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Action:  Following Your Plan

Wow! Look how far you’ve come. You’re actually ready for action. Let’s just do a quick review to see how we got to this point.

You started with the abstract concept of your business – your vision. You were able to see it with your mind’s eye. You identified and quantified what it would look like as a mature business. Then you took a snapshot of where you are now and how you are operating. Since there was a difference between the two, we determined the size of that difference and how long we thought it might take to get from where we are to where we want to be.

If our timeframe realistically is five years we’ll need to work backward from that place we want to be in five years. The more this can be quantified, the better, because we need some benchmarks along the way to show us how we’re doing against our ultimate plan. These benchmarks correspond to our goals, which we set on an annual basis in an order that gets us closer to our vision with each passing year.

From the goals comes the strategy for how we’ll accomplish them. From the strategy comes the specific task list – our plan. In order to support carrying out our plan we need to know when we will undertake each task, what resources will be required and what the expected result/reward will be – and when we can expect to see those results. That was the subject of our last article on financial planning.

At this point, you’ve got an operating plan and a financial plan, both of which have addressed the timing issue. From your financial projections you know when your expenses will occur from month to month. So the next step is to apply your plans to your daily calendar on a month-by month basis. It’s good to include your revenue, expense and projected profit goals also. It helps to have the list available to help keep you on target.

Then you place each task in one of the four weeks of the month, where they seem to be most logical. Obviously you don’t want to pile them all in the same week. Consider the time each will take and use your best judgment about where to include them. Once you’ve transferred to the weeks you will be ready to transfer to the daily calendar as each week comes up. Now you’re at the day-to-day operating level. This is where your plan is being carried out. If you aren’t doing it here, it isn’t happening.

It isn’t hard; it just means taking the time at the beginning of the month and each week. At the end of each week, see what you accomplished from your list and what has to be carried forward or dropped. Make any adjustments to your monthly plans based on what has transpired during the past month.

Using our plan to increase gross income (revenue) by $60,000 for the year, let’s see what happens on a month to month basis. In June, we pay for our sales materials. (June projected expenses are $10,000).

We’ve projected $10,000, so we know that’s our budget. In the planning phase we would have probably started working on our sales materials and finding someone to provide them in April. That’s how we knew how much to include in the financial plan for sales materials. We put that plan into action by adding “finalize sales material provider” as the task to be completed for week one of April. Then week two might be to check initial drafts and return for changes. Week three will likely be sign off on proposal and week four or five would be when we’d receive the materials.

Based on this we’re ready to start our training in May. That means we’ll have to start preparing that in April also.  We’ll be paying the provider of our training in July in accordance with our plan. We plan to do a campaign in August and September also which we’d include in our sales costs in August, September and October.

Now you can break up the tasks in each of these months by week and you’re implementing your plan.

We’ve translated our plan into action and have a way to check to see how we’re doing. Next we’ll look at the management aspect of the business. That’s where we see if what we planned actually happened and if not, why not? We can also see how close we are to our projected budget. Now it gets interesting.

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Financial Planning in Action

Once you have chosen the actions you believe will produce the results you want, it’s time to determine both the projected income from those actions and the expenses that correspond to your plan. This is one of the most important steps in the planning process –and the one where many planners fall short.

Before creating the financial projections for your year’s operations, make sure you’ve researched the costs of carrying out your plan. Let’s say your strategy is to increase the percentage of prospects that are converted to a sale, thereby increasing sales. You not only want to project what that will mean to total sales, you’ll also want to know when the income (cash) can be expected.

Consider the time between sale and delivery (whether goods or services). Let’s assume there’s a one month lag time between sale and delivery. If you carry Accounts Receivable and it takes 60 days from delivery and invoice to receipt of payment, you’ll have a 3 month span between sale and receipt of payment. If any of these are longer, you’ll need to make adjustments accordingly. See why it’s so important to know the timing on each aspect?

Staying with this example let’s make some arbitrary projections based on our plan. You have decided that by increasing the conversion rate of sales you’ll be able to increase gross income (revenue) by $60,000. Your plan to accomplish this is to improve your sales materials and provide specific training to your sales staff and management. The materials need to be created first so the training can take place using the new materials. Here’s the amounts and timing as we’ve determined.

Projected Income (Cash) from Plan       $60,000 ($15,000 each month Dec. thru March)

Costs:

Improved Materials       $10,000  (Costs incurred in June)

Sales Training                  10,000  (Costs incurred in July)

COGS *                           20,000  (Salaries, Product & Service Costs)

Sales Costs                       13,000  (Commissions & Related Sales Costs)

Total Costs of Plan         $53,000

Return on Investment          $  7,000 (11.6%)

*Cost of Goods Sold – This is the cost to provide the product and/or services. It includes related payroll costs plus all other related costs to deliver product or service.

 

By calculating all this in advance you can determine if the return is worth the investment. In our example our return is projected at 11.6%. If you think that is an adequate return, you’ll go forward. If not, you may want to rethink how you can either increase return or reduce costs.

Since the materials and training costs will occur before the income is to be realized, it’s helpful to plot this out by month to see how cost will be covered.

 

                   June              July            August        Sept.          Oct.           Nov.         Dec.

Income                                                                                                                                   $15,000

Expenses    $10,000(a)    $10,000(b) $  5,000(c) $  5,000(c)  $  3,000(c)

COGS                                                                                      $  5,000     $  5,000   $  5,000

                  January         February    March

Income      $15,000        $15,000      $15,000

Expenses   $         0        $         0      $         0

COGS       $  5,000        $         0*    $         0*

(a)    Sales Materials,   (b) Training,  (c) Sales Costs

* In February and March we’ve already completed the services from the initial sales and are finally realizing the return from our earlier investments.

Note: This chart represents CASH outlay and income for the projected period. Sales took place in September through December, but with a one-month delay in delivery and billing and a two month lag on receipts the first cash doesn’t come in until December from a June and July activity.

This is why financial planning is so critical. We’ve got to know how we’re going to cover the up-front costs pending results from our expenditures. We may need a credit line, a loan or possibly an infusion of outside capital. By calculating all this in advance we’ve got time to take whatever action is necessary to cover the costs. Or we might decide to make adjustments in timing so that our up-front costs fall in a part of the business cycle that typically has a higher margin. By playing around with timing, costs, sales and receivables we can create the most cost-effective plan and be prepared for the results.

Of course, you’ll need to do this with each aspect of your plan. It’s helpful to determine cost per unit sold for each different item you sell. And it’s probable that the costs are incremental. Once the fixed costs are covered, the variable costs (such as sales costs and COGS) may become less expensive per unit as the volume grows.

You’ve now created the budget that corresponds to your next year of operations. You have your plan of action with timing of the related costs and income.

The next step I recommend is to enter them on a financial projection spreadsheet that’s also set up to monitor your actual expenses and income as they occur. This gives you an easy way to manage your cash and see how you’re doing against your plan.

Once you’ve made sure you have the means to support your plan, you’re ready to put your plan into action. Yes, that’s our topic for next time.

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Business Strategy: The Framework for Your Plan

Business Leadership Series photo with charts and a strong cup of coffeeAs prologue to this article, the steps we’ve taken to this point are as follows.

We’ve clarified and documented our vision. We’ve based our mission on the business we’ll conduct in pursuit of our vision. We’ve assessed our business to determine how close we are to the definition of business fitness. Business fitness is an encompassing measure of dynamic stability, so it’s one we’ll definitely want to consider as we develop our thinking for the future.

Since all these concepts: vision, mission and fitness are abstract, our next steps should be actions directed toward manifestation.  In most instances it will take several years for us to realize our vision. It’s very helpful to define what our business will look like when we reach that level. This definition might include revenues, profits, market share, business scope and product portfolio. What’s important is that we create a mental image of this business and our role within it when the vision has been reached. As such, our longest term goal is to realize, materially, what we have envisioned mentally. We could be talking 3 years, 5 years or more. It’s hard to know how long it will take. We just need to use our best judgment.

If this sounds like a meaningless exercise, think again. Thought is the first step in the manifestation process. Anything created consciously by a human is based on a specific and clear thought. An artist must see the completed painting in his mind, an architect must see the building, an engineer must see the machine and envision its working parts.

Once you have a clear picture, write it out as your long-term goal and be sure to create a benchmark to acknowledge goal achievement. You’re saying “when ‘this’ occurs I will have reached my goal.” Of course, you’ll be moving your goals ahead over time, so it won’t be an end, just a benchmark to acknowledge that you’ve reached your goal.

Now, the question becomes, HOW do you get from where you are to where you want to be? This is where we enter the realm of strategy. Think of strategy as being the system you’ll use to frame your plan. In military strategy, it’s about movement of resources and use of intelligence. In business it’s pretty much the same.

I have a client whose long-term goal is to sell his business so he can retire to a different lifestyle and use the income stream from the sale to partially support his new lifestyle. One of his short-term goals is to maximize the value of the business prior to sale. So he needs two strategies: one to maximize the value, the other to sell the business. They will have different timeframes, but there is an overlap.

His strategy to maximize the business value is to identify and set a plan to increase high-margin clients while reducing low-margin clients.  His benchmark is a specific new high in revenue for fiscal 2013. How he plans to achieve that will be addressed in his plan.

His strategy to sell his business is to transfer stock over time to his senior associate, whom he will groom to move into the role of CEO. She’s already handling most of day-to-day operations. The plan will need to include specific actions that he and his associate must carry out with timeframes for each.

The strategies that you select to reach your goals will have a strong influence on the outcomes you will realize. In determining your strategies it can be helpful to call upon the knowledge of others who know you and your business. These can be your business associates (including strategic alliances), your coach and even your customers. And don’t overlook the value in gathering information from your front-line staff and supervisors. They have a wealth of knowledge that often gets overlooked and strategic planning is where it can be particularly beneficial.

Because vision is realized over several years of business operation, you’ll be setting annual goals and selecting specific strategies to help you achieve them. It’s the achievement of these annual (short-term) goals using strategy and planning that lead you, one step at a time, to realizing your long term goals and vision.

Next step? You guessed it – planning. Stay with us. We’ll pick up on that next time.

 

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Business Fitness: What It Is, How to Get It and
Why You Need It Now

Business Leadership Fitness Checklist.Few business owners start their business with the leadership attitude. It’s more often a leap of faith based on past experiences, knowledge and interests.  Learning to think of yourself as a business leader is a process that takes time and directed intent.

Through the process of envisioning, you’ve refined and defined what you want your business to become.  Now take that vision and apply the fitness metaphor.  See your dream business in a state of being sleek, strong, stable, flexible and attractive.  That’s what we call “business fitness” and it’s the foundation for long term success.

In the first article we talked about refining and defining your business vision.  Just like a builder would envision the finished house or an artist would envision his finished painting before applying the first stroke, the business owner needs to envision what the business will look like when it’s mature.  Once this is clearly in focus, it’s important to write it so it becomes a reference as the business evolves.

In the last article, we analyzed your business to see where it is at the present time.  Using your vision and your analysis, let’s apply the fitness metaphor.  You’d want to be able to answer “yes” to the following questions.  If you can, your business is in a state of fitness and you are ready for growth.

Sleek 

  • Are you concentrating on the critical elements that determine the condition of your business – such as Gross and Net Revenues, Accounts Receivable, Inventory, Fixed and Variable Expenses, Unexpected Expenses, Cost per Unit Sold, Cash Flow, Net Profit/Loss, Cash Reserve or Debt?
  • Have you clearly defined your market and targeted your marketing efforts to the most likely groups?
  • Have you identified and eliminated all unnecessary expense?
  • Is your inventory and/or accounts receivable as tight as possible?

Strong

  • Are you consistently able to pay off debt?
  • Is your cash reserve growing?
  • Are your revenues and earnings increasing?
  • Do you cut your losses early because you are closely monitoring results of action taken?
  • Have you identified your strengths and are concentrating resources on them?  Are you well supported in your areas of weakness?

Stable

  • Do you do a monthly review of your income and expense statement and make decisions for future action based on bottom line results?
  • Does your monthly income always cover your expenses?
  • Do you have a feeling you are in control of your business?
  • Do you have the documentation necessary to show the strength of your business should you want to borrow capital or attract investors for expansion?

Flexible

  • Have you diversified your core business enough so you are not totally dependent on one product or service?
  • Are you aware of what’s happening in your industry and its position within the global economy?
  • Do you pursue joint ventures, partnerships and other alliances that will forward your business goals?
  • Are you open to new ideas and suggestions?
  • Are you in a financial position to take advantage of new opportunities?

Attractive

  • Does your product or service provide a real and clearly understood benefit?
  • Does your marketing and public relations activities make you look attractive to do business with?
  • Does your customer service reinforce your attractiveness?
  • Are your communications clear and on target toward your vision?
  • Can others see that your business is doing well?

Answer all these questions about your business and compare it to where you want to go (point B).  The question now becomes how do you get from point A (where you are now) to point B?  Guess what?  That’s the subject of the next article in this series.

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Analyze Your Business – It’s Easier Than You Think!

In the previous article in this series we discussed solidifying your business vision. You envisioned what you want your business to become and you wrote it down to give it the strength of being visual. If you haven’t done this for your business, consider doing so before you start to analyze, so you’ll have something to compare your findings against. Your vision is your point of reference.

By analyzing the state of your business now, you can begin to see  where you are in relation to where you want to be. These two points will allow you to create a direct line between them. We’ll talk more about creating the strategy and developing your plan of action in a later article.

Here are the questions I suggest you ask yourself to determine where you are.

What is your vision for your business?

Do you have a “mission statement?” If so, what is it?

Do you have an annual operating plan?

Do you have a marketing plan? Is it in writing?

If so, when was the last time it was updated?

List your products/services in descending order of their contribution to total revenue.

Who is your target market for each product/service listed above? These may be the same or different.

What marketing activities are you conducting?

What sales activities are you using?

Who are your high gross margin customers? What characteristics do they have in common? (Gross margin is the difference between income and cost to produce or provide.  General operating expenses are deducted later to leave net profit margin.)

What would you say are the main strengths of your product or service?

What are the weaknesses? (Be honest here — this is meant to be a learning tool)

List your 3 primary competitors and their main strengths.

What were your total revenues in your last fiscal year or calendar year?

If you are in business less than a year, what are your revenues to date and your projected revenues for this year?

Which of the following numbers do you monitor monthly?

___Total Revenue

___Returns/Credits

___Accounts Receivable (if applicable)

___Aging of Accounts

___Expenses

___Fixed

___Variable

___Frequency of Unexpected Expenses

___Inventory (if applicable)

___Turnover rate

___Cost per Unit Sold

___Cash Flow

___Cash Reserve or Debt

___Profit or Loss

Which of the above are your greatest concern and why?

What other concerns do you have?

Oh, by the way, are you having any fun? What do you enjoy most about your business?

What do you like the least?

By answering these questions you’ll have a pretty good idea of where you are. Have you identified some areas that need attention? Were you surprised about the personal questions at the end? Since you’re the most important element in your business, your personal state of mind is a critical element to success. Review your answers and summarize the current state of your business.

If you aren’t already doing so, I’d suggest you create a monthly spreadsheet that covers at least the financial elements listed above.  It’s simple to do using any accounting software that allows you to create a one-year spread sheet.  Set it up listing your financial elements along the left vertical axis and each month across the top of the horizontal axis. Then you can monitor and compare your numbers on a month-to-month basis, calculate percentages and see your cumulative income and expenses at the end of each month. Of course, you will add any other numbers that are meaningful to your business.

If you’re a relatively new business, your most important number is cash flow. You need to have enough monthly income to cover monthly expenses as they occur. Otherwise, you’re eating into your working capital. Meeting your expenses should be your primary objective. You’ll also want to know how many units (product or service) you need to sell at what gross profit margin to cover expenses. If your gross margin is 30% you need to sell and receive payment for $10,000 to cover $3,000 in expenses and profit.

Do you have months where you don’t cover expenses? Are you not selling enough units or not making a large enough margin on sales?  Are accounts receivable backed up? Try to identify the primary problem and take action accordingly.

If you’re in a business that has a long lead time between sale and receipt of payment, you’ll need extra working capital to carry you through that time period. If you are on an accounts receivable system, be sure to bill on a timely basis and follow up so you don’t run into collection problems. This has been the downfall of many an extinct business.

Analyzing your business can seem a daunting task, but it’s a matter of learning to monitor the key elements on a regular basis using accurate data. Your assignment between now and the next article is to analyze your business. Put together the spread sheet using the specific elements for your business and monitor the results for a month. If you have questions as you work on your analysis, feel free to drop me an email or call 212-679-1209.

Next time we’ll look at what constitutes business fitness – that elusive place of stability and profitability every business owner seeks.

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Your Guiding Light — Your Vision

Prologue

The entrepreneur has become the new pioneer. Current technology has created the capability for entrepreneurs to start a potentially viable business with little capital and few, if any, employees.  As a result, businesses are sometimes started based on specific knowledge or expertise but the owners have little or no background or training in leading a business.  Even seasoned business owners can get so caught up in daily operations they never find the time to deal with management issues and soon things feel out of control.  As the owner of your business, it’s your job to be the leader.  It’s critical that you take decisive, directive action and be responsible for the outcomes.

Leaders are proactive rather than reactive.  My intent is to “lead” you through a mini-course in business leadership so you will know how to be proactive.  If that sounds like it could be valuable, read on.

Solidifying Your Vision

Let’s start at the beginning. The most basic thing about any creation is that it started from a thought, a dream, an idea, a passion. In creating a business it’s referred to as the Business Vision. As a vision, it is intangible. Our job is to lead the forces that will make it a tangible reality.

So the vision is the first element that must be refined and defined.  I say “defined” because it needs to be in writing.  Your vision is the guiding light toward which all other activities are to be directed. It’s what you want your business to become when it’s fully mature. Without a “vision” of where you want your business to go, how will you ever get there?

First, do some brainstorming. The key is to allow your thinking to be free flowing–don’t restrict any thoughts. Capture all ideas that come to mind. Be descriptive. This is where you want to call upon your personal passion, that which motivated you to take up this business in the first place. Consider the following and how they might fit together into a mental image.

  • Scope of Products or Services
  • Company Image
  • Role as Owner
  • Target Market and Scope of Market
  • Communication with Market
  • Alliances, Partners
  • Impact of Your Personal Strengths and Values
  • Personal Reward from Business
  • Exit Strategy

If you have colleagues, associates or employees whose judgment and insight you respect, talk with them to see how they view your business and what potential they see.  You may get some good ideas that will expand upon your original thoughts.  Of course, ultimately the vision has to be yours.  Look for what makes you feel excited and creates a strong desire to achieve.  Then WRITE it and put it in a place where you can see it every day.  Try to keep it to one or two sentences.  As you make decisions on a daily basis, use your vision as a point of reference.  Then choose the decision that most closely supports your vision. That’s the real value of the vision –to keep you focused on where you want to go. It’s also the foundation for setting annual goals and creating a one-year plan, which we’ll do in later issues.

Since I suggest that my clients plan their business around their strengths and a viable market niche, keep these in mind as you are writing your vision statement. They’re basic elements for success.

This is the ideal time to begin adopting the behavior that will have you functioning as the leader (as opposed to reactor) of your business for the rest of the year. With your vision to keep you on track, you’re much less likely to get lost.

Assignment

OK, are you ready? If so, your assignment is to go through the process of creating or updating your business vision and putting it in writing.

Remember a vision is abstract. This assignment takes you through the steps of refining the abstract and committing it to a written statement. See the vision in your mind first, then create a picture in writing that describes your vision. This is the first step toward making it a reality. Then find or create your own pictorial or graphic image that has the “feeling” of what you envision. Put your written vision and image near your workspace so you can see it daily. Allow it to begin to permeate your thinking and feel the excitement as you read and view it.

Now you’re on your way. Have fun!