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7 Essential Secrets to Build a Business That Works – Part 2

Last week I shared the first two essential secrets of building a business that works…

Secret # 1 is Vision. Without Vision, your business perishes. It is like a vehicle or house built without any design.

Secret # 2 is that there are only four ways to grow a business. Knowing this can super charge your business by focusing on each way with separate strategies.

As a reminder, the four ways are:

Way Number 1 – Increase The Number of Customers of The Type You Want

Way Number 2 – Increase The Number of Times Your Customers Do Business with You

Way Number 3 – Increase The Amount of Money They Spend with You in Each Transaction

Way Number 4 – Increase The Efficiency and Effectiveness of Each Process in Your Business

This week I will share Secret Number 3…

Secret # 3 – You Must Have a Plan

Your plan is the roadmap of how you get from your Vision to the result you are committed to creating.

The result for most businesspeople is a business that works. A business that works without them. A business built with their skill, yet not dependent on their skill. To use a well-known cliché – you spend the time to work ON your business so that you do not need to work IN your business.

A business like this will give you the freedom, and financial independence you went into business for.

There are four pillars to your business plan.

The first is your marketing plan.

Your marketing plan must revolve around the first three ways to grow your business, mentioned above.

Each of the first three ways to grow your business requires a different strategic focus. It requires different thinking.

How to Get More Customers (Of the Type You Want)

Your marketing plan should include how do you get more customers of the type you want.

One of the least expensive, and most highly leveraged ways to get more customers of the type you want is to piggyback on a strategic partner who may have many clients/customers of the type you want.

It is not expensive because they already have the customers you want access to. Getting this “partner” to endorse your business gives you a huge competitive advantage and brings you warm leads versus cold leads.

Paying to advertise your business in the cold marketplace is extremely expensive. It often brings you price sensitive customers who are not loyal.

I will give you an example of finding a Strategic Partner in my business. I created the idea of a Fixed Fee, all inclusive fee for businesses who needed a Financial Controller.

They were not getting the results they desired by hiring in-house staff.

I took my idea to Canada’s biggest banks. I did this because:

  1. Banks often saw the poor financial reports of their clients to whom they loaned money.
  2. The banks depended on impeccable financial reports for their monthly loan evaluations.
  3. They felt good about saving their clients money with our service and getting them better results.

The banks referred to us our first clients. Because their bank referred them to us, the “sales process” was minimal. They were already sold!

After those first successes I then spent most of my marketing time building relationships with banks. I went for lunches, did seminars, and called them.

How to Get Your Customers to Come Back More Often

The second part of your marketing plan must focus on getting existing customers to come more often.

Now the focus is not on winning over new customers; it is on loyalty. And in business, loyalty is expressed by how often your customers do business with you.

You plan can include:

  1. Loyalty cards (yes, they work!)
  2. Newsletters and other points of contact to get your customers to come back more often.
  3. Events and special occasions to bring your customers back more frequently.
  4. New products and services.

This is one of the most highly leveraged ways to grow your business. In fact, if you have a large customer base and your customers, on average, buy from you, let us say three times a quarter. And you increase that to 3.5 times, your bottom-line growth can be explosive!

It is also the least expensive way to grow a business because you are marketing to existing customers.

How to Increase Your Average Sale

The third part of your marketing plan must include how you increase the amount of money your customers spend when “you give change at the till.”

Your plan can include things like:

  1. Bundling products and services into packages.
  2. Scripts (“would you like a muffin with your coffee?”) work. Identify what they are for your unique business and build them into your plan.
  3. Adding more products and services.

As in way number two above, this focus can be very inexpensive for the same reasons. You are marketing to existing customers.

Creating scripts that work cost you only some time. Training your Team is inexpensive, as you already have a Team to train!

Your Operations Plan

You need a plan on how you deliver the best results that will wow your customers.

Plan for systems and use technology for them.

In our company all our systems are in the cloud and not on pieces of paper.

Your Operations Plan should include:

  1. Performance Standards for each aspect of your operations.
  2. Systems on how things are done.
  3. A flow-chart of operations including potential bottlenecks, and your production/service capacity.
  4. How to outsource functions for higher quality and less costly outcomes.
  5. Your Organizational Chart.
Your Financial Plan

Here you need a map on how you will get from where you are now to where you want to be in three years according to your Vision Statement…

Your Financial Plan/Forecast must include:

  1. Quarterly and Annual Budget for your next fiscal year.
  2. Three-year Forecast.
  3. Breakdown of variable cost of goods sold/services performed.
  4. A detailed Fixed Cost budget of your overhead.
  5. Budgeted profit for which you are aiming.
  6. The sales required.

Most accounting software packages include a budgeting feature.

For our clients we use a sophisticated software for Forecasting. We review monthly and update quarterly as required.

Your Human Resources Plan

Here you need to think about what functions can be outsourced and what do you absolutely need to do in-house.

Having to let go of employees is extremely expensive, as the longer a poor performing employee is kept on the higher the cost of letting them go. This is because of employment laws around severance pay.

The monthly costs for employees are extremely high with all the extra burdens of Canada Pension, social security, workers compensation, employment insurance and medical benefits.

Hire for attitude and train for skill.

With great systems and people hired with a great attitude (something that cannot be trained) your business will work better than only looking to hire great people.

Turnover is costly so hire carefully.

Ensure your plan includes a probationary period so you can let people go without too much expense.

Next week I will write about Secret #4 – What You can Measure You can Manage.

Thank you for reading…

7 Essential Secrets to Build a Business That Work- Part 1 of 3

Over the next 3 weeks I will be sharing with you 7 Essential Secrets to building a business that works…

Works for who?

Works for you, sometimes the least focused on person(s) in a business. You do not need to be a slave to your business. With focused, intentional design your business nightmare can be transformed into a dream.

These “secrets” individually are not really that secret. However, few businesses put these elements together as a collective whole, and that is a secret.

This week I am going to write about Secret #1 and Secret #2.

Let us get started…

Secret #1 – Vision

The Problem here is most people start building a business without any vision.

They just start making it up and wonder why at the end of it what they have is not working (for them).

In other words, it does not give them the things they went into business for in the first place.

What is it that people go into business for in the first place?

What we have discovered is that most people go into business to have freedom, financial independence, control of their destiny, and peace of mind.

Yet, is that what you think most businesspeople end up with?

Not really, right?

A Vision gives you the direction you are going in.

A Vision needs to be created in a way that has these elements:

  • Time frame (usually 3 years).
  • Description of your niche and the services you provide that niche.
  • Has a strong emotional wording that inspires you every time you say it or even think about it. It gets you out of bed in the morning.
  • Lastly, it has a dollar figure in it.

For example, if we decided right now to go on a road trip together and did not discuss where, when, and how we are going to get there (and we do not know where we are going anyway)– how far do you think we will get?

Or where do you think we would end up?

It is ludicrous to even imagine what that would be like, isn’t it?

The same if we were going to build a house and just grab some tools, and start building and hope that when it is all done, we have a beautiful, safe home to live in.

Again, we all know how absurd that is, and yet that is exactly what people do when they start a business. They have some vague sense of what they want, and the industry they are in, and they just start acting.

Why do you think in business that we approach things like that?

It is because we do not know that a business has a design (or needs to have a design) in the same way that a house does.

In fact, it is a bit worse than that! It goes like this – most people think that because they are good at the technical aspects of their trade, or profession or craft that means they are automatically good at that kind of business.

The problem is that a business operates along distinct design elements separate from the work of the business. For example, Ray Kroc, the founder of McDonalds never knew how to (or did not ever) serve one single hamburger.

His vision was a system that could be replicated repeatedly. This is what I mean by an elegantly designed business.

Secret #2 – There Are Only 4 Ways to Grow Your Business

If we were to start a brainstorming session and write down on white boards each way, we could think to grow a business how many distinct ways do you think we could produce?

If we had enough time, we could list hundreds if not thousands of different ideas and strategies to grow a business, yes?

Well, the problem is, it gets so overwhelming, with so many ideas and we have no way of knowing or measuring the actual cost and leverage of each way!

Where do you begin? How do you know what will work?

Well, the answer is – and this is great news – there are only 4 ways to grow your business!

And each idea we would have listed above will fit inside one of these 4 ways to grow.

We all intuitively know what they are!

Let me share with you…

Way Number 1 – Increase The Number of Customers of The Type You Want

Way Number 2 – Increase The Number of Times Your Customers Do Business with You

Way Number 3 – Increase The Amount of Money They Spend with You in Each Transaction

Way Number 4 – Increase The Efficiency and Effectiveness of Each Process in Your Business

And the exciting part of this way of thinking with the 4 Ways to Grow is that we can measure the impact on your profits for each way, and discover which way is the most leveraged.

Here is a simple way to break this down…

How Are the 4 Ways Measured?

Your total sales are composed of the first 3 ways to grow your business.

Your total customers X the number of times they buy from you on average X the average sale per transaction = your total sales.

When you work at increasing (even in small increments) all 3 ways at once, the compounding effect can be extraordinary.

To measure way number 4, you take your total expenses and divided it by the number of transactions to give you the cost per transaction.

When you lower the cost per transaction without sacrificing quality, service, or on-time delivery, you will be more efficient.

This is way number 4.

Thank you for reading…

Framing – A Powerful Linguistic Tool to Shape How People See Your Business

What is framing in linguistics?

Here is an online definition – “framing is a process whereby communicators, consciously or unconsciously, act to construct a point of view that encourages the facts of a given situation to be interpreted by others in a particular manner”.

Here is my more streetwise definition – you use words in a way that directs people’s thinking to the outcome you are trying to create.

In other words, you say things in a way that resonates with the other’s deepest longings and desires.

In business, you are framing your business all the time. On your website, in your sales pitch, in your emails, in what you say when talking to clients and prospects.

The challenge I see is this…

Most Communication (what you are framing) Are Motherhood Statements

“We provide better products and service than the competition”.

“We make better widgets than any company in this region”.

“We have been in business 35 years”.

…you get the idea…

These statements do not inspire anyone to act! They do not resonate with what the customer is looking for!

Weak Framing Sounds Like This

Framing in business helps us fill in this gap:

“I buy the products from this business because _______”.

Using the above fill-in-the-blank sentence, I will fill in the motherhood statements above.

“I buy the products from this business because they have been in business for 30 years”.

“I buy the products from this business because they make better widgets”.

“I buy the products from this business because they provide better products than the competition”.

Framing connects the dots from what you want people to think about your business and the subsequent actions they will take.

Does anyone think that framing your business using the kind of weak statements above will inspire prospects to take action?

No, right?

An Example of Strong Framing

I know that I have effectively and powerfully framed our business if a client says this about us:

“I buy the services of CPLUS because they took the burden of accounting off my shoulders for a Fixed Fee. On top of that they coach me by the numbers every month so I run a better business”.

Framing Re-Directs the Conversation

When you take control of the conversation about your business you direct people’s thoughts away from the competition. You shape outcomes.

Your business becomes the solution to the problem they are seeking to solve.

Done successfully, price becomes less of a focus.

When you cannot powerfully frame why prospects should buy from you, then you are equal to everyone else.

My Coaching

Find the biggest problem people are trying to solve by buying your products or service.

Identify the biggest common frustrations people have in your industry.

It could be things like – slow delivery, hourly billing versus fixed prices, surly service, dirty worksites left by blue collar trades people.

Whatever the top three frustrations are, create systems and ways of delivering your products and services that take away those top frustration in your industry.

Finally, frame what you do using powerful, attention-grabbing words that will direct people to take action. To engage with you and buy from you.

Thank you for reading…

 

A Simple Technique to Create Prodigious Productivity in Your Work

I love simple things. How about you?

Design may be complex in its underlying dimensions. Yet when it has that look and feel of simple elegance it comes across like poetry in motion…

When it comes to being more effective in my business, I am an advocate of intense blocks of focussed time.

Multi-tasking diminishes productivity. Using yourself as a testing ground try it out one day. Schedule nothing. Take on nine tasks for the day. Jump from one to the other. Get them all revved up at once and have nine multiple tasks to focus on at once.

The truth is that multi-tasking is a myth because you can only concentrate on one thing at a time. Someone may move from one task to another at lightning speed, yet it is still just.one.thing.at.a.time.

Even a juggler with four balls in the air is only juggling one ball at a time.

My Past Habit

I learned many years ago to focus on only one thing at a time. I list three main things each day to do. Three of the most important things.

Then I schedule three ninety-minute blocks of time that I called Power Blocks.

It has worked for me. The problem I have found as I looked at my actual habits is that is too long a block! And multiple distractions can impinge on those boundaries.

I recently learned a new technique called…

The Pomodoro Technique

Again, this is ridiculously simple…

So stupidly simple that you might overlook its elegance.

It is the brainchild of a man named Francesco Cirillo who developed this technique in the 1980s while a student in Italy.

He needed to focus on his studies one evening and was struggling. He took a tomato shaped timer (Pomodoro is tomato in Italian) from the kitchen and set it for 10 minutes. His hyper focus resulted in astounding results.

Here is the technique in modified form:

  1. Select one task to work on
  2. Set a timer for 25 minutes.
  3. Work until the timer rings.
  4. When the timer rings, take a five-minute break.
  5. Repeat
  6. After every 3 or 4 Pomodoros, take a 15-minute break.
How This Applies in Business

Ask yourself when your highest most natural productive energies emerge.

Are you a morning person, or afternoon person, or evening person?

Schedule your Pomodoros (cool word, isn’t it?) during your most productive time.

Eliminate all distractions. Turn off your notifications on your phone and computer. Do not look at emails.

Get focused on your one task.

Adapt it to Your Own Needs

Some parts of your day cannot (and should not be tightly scheduled). You may need to have open blocks of time to be available to react to specific problems that come up.

The beauty of the 25-minute block with a Pomodoro is that anyone can find one 25-minute block of time in the day!

Today I used the Pomodoro technique to get a report done for a Charity that I had been avoiding.

I went past the 25-minute block because I was almost done at the end of twenty-five minutes!

Frankly, I was shocked that I could get that much done in this brief time block.

Apply This to Business Meetings

A lot of business meetings go on far too long. Try setting a meeting for 25 minutes. Set a tight, achievable agenda.

If you need more time, you can take a 5-minute breaks and add twenty-five minutes.

It may seem odd, yet I will assert that I believe you will accomplish more in two 25-minute blocks than inside of one 60-minute block.

Also, the strange timing of twenty-five minutes versus thirty or sixty minutes will put people on alert that everyone needs to focus to get things done.

In Closing

I used the Pomodoro technique for this blog, and it took just one Pomodoro plus an extra 3 minutes!

To read more about this elegant technique, please click here:

https://freedom.to/blog/the-pomodoro-technique/

Thank you for reading…

Powerful Game Changing Ratio to Monitor in Tough Times

An often-overlooked ratio to track is a combination of three other ratios…

Once you calculate the other three you simply add the three to get this Turbo Ratio that I recommend all businesses with accounts receivable and inventory track.

So, what is it called?

It is called…

Your Cash Conversion Cycle

It is the measurement of how many days on average it is taking your company to convert sales into cash.

It is the combination of three separate ratios:

  1. Days Receivable – the number of days on average it takes to collect your accounts receivable.
  2. Days Inventory – the number of days on average it takes to sell your inventory.
  3. Days Payable – the number of days on average you take to pay your bills.

Let us go through each of these three ratios…

Your Days Receivable

Here the lower the number of days the faster you are converting your receivables in cash.

You need the following numbers to calculate your days receivable ratio:

  1. Opening balance of your accounts receivable, at the beginning of the month
  2. Closing balance of your accounts receivable at the end of the month
  3. Your monthly sales on credit (non-cash sales)

Add your opening accounts receivable balance to your closing accounts receivable balance and divide by 2.

Take that number and divide by your total credit sales for the month.

Multiply that number by the number of days in the month.

Accounts receivable opening balance = $100,000

Accounts receivable closing balance = $200,000

Average accounts receivable balance = ($100,000 + $200,000)/2 = $150,000

Sales for the month = $300,000

Days in the month = 30

$150,000/$300,000 x 30 = 15 days

Now let us look at the next ratio…

Your Days Inventory

Here as well, a lower number of days is better for your cash-flow.

You need the following numbers to calculate your Days Inventory ratio:

  1. Opening balance of your inventory, at the beginning of the month
  2. Closing balance of your inventory, at the end of the month
  3. Your Cost of Goods Sold for the month.

Add your opening inventory balance to your closing inventory balance and divide by 2.

Take that number and divide by your total Cost of Goods Sold for the month.

Multiply that number by the number of days in the month.

Inventory opening balance = $300,000

Inventory closing balance = $600,000

Average inventory balance = ($300,000 + $600,000)/2 = $450,000

Cost of Goods Sold for the month = $750,000

Days in the month = 30

$450,000/$750,000 x 30 = 18 days

On average it is taking you 18 days to turn your inventory over. In other words, to sell it.

Now let us look at the next ratio…

Your Days Payable

For this ratio, a higher number is better! Why? Because you are taking longer (i.e. more days) to pay your bills on average which means you are preserving cash for a longer period.

You need the following numbers to calculate your days payable ratio:

  1. Opening balance of your accounts payable, at the beginning of the month
  2. Closing balance of your accounts payable at the end of the month
  3. Your monthly Cost of Goods Sold

Add your opening accounts payable balance to your closing accounts payable balance and divide by 2.

Take that number and divide by your total Cost of Goods Sold for the month.

Multiply that number by the number of days in the month.

Accounts payable opening balance = $250,000

Accounts payable closing balance = $350,000

Average accounts payable balance = ($250,000 + $350,000)/2 = $300,000

Cost of goods sold for the month = $900,000

Days in the month = 10

$300,000/$900,000 x 30 = 10 days

Now, let us put it al together…

Your Cash Conversion Cycle

The formula for your cash conversion cycle is:

  1. Days receivable
  2. Days inventory
  3. Less – Days payable

Using our numbers from above we have:

Days receivable = 15 days

Days inventory = 18 days

Days payable = 10 days

Your Cash Conversion Cycle is 15 plus18 minus 10=23 days

Although this is a very crude measurement what it tells you is that on average you will convert your sales into cash in about 23 days.

In Closing

Remember the lower the number the better. Why? Intuitively you will want to convert accounts receivable and inventory to cash as quickly as possible. Less days to do so means cash is hitting your bank account more rapidly.

One other thing to keep in mind is that the Days payable number is more beneficial the higher it is! That is why it is subtracted in the Cash Conversion Cycle Formula.

The longer you take to pay your bills the more cash you have available to run your business. Here you will want to operate with integrity and not take too long to pay your suppliers. After all, they are essentially your partners in your business.

That said, it is fair if you take advantage of longer payment terms and wait as long as possible to pay.

Thank you for reading….