ‘pay’ to do what you absolutely love and be your own boss.
  • The opportunity cost: the difference between the salary and benefits you are leaving behind and the salary and benefits your new business will be paying you.
  • Building a sellable asset: are you creating an asset that can eventually be sold and sold for how much?

If you’re considering opening a business, here are some great questions to ask yourself before you leap. What if things don’t turn out the way you planned? What if your business ends up costing you money? Would you be willing to give up a $70,000 job if you could own your own business and still earn $50,000 with the potential of building a sellable asset? Probably. Would you be willing to do the same if you were only able to earn $20,000, or $10,000?

What if your business actually started costing you money?

In accountant-speak, that’s called “Owners Investment” and it’s hidden in the balance sheet in the equity section. I hate that. What it really means is that your business didn’t earn enough to pay all of its commitments so you’ve drawn from your savings, your spouse’s income, your home equity line or even a retirement fund. When a business owner takes $1,000 from their personal account and puts it in their business account, they aren’t thinking “oh, I’m buying a $1,000 investment that will pay me a good rate of return.” They’re thinking “oh, I have to cover the payroll shortfall today.” Technically it’s an investment, but emotionally, it’s not.

How many of us would run down to the bank to transfer $1,000 of our money to buy more of a mutual fund that wasn’t performing? None. What if the fund manager promised us that it would perform better? There’s a continuum on the scale of emotional investing. It starts with mutual funds, and then specific stocks (and you crazed Apple fans know who you are), then real estate, and then business ownership. The closer we are to the asset, the more emotionally tied we become to the investment, and the less able to make analytical decisions.

Should your investment decisions be purely analytical? Nope. But they shouldn’t be purely emotional either.

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Our collective moment of financial clarity

April 15, 2010

Some people think of April 15th as an icky day. I see it as our collective moment of financial clarity. Tax day is the one day that we all know exactly how much our businesses earned, or didn’t earn, last year. Want even more clarity? Take a quiet moment and do this exercise:

Want monthly clarity? Subscribe to our blog and we’ll send you a packet of 12 Monthly Clarity Cards. Want even more clarity? Contact us for a 30 minute complimentary session, and we’ll walk through the results of your Annual Clarity Card with you.

Some people think of April 15th as an icky day. I see it as our collective moment of financial clarity. Tax day is the one day that we all know exactly how much our businesses earned, or didn’t earn, last year. Would you like even more clarity? Take a quiet moment and do this exercise:
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The Power of a Salary Structure

April 12, 2010

I often begin my speaking engagements to business owners with the following:

“Hey, I have a really great job for you! You are going to be doing exactly what you love to do. You won’t have a boss. You’ll get to set your own hours. Some months I’m going to pay you a whole bunch of money! But, then there’s probably going to be some months that I won’t be able to pay you. Well, maybe a little, but not a lot. But I’m sure I’ll be able to catch up eventually. —- Will you come work for me?”

Did I just describe the salary structure you have in your business? If you laughed,  I’m guessing: yes, it is. If so, read on.

I was working with a client of mine who has a goal of a $200,000 annual salary. She works in a field where it’s possible; it will take some hard work, but it’s possible. What kind of salary would that be? $16,666 per month. Her business will need to generate well over that to produce a net profit of $16,666 on a monthly basis.

So why would I advise her, for now, to pay herself a $1,000/month salary, no more, no less? Because it is an amount that she can successfully practice doing. She’d been paying herself big chunks of money when money came in, and then barely any at all for weeks, sometimes months. You don’t get into shape by exercising a whole bunch in one week and then not at all for another several weeks. When our businesses pay us large amounts during one good month, and then don’t pay us enough to meet our monthly needs in other months, we get out of shape, out of sorts, out of hope. Knowing what your monthly salary is, and sticking to it, no matter what, gets you and your business into shape.

She kind of thought I was crazy, or stupid, when I gave her the assignment. She did it imperfectly at first, and then she started doing it perfectly, and then, all of the sudden, she got it. It all became clear to her. It is the simple and mindful acts, taken consistently, that propel us forward in our lives, and in our businesses.

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A successful small business

March 31, 2010

What is success in a small business? I’ve been reading Small Giants, a book focusing on great companies who aren’t focused on growth for growth’s sake, or giant revenues, for giant revenues sakes. Most of the business owners I work with have their eye on a million, or a few million. One of the points he poses is what’s better, to have a highly profitable 10 million dollar company, or a mega 100 million dollar company. I think a lot of people assume that a 100 million dollar company must be profitable, but I think that is not always true; in fact I think that is often not true. To reach 100 million in sales, you most certainly will have had to leverage a lot, both in money, time and soul. Is it worth it?

Some of the questions we like to ask clients are:

  • What’s your ultimate goal?
  • Why are you doing this business?
  • What makes you truly happy?

Knowing what your core beliefs in business are can help guide your growth. Rarely do I come across a business owner who is just in it for the money. Most got into it for a way of life, or a love of the game of business growth, or because they had a passion to share their gifts and talents with others.

Is that profitable? It definitely can be; but profitability takes work, analysis, focus and a willingness to keep your knees bent. One of the CEOs in Small Giants talks about the Groundhog Day syndrome; doing the same thing over and over, expecting different results. As small business owners, we have to keep our knees bent and be willing to shift, adjust and sometimes even do some stuff we don’t want to do.

The end result? Well, the goal is a happy life, a happy business and of course, profitability.