From Inside the Vault...

5 Barriers to Growing your Business

Posted by Bill McDermott on Tue, Jun 9, 2015 @ 09:06 AM

Trying to grow your business and having a hard time?  Join the club!  Growing your business can be one of the most challenging things you do. If you're having a hard time, here are 5 of the most common barriers to growing your business.

 

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  1. You've outgrown your money. Sometimes you take too much money out of your business and there's none left for growth. You can certainly borrow up to a point, but when your leverage gets high enough, the bank will say no and you will be left to either borrowing against your accounts receivable (very expensive) or taking on an investor (even more expensive). Calculate your sustainable growth rate (SGR) which is the level you can grow without borrowing. The calculation is ROE x (1-distribution rate). So, if your return on equity (profit/net worth) is 20% and your distribution rate is 50%, your sustainable growth rate is 10% (50% x 20%) 
  2. You've lost momentum. Momentum is defined as force of motion or impetus of human affairs. If you feel your company is stagnant, regaining momentum starts with you, the owner. Start with a little optimism. Your belief will become contagious and will quickly spread throughout the company. Clarify decision making processes. Clear direction is empowering. Finally, if you need to be a little dramatic, give the organization a kick in the pants.  
  3. You've outgrown your management. Growth increases the complexity of your business. If you don't have the appropriate expertise needed in sales, operations or finance, it becomes a barrier to your growth. Here are some signs that management may be struggling: all decisions rely on you, you're feeling stretched too thin, your team is frozen in it's tracks.
  4. You've outgrown your model. If your current model is not yielding the income you think it should, consider a forward looking forecast to see what changes you might make. To yield results, your operating model must be scalable so you can experience profits at a higher volume. It's critical to have a dashboard with key performance indicators to see how you're company is performing when you scale.
  5. You're not aligned with your market. If you're not properly aligned with your customer's needs, a gap can open between what a company has promised and the operations required to satisfy them. You achieve market alignment when a business consistently delivers a value proposition in a simple exchange. If you can keep things simple so your company is easy to do business with, you will maintain alignment. However, when growth occurs, it increases complexity and keeping it simple becomes more difficult.
Sometimes we're so busy working in the business, we don't take time to work "on" the business.  It's during these times when we step back and gain perspective that we can make the right diagnosis for barriers that exist and then prescribe a solution to re-position the company for growth.

Topics: financial health checkup, financial statements, entrepreneurship, small business, strategic planning, the customer, solutions, business owners, leadership, cash flow planning, growth

Growing Your Business-Getting the Right Processes

Posted by Bill McDermott on Wed, May 6, 2015 @ 13:05 PM

We’ve talked in this series about Growing Your Business- Getting the Right People and Getting the Right Strategy.  Today, we’re going to talk about Getting the Right Processes.

 

Growth always increases the complexity of your business.  So, to get the right people, doing the right things right, you need processes in place to maximize your efficiency and effectiveness.

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Here are three things you need to know about processes:

 

1)   Process makes a business competitive.  Companies with defined processes are better able to evaluate their strengths and weaknesses and identify opportunities for improvement.

2)   Process enables growth.  By leveraging defined processes, it become easier to deliver new products and services quickly and efficiently.  Processes provide a blueprint for new employees and enable cross training to minimize business interruption.

3)   Process drives profitability.  A company with defined processes can find opportunities to improve efficiency without sacrificing quality and consistency.  They can identify duplication of effort and spot areas that are being overlooked.

 

 

Here’s a story of how implementing new processes made a huge impact on my client’s profitability.  This company was losing money in 2014.  They had bootstrapped the company, but now had to borrow money from different sources just to fund payroll.  They didn’t know where the losses were coming from. 

 

  • Process 1: They hadn’t taken the time to be sure there financial statements were accurate and that revenue and expenses were properly categorized.  They established a month end close where part of their closing procedure was verifying that all revenue and expenses were properly categorized so their financials were timely and accurate.
  • Process 2: They didn’t have a process to examine what portion of their payroll was converted to billable revenue.  So, they didn’t really know how much of their payroll was unprofitable.  They created an excel spreadsheet to show monthly payroll and how much of that could be allocated to their contracts.
  • Process 3: This Company did not have a process to make sure their completion schedule of their projects matched their billing schedule.  They didn’t know if they were over billed or under billed on any of their projects.  So, they created a second excel spreadsheet to show what percentage they were complete on each project and then billed accordingly.

 

The process changes, in this case, yielded a huge change in the profitability and efficiency of the company.  They had accurate and timely financial statements to make good business decisions and they cut payroll and increased billing based on the new excel spreadsheets, which in turn dramatically improved profitability.

 

What process changes have you made or need to make to enable your growth and increase profitability?

Topics: balance sheet, financial statements, entrepreneurship, small business, strategic planning, cash flow, profitability coaching, income statement, business owners, leadership, cash flow planning, growth, profitability

Top 5 Tips if You're Preparing to Sell Your Business

Posted by Bill McDermott on Wed, Oct 22, 2014 @ 11:10 AM

Baby boomers preparing for retirement are driving the sale of small businesses like never before.  As a business owner, no matter what size or stage your business is at, you must plan and implement a strategy to have your business ready for sale.  Here are 5 tips for your to consider when selling your business.  I have several clients that are at various stages in this process.  For some, the time horizon is less than a year away and another is looking at 10 years from now.

 

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  1. You've got to have a plan.  Most people don't think about this until they are approaching retirement.  By then, it may be too late.  What amount of money in after tax dollars do you need to have financial independence and how many years do you have to get there?  In addition, preparing includes having a succession plan for your departure. Preparing your business for sale won't happen overnight.  It takes time.
  2. Having complete and accurate financial records is critical to give any buyer confidence in purchasing your company and negotiating a higher price for you.  This starts with detailed annual budgets.  In addition, company prepared financials for the past three years and tax returns will be requested during due diligence.  Any inconsistencies in those records gives the buyer leverage to reduce the purchase price.  You should establish a cutoff for monthly financial reporting and then prepare balance sheets and income statements monthly to track your progress against budget. Accurate historical budgets gives credence to your company's projected profit.
  3. Schedule regular board or internal review meetings.  Buyers want to see records showing good governance (including minutes of meetings) and accurate financial information.  This information reduces the risk taken on when purchasing the business.  
  4. Buyers value businesses with long term leases for key locations, protecting intellectual property with patents/trademarks and having employment agreements for key employees.  This also reduces the risk associated with purchasing the business.
  5. To the extent you can, enter in to long term contracts, such as supply and distributions agreements, with important customers and suppliers.  Make sure those agreements are assignable to a potential purchaser.
There are many other areas to consider when selling your business.  But, these are a critical portion of obtaining the maximum value for your business when you sell it.

Topics: interim financials, entrepreneurship, small business, strategic planning, profitability coaching, business owners, leadership, taxes, cash flow planning

How strategic are you?

Posted by Bill McDermott on Tue, Sep 16, 2014 @ 09:09 AM

I took a vacation in July and decided to read Mastering the Rockfeller Habits by Verne Harnish.  It was recommended to me by a friend who uses it in her business.  I recommending reading it.  It was one of the best books I've read recently.

Mastering the Rockfeller Habits are:

  1. Establish your top 5 priorities that you focus on daily, weekly and one BHAG (big hairy audacious goal).  It's the balance of short term and long term.
  2. To be sure you're acting consistent with your priorites, obtain data that you can measure in real time.
  3. Set regular meetings to be sure you and your team are properly aligned with your priorities and are accountable.
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I have a client who has had an internet based sales strategy.  He has been very successful in his business, but has sensed there was a better way of doing business.  He has about 2400 prospective/current clients with 4 sales people and the client list grows regularly.
Over time he has come to understand that 80% of his business comes from 20% of those clients (yes, you remember the 80-20 rule).  His sales people continue to focus on the 80% that don't contribute as much business. They have lower productivity and lower close rates.
By changing his sales people's focus from an internet based strategy to a relationship based strategy, he is slowly changing how his sales people do business.  By building relationships with that 20% of his client base, he will become more efficient in his sales process and will grow sales.  He had to change his priorities and that of his sales people.  He looks regularly at the data provided by SalesForce and holds regular meetings with his sales people to get them properly aligned with his way of thinking.  It's not coming as fast as he would like, but he makes steady progress.
We all spend too much time working in the business instead of working on the business.  Set aside some time, read this book and implement the principles in it, to increase your effectiveness.

Topics: strategic planning, business owners, leadership, cash flow planning, growth

Business and Finance News Update

Posted by Bill McDermott on Tue, Nov 5, 2013 @ 11:11 AM

Our business and finance news round-up is here. We hope you enjoy a few top articles discussing relevant issues to the business and financial worlds.

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A simple trick that made my company cash flow positive

SBA loan programs a vital lifeline 

How to motivate employees in less than 5 minutes

Topics: small business, business news, cash flow, business owners, leadership, finance news, cash flow planning

Business and Finance News Update

Posted by Bill McDermott on Mon, Jul 1, 2013 @ 10:07 AM

Our business and finance news round- up is here. We hope you enjoy a few top articles discussing relevant issues to the business and financial worlds.

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Act like an entrepreneur even if you're not 

Small business owners share their secrets to success 

7 ways to make the rest of 2013 amazing

Topics: entrepreneurship, small business, business news, strategic planning, business owners, leadership

Business and Finance News Update

Posted by Bill McDermott on Fri, Jun 7, 2013 @ 13:06 PM

Our daily business and finance news round-up is here. We hope you enjoy a few top articles discussing relevant issues to the business and financial worlds.

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Wells Fargo settles foreclosed-homes complaint 

U.S. adds 175,000 jobs; jobless rate moves up 

10 tips to help you hire right 

Topics: job search, small business, banking, business owners, leadership

Business and Finance News Update

Posted by Bill McDermott on Wed, Jun 5, 2013 @ 12:06 PM

Our daily business and finance news round-up is here. We hope you enjoy a few top articles discussing relevant issues to the business and financial worlds.

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SunTrust to add HOPE counselors at branches 

US service firms grow at a faster pace 

6 banks hiding the most from customers 

7 traits of true leaders

Topics: small business, banking, business owners, leadership, finance news

Business and Finance News Update

Posted by Bill McDermott on Tue, Feb 5, 2013 @ 12:02 PM

Our daily business and finance news round-up is here. We hope you enjoy a few top articles discussing relevant issues to the business and financial worlds.

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Small firms say LinkedIn works, Twitter doesn't  

Never say 'no' to a potential customer 

How to manage the stress of uncertainty

Topics: entrepreneurship, small business, business news, social media, leadership

Business and Finance News Update

Posted by Bill McDermott on Mon, Aug 6, 2012 @ 14:08 PM

Our daily business and finance news round-up is here. We hope you enjoy a few top articles discussing relevant issues to the business and financial worlds.

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State Bank net income at $11M in second quarter 

Mobile payment options grow for small companies 

Congress goes on break with several small business matters unsettled 

5 ways to take customer loyalty to the next level

Topics: small business, strategic planning, banking, leadership, finance news