How To Read A Balance Sheet

This article will be of interest to you if you want to really know what your business looks like to a banker or investor, if you want to increase your financial knowledge, or if you want to increase your business wealth.

Phil’s Profit Points™ in Brief:

There are five levels of balance sheet analysis.

• Level one: What is your cash position?
• Level two: What is your working capital position?
• Level three: What is your financing structure?
• Level four: What is your value?
• Level five: What are the trends?

Let’s continue the story from the last issue that looked at how to analyze your income statement. This week, let’s look at your balance sheet.

The balance sheet presents a snap shot of what you own – the assets – and what you owe – the liabilities – at a specific point in time. This is different than the income statement, which shows performance for a month or some other period of time.

Most entrepreneurs are intimately familiar with their income statements. However, did you know that bankers and investors are more concerned with your balance sheet? That’s because the balance sheet presents the overall health of your company. It incorporates cash flow and asset management analysis with the profits accrued on your income statement.

Analyzing your balance sheet and income statement together, which we’ll discuss in the future, will provide you with a powerful and effective way to ensure that your business is heading in the right direction.

A good balance sheet, one that you receive by the tenth or fifteenth of the month, does several things:

• It tells the story of whether your cash is going up or down.
• It identifies the good, improving, declining and poor results in terms of working capital items such as cash, accounts receivable, inventory, work in progress, and accounts payable.
• It shows whether customers are taking longer to pay you.
• It allows you to analyze the value of your company every month.

Level one: What is your cash position?

At the very least, your balance sheet should show your cash position. Unfortunately, this requires the bank reconciliation to be completed. With online banking information available immediately, this function should be completed within a couple days of month end (at the latest).

1. Is cash increasing or decreasing, and why?
2. Are you using short-term cash to fund the purchase of long-term assets?
3. Are you effectively using excess cash?

Level two: What is your working capital position?

Working capital includes items that will convert to or utilize cash in the next twelve months.

1. Are accounts receivable increasing or decreasing, and why?
2. Are inventories and work in progress increasing or decreasing, and why?
3. Are accounts payable increasing or decreasing, and why?

Level three: What is your financing structure?

There is good debt and there is bad debt. Good debt lets you borrow money at low interest rates and turn that money into profits, thus increasing the value of your business, and your wealth.

1. Are you borrowing appropriately by matching working capital needs to an operating line of credit?
2. Are you using short-term cash to fund long-term asset acquisitions such as equipment or vehicles (this isn’t a good idea, unless you have lots of cash)?
3. Is your debt to equity ratio less than 2.0:1.0 and preferably much less (unless you are a start-up, then all bets are off).

Level four: What is your value?

The balance sheet presents the value of your business in the equity section as retained earnings. This is also called book value because it is based on the accounting concept of historical cost where all of your assets, liabilities, revenues and expenses are recorded at their actual cost. If you bought your building twenty years ago, and it appreciated in value, then your book value will be artificially low.

1. Is your retained earnings, which is the accumulation of your profits less dividends paid out, growing?
2. If you need to borrow money or want to sell your company, aggressive tax minimization practices that reduce your profits and retained earnings can hurt your valuation in the eyes of a lender or investor. Is your equity sufficient to attract capital or investors?
3. What is your plan to convert your retained earnings into personal cash and wealth?

Level five: What are the trends?

Most accounting software will print a ‘comparable balance sheet’ which shows the account balances for the current period and the same period one year ago.

1. What are the major dollar variances between accounts?
2. Do these changes make sense given your recent business performance and market trends?
3. Proportionately, is your business stronger and healthier than a year ago?

Announcing Remote Profit Mentoring^™ and Profit Immersion^™

If you run a small or mid-sized business and don’t have a full-time chief financial officer to interpret your financial results and give you proactive advice, we can help. We are excited to announce two new services.

Our Remote Profit Mentoring^™ service has three options and ways for you to access our services, develop profit plans and receive advice on improving your financial condition. Financial management is important for both profit and non-profit organizations that want to increase the results they generate.

For a serious jump-start to improve your profits, we offer our intensive Profit Immersion^™ process. Spend a day with us to learn how to enhance your strategy, refine your business model and turbo-charge your profits.

Tough Question

Are you using your balance sheet to help you evaluate your company’s performance like an investor or banker would?

From The Piggy Bank

Your balance sheet says more about your company and management than your income statement.

Resources

For free articles to help you grow your business profitably, go here.

Have a profitable week!

Phil Symchych, C.A., M.B.A., is the president of SYMCO & CO., author of Phil’s Profit Points^™, and owner, or part-owner, of four businesses.

Share the Wealth

If you find this information valuable, please feel free to forward it to a fellow entrepreneur, friend, customer, supplier, banker, advisor or business associate. We are improving entrepreneurs’ lives and strengthening our economies. Thanks!

You may subscribe and encourage others to subscribe by clicking here.

We are now on iTunes! Check out our podcast series called Phil’s Profit Points.

I do, I do.

For a small business, that means that you had profit of about $2.6 million.

$1.6 million remains in your wallet. Not bad.

Minimizing taxes can cause you to intentionally or unintentionally reduce your profits. If you’re trying to sell your business and receive a multiple of earnings, you want those earnings to be as high as legitimately possible.

Copyright 2012. Phil Symchych. All rights reserved.

The key areas to maximize wealth in small and mid-sized businesses are:

1. Cash flow – is the business generating surplus cash? Cash flow comes from margin, velocity and volume.

2. Management team – has the owner transferred power (to hire and fire, to spend money) to a management team and are they held accountable for results? Does the team have a formal plan and budget and do they operate the business in a professional manner?

3. Financial management – does the business increase its retained earnings and use this to borrow wisely and grow more quickly? Is working capital increasing or decreasing? Is the financial structure optimized for growth or transition or whatever the owner’s objectives are? Tax minimization reduces the equity retained in a business, reduces its borrowing potential and immediately reduces the value of the business.

4. Processes – are the policies and procedures documented, improved, used for training and used to maximize production? Is capacity increasing? Are speed and quality improving?

5. Freedom for the owner – consistent with Alan Weiss’s definition of ‘wealth as discretionary time,’ does the business provide freedom for the owner. Does the business operate independently from the owner? If the owner has to be there all of the time, they may not have a business, they may have a job. It’s OK to have a job but the business will be more valuable and easier to transition or sell if the owner has freedom from the business.

You can maximize the profitability and value of your business in order to increase your personal wealth and freedom.

Copyright 2012. Phil Symchych. All rights reserved.

McKenna Tile & Stone is Regina’s newest tile distributor.  We distribute mainly porcelain and glass tile to the Saskatchewan market. Our selection boasts of quality and style.  Currently, we are looking for a part-time customer service and administrative assistant.  Student resumes are welcome.

We are looking for a reliable, outgoing self-motivator who has experience or education related to working in an office setting.  An interest in design and creativity are also an asset.

Main Duties:
- Placing orders and checking stock
- Create purchase orders
- Creating quotes
- Manage outgoing shipments
- Updating and creating price lists
- Receiving inventory into computer system
- Answering customer inquiries
- Deposits
- Accounts receivable
- Creating spreadsheets
- Ensuring the outbound sales representatives have adequate marketing material and the tools necessary for sales
- Inside sales
- General office duties

Required Skills:
- 3-5 years in office setting
- Business diploma or certificate an asset
- Organizational skills
- Computer skills (Microsoft Word and Excel, accounting software)

Please forward your resume to Alyssa@mckennatile.com

Or, click here for more information.

Copyright 2012. Phil Symchych. All rights reserved.

Do you need to micromanage and babysit and punish every little mistake? Of course not.

Holding your team accountable means that you need to ensure they are aligned with your company’s goals and objectives. If you strategy is to provide high quality (and charge higher prices for that, which you deserve), then you need to ensure that your people, processes and performance are focused on quality. If your focus is on quality, then you might need to sacrifice speed.

After all, a drive-thru restaurant hamburger is not going to be as good as a prime rib hamburger at the fancy steak house, but it will be fast.

Holding people accountable is easy and transparent if you do these things:

1. Have the team participate in setting their operational goals and benchmarks. For example, a production facility may set targets of units per shift.
2. Measure the goal every day. It’s amazing how powerful this is to drive the behaviour that you want.
3. Proactively ask the team what obstacles they encounter or foresee, and what ideas they have to overcome them.
4. Help your team to be more successful. This is the key. Accountability doesn’t mean whacking them when they miss their goal. Accountability, and it’s a two way street, means that you are willing to be held accountable to helping them improve performance and be more successful.
5. Celebrate success. Every incremental gain can increase confidence and momentum. This also reinforces that you are focused on rewarding positive behaviors.
6. As a manager, beware of trouble-shooting for your employees. Part of the accountability is to develop their independence. When they present a problem or dilemma, ask them for their suggestions. If they don’t have any, give them homework and tell them to come back more prepared.
7. It’s your job to allocate resources. Make the team come up with the ideas. Remember, with every pair of hands, you get a free brain.

Holding people accountable is as simple as keeping score of the important things in your business. The fewer things that you track, the easier and more powerful the process will be.

Copyright 2012. Phil Symchych. All rights reserved.

How To Read An Income Statement

This article will be of interest to you if you want to make your monthly financial statements more useful, if you want to increase your financial knowledge, or if you just want to give your accounting people something useful to do.

Phil’s Profit Points™ in Brief:

• There are five levels of income statement analysis.
• Level one: Did we make a profit?
• Level two: How do the results compare to last year?
• Level three: What are the trends we see this year vs. last year?
• Level four: How do the results stack up against our profit plan?
• Level five: What are the real business metrics: sales and production?

We’ve all heard that a picture is worth a thousand words. A good financial statement, in the hands of a professional, is worth ten thousand words because it tells a story about your business.

A good financial statement, one that you receive by the tenth or fifteenth of the month, does several things:

• It tells the story of where you are now and what happened.
• It identifies the good, improving, declining and poor results.
• It shows whether things are going to get better or worse if no one does anything different (hint, they usually get worse, and you might already be half-way through the next month).
• It allows you to hold your people accountable for performance.

Level one: Did you make a profit?

At the very least, your income statement should show a vertical percentage of all expenses as a percentage of total revenue, so they add up to 100%.

1. Did you generate a profit or a loss, how much, why?
2. Are you accruing amortization, corporate tax and loan payments each month so that the statements are accurate?
3. What are the gross profits by product or service line, customer or employee?

Level two: How do you compare to last year?

It’s reasonably useful to compare the individual month and the cumulative year-to-date financial results vs. the same periods last year.

1. Are results better than last year?
2. Are revenues and profits moving in the same direction or opposite directions? Increasing revenues with decreasing profits is not sustainable.
3. Are we growing and getting better at sales, production and costs?

Level three: What are the trends compared to last year?

Looking at the numbers is an easy mathematical exercise. Figuring out the story behind the numbers is more difficult and more important.

1. What’s going on in your business and market compared to last year?
2. Why are revenues going up or down?
3. Why are profits going up or down?

Level four: How do the results compare to your profit plan?

Now, we are finally getting into serious financial and business management practices that will help you to accelerate your profits.

1. How do revenues and profits compare to plan?
2. Which marketing activities are most effective or least effective?
3. Which customers are growing and which are shrinking (paying slower, ordering less)?

Level five: What are the business metrics: sales and production?

This is the most powerful level because it ties your business activities and production results to your financial statements. The major problem with most off-the-shelf accounting systems is that they can’t report production numbers such as square feet or hours charged.

Production makes an ideal daily and weekly metric, by the way, that you can measure in real time and use to hold people accountable for results.

1. How much have you sold?
2. How big is the order queue?
3. How much did you produce last month? Is production increasing due to efficiencies, or decreasing due to errors (most common) or breakdowns?
4. What is the average price per unit, cost per unit, and margin per unit, and what are the trends?
5. Are the margins increasing or decreasing, and why?

Your income statement, also called the ‘P&L’ or ‘profit and loss’ statement, provides a wealth of information to help you run your business. That is, if it’s set up properly and if you are recording the correct information on a timely basis.

Announcing Remote Profit Mentoring^™ and Profit Immersion^™

If you run a small or mid-sized business and don’t have a full-time chief financial officer to interpret your financial results and give you proactive advice, we can help. We are excited to announce two new services.

Our Remote Profit Mentoring^™ service has three options and ways for you to access our services, develop profit plans and receive advice on improving your financial condition. Financial management is important for both profit and non-profit organizations that want to increase the results they generate.

For a serious jump-start to improve your profits, we offer our intensive Profit Immersion^™ process. Spend a day with us to learn how to enhance your strategy, refine your business model and turbo-charge your profits.

Tough Question

Which level of income statement analysis do you presently perform? Which level do you need? How will you get there?

From The Piggy Bank

Accounting transactions, and financial statements, don’t create reality; they represent it.

Resources

For free articles to help you grow your business profitably, go here.

Have a profitable week!

Phil Symchych, C.A., M.B.A., is the president of SYMCO & CO., author of Phil’s Profit Points^™, and owner, or part-owner, of four businesses.

Share the Wealth

If you find this information valuable, please feel free to forward it to a fellow entrepreneur, friend, customer, supplier, banker, advisor or business associate. We are improving entrepreneurs’ lives and strengthening our economies. Thanks!

You may subscribe and encourage others to subscribe by clicking here.

We are now on iTunes! Check out our podcast series called Phil’s Profit Points.

I’ve worked in a variety of organizations, from a small retail store to a national bank and an international accounting firm. The cultures were vastly different and so was their effectiveness at motivating and engaging their employees.

My first job, when I was 14 years old, was working in a small department store called The Met, short for Metropolitan. We sold all types of dry goods including clothing, diapers, kitchen goods, cheap hardware, batteries, and my favourite, chocolate bars. We had to keep those under lock and key in the candy room! For some reason, the manager didn’t trust anyone with the key to the candy room. A valuable lesson learned.

My first boss, Peggy, was a great manager and she taught me a lot about treating everyone with respect, to ask their opinions and to let them think.

Now, as the stock boy, I didn’t have to think too much. But Peggy never told me how to do anything unless I asked. She told me what to do, but never how to do it. She was confident that I could figure it out. And, her confidence in me increased my own confidence, although most teenage boys seem to exceed in confidence, for some reason.

I could sweep a 6,000 square foot store in nine minutes flat. The best parts were the handyman jobs like climbing up to the roof or up on a 16 foot ladder to change the eight foot light bulbs. Did you know that they explode into a million little pieces if you drop them?

I also learned that I didn’t want to work in retail. The worst part was working in a basement inventory room, on my summer vacation, during the hot July weather, pricing school supplies. Didn’t I just get out of school? Apparently, retail works one season ahead of reality.

The best part was bagging. It was easy, you got to meet people, and I wasn’t stuck in that darn basement. I learned that just because I could fit something in the bag, it didn’t mean the bag could withstand the weight. Customers got very unhappy if their bag ripped and they dropped their purchases. The manager got really mad if the product broke and we had to replace it. Cause and effect, consequences, logic: all these were burned into a teenagers brain.

We also had ‘management trainees’ sent from head office to learn from Peggy. This was an interesting experience because the stock boy, and everyone else working in the store, knew more about the store than the trainees. The trainees tried to manage by position of power (their perception of it, at least) instead of by respect. That didn’t work very well. Actually, it caused the occasional mutiny and intentional lack of cooperation. The mutinies were an important part of their training experience.

The trainees learned a few things:

• leadership doesn’t come from a title
• the most knowledgeable people are front line people, not the people from head office, or their hopeful delegates
• never let the 16 year old stock boy drive your car.

As a parent, I’m looking forward to the work experience that my teenage daughters will gain. They’re not. Working in a clothing store just might cure their fashionitis, or, they might spend all their money on clothing purchased with employee discounts. Only time will tell.

Copyright 2012 Phil Symchych. All rights reserved.

After five minutes of the intense fifteen minute workout, I pulled something in my back.

Apparently, working out needs to be done regularly to be effective. So, I’ve booked an appointment with the local gym for an assessment (or sales pitch) so that I can get back into the routine safely and, most importantly, frequently.

Why is it that we all know that we should exercise regularly but only a few, hearty soles have the discipline to sweat it out?

As a former (meaning 20 years ago) recreational triathlete and hockey referee, I’m pretty disappointed with my current lack of conditioning. I almost get tired driving the distances that I used to cycle. Fortunately, my ventilated and massaging car seats keep me up for the driving task.

I’ve worked out with a couple of trainers recently and the results were amazing. First, the trainer didn’t care about any excuses. Second, he and she (they took turns) showed me how to do things correctly. Third, they pushed me harder than I would have ever pushed myself. Fourth, they provided constant feedback, instruction, and, occasionally, motivation.

There are some parallels to working with a consultant, you know.

Consultants can help you to:

1. Focus on the most important things so that you don’t get distracted with the day-today busy work that won’t achieve your goals.
2. Pursue your goals using proper techniques and practices that increase your odds of success and reduce the chance of hurting yourself or your business.
3. Push you beyond your comfort zone, because, as Marshall Goldsmith says, “What got you here won’t get you there.”
4. Constantly hold you accountable and give you feedback on your progress, suggest adjustments, and celebrate your successes.

The best part of working out with a consultant is that you don’t need to wear a heart rate monitor and you won’t pass out from over exertion. However, mental work still seems to require some heavy lifting.

It’s time to hit the gym.

Copyright 2012 Phil Symchych. All rights reserved.

Most of us hate meetings, or, more specifically, we hate wasting time in unproductive meetings. However, a well-run meeting can dramatically improve morale, align your people, and generate great results.

Running a good meeting is a critical management task that all entrepreneurs need to master.

Agenda

Here are tips on how to run a good meeting:

1. Distribute the agenda in advance.
2. Require relevant people to attend, if absolutely required, only the specific parts that are relevant to them.
3. Don’t make everyone sit through the whole meeting.
4. Start on time.
5. Set ground rules: cell phones, interrupting, not being critical during brain-storming sessions (ban ‘yes, but’ from your meetings).
6. Allow the group to contribute to the ground rules.
7. Be clear on the purpose of your meeting: presenting information (a poor reason for a meeting), discussing ideas (a better reason), or crafting an action plan and assigning accountabilities (a great reason for a meeting).
8. Stay on topic. Set up a parking lot for unrelated issues. Don’t let people wander off topic. This takes courage and wisdom.
9. If you are allocating time limits to topics, make sure you achieve your objectives such as creating action items and assigning responsibility.
10. Have a designated person take notes so that action items and responsibilities can be clearly assigned.
11. Less is more. Don’t try to accomplish too much.
12. Finish on time (or early).
13. Be positive, professional and prompt.

Ineffective meetings waste time, waste money, deflate morale, reduce your credibility and hurt your company. Or, effective meetings can generate great ideas, hold people accountable and improve your company’s performance. The choice is yours.

Copyright 2012. Phil Symchych. All rights reserved.

Big companies are nickel and diming us and it’s getting ridiculous.

I receive my Rogers cell phone bill in the mail. How old-fashioned and environmentally unfriendly of me, as a paying customer, to demand an invoice?! It seems that my monthly fees for three cell phones and an iPad data plan are not sufficient to warrant Rogers sending me a bill without charge.

Or, perhaps, they are profit challenged and need to scrounge for cash from their (temporary) customers?

$2.00 paper invoice fee

Next on the DUDS list is Pitney Bowes, with whom I spend more on ink than postage because they have the most profitable (for them) ink cartridges in the world. I just renewed my lease (at a discounted rate because I threatened to not renew — always negotiate) and received a friendly letter advising that I now have two choices because I must insure their (now used) postage machine. That’s funny, no one mentioned this during the renewal process. Oh, it’s probably in the fine print…

The $2.78 insurance 'not insurance' plan

Pitney Bowes offers a convenient insurance for only $2.78 per month. Actually, it’s ‘not insurance.’ They, or their marketing or legal department, calls it an ‘equipment replacement/damage waiver program.’ If I don’t want to pay them monthly, I can contact my busy insurance broker and ask him to confirm, in writing, that 1. Pitney Bowes et al are named as insured or loss payee, 2. coverage commences upon lease commencement, 3. includes theft (really?), and 4. my lease number. Of course, my insurance broker, who is a good guy and an expert, would not be paid for this service.

I guess the finance people at these big companies are taking the economic challenges to heart. Instead of innovating and providing more value and services to their customers, they are charging us more for what they used to do for free or what we already have in place and are paying for, like insurance.

Big companies seem to be getting more disconnected from their customers every day. Rogers and Pitney Bowes, are you listening? I didn’t think so.

Copyright 2012. Phil Symchych. All rights reserved.

Budgets Are Bad For Business

This article will be of interest to you if you hate budgets, abhor the budgeting process, don’t even use budgets, or need something much better than an ultra-conservative, aim low and be safe budget.

Phil’s Profit Points™ in Brief:

• A “Base Case” budget is often a mathematical exercise based on last year’s results and it might predict incremental growth, if the accountants are feeling frisky.
• An “I Think I Can” budget is management’s attempt to force moderate growth just by changing the numbers.
• A “Profit Plan” is a proactive, marketing-based plan to drive revenue growth and create return on strategic investment.

The most common budget in many small businesses is no budget at all. That’s scary. During my MBA studies, I came across research that proved businesses that do have a business plan and a budget significantly outperform those who don’t. Apparently, planning is good for the soul and the bank account.

Base Case

The “Base Case” budget might be a good fit if you know that next year’s results will be the same as last year’s results. For example, “lets increase last year’s numbers by two percent across the board. Phew, that was hard work.” However, I don’t know of a single business that can hold those assumptions as absolutes. It’s practically negligent for management to delegate the budgeting process entirely to the accounting department, who willingly and skillfully comply. They do a pretty good job of predicting the future, based on the past. But that’s not budgeting or planning, that’s just limiting expenses to last year’s level, plus inflation, perhaps. There’s no initiative to create new results.

I Think I Can

The “I Think I Can” budget, like the little engine story, is driven by positive self-talk. I can hear it now, “Let’s increase the budget by five percent. I think we can do it.” It’s an admirable attempt but I’m not sure how all the employees know what they are supposed to do everyday, other than to keep trying. Can you hold people accountable for trying? Hope is not a business strategy.

Profit Plan

The “Profit Plan” isn’t even a budget. Since most people don’t like budgets, we’re already off to a better start. It’s an intentional plan, driven by intelligent analysis and strategic decisions, to utilize your strengths and grow your revenues. It’s about marketing: understanding how your customers use your products and services, offering different price points, promoting different value propositions at various price points and ruthlessly measuring what works and what doesn’t. When you figure out what works, do more of that.

The Profit Plan needs to be a company-wide process that is focused on business strategy, driven by marketing and supported by everyone in the company. There needs to be non-financial metrics, such as daily sales and production goals as well as financial goals, such as revenue growth and gross margin targets. “We want to grow our top three products by 20% and we are strategically investing $150,000 to strengthen relationships with our top ten customers, build referrals and increase sales,” sounds like a plan that is measureable and will achieve results.

Business doesn’t happen on annual financial statements or budgets, or even on monthly financial statements. Business happens on the front lines, every hour of every day. If you are proactively marketing your company — externally to customers and internally to employees — then you have a greater chance for achieving success.

If you are really serious, then align compensation for your top people with your results. After all, as the owner, your compensation (and retirement nest egg) is ultimately aligned with your business results. Why are you the only one who has a stake in the outcome?

Announcing Remote Profit Mentoring^™ and Profit Immersion^™

If you run a small or mid-sized business and don’t have a full-time controller or CFO to interpret your financial results and give you proactive advice, we can help. We are excited to announce two new services.

Our Remote Profit Mentoring^™ service has three options and ways for you to access our services, develop profit plans and receive advice on improving your profits.

For a serious jump-start to improve your profits, we offer our intensive Profit Immersion^™ process. Spend a day with us to learn how to turbo-charge your profits.

Tough Question

What kind of budget do you have and what kind of results are you rewarding in your business?

From The Piggy Bank

The biggest difference between big companies and smaller ones is that big companies hold people accountable for hitting their numbers.

Resources

For free articles to help you grow your business profitably, go here.

Have a profitable week!

Phil Symchych, C.A., M.B.A., is the president of SYMCO & CO., author of Phil’s Profit Points^™, and owner, or part-owner, of four businesses.

Share the Wealth

If you find this information valuable, please feel free to forward it to a fellow entrepreneur, friend, customer, supplier, banker, advisor or business associate. We are improving entrepreneurs’ lives and strengthening our economies. Thanks!

You may subscribe and encourage others to subscribe by clicking here.

We are now on iTunes! Check out our podcast series called Phil’s Profit Points.

I advise business owners to sit down with their internal accountants and go through their entire financial statements — that’s the balance sheet,  income statement, aged accounts receivable and aged accounts payable — line by line, every month.

First, this will force your accountant to explain the statements to you, the owner. You can ask the accountant questions…and…they probably won’t have all of the answers. That’s because they make certain assumptions. Ironically, you have the answers and, together, you can create an accurate set of statements.

Second, this will force you to explain transactions to your accountant. It’s amazing how discussing and thinking out loud can clarify what is going on.

Third, the review of accounts receivable will identify which customers need to be called or jobs need to get wrapped up so that the customer will pay. That will generate quick cash.

Fourth, reviewing the accounts payable will show which suppliers are treating you well and need to be paid quickly and also if there are any unresolved issues that need to be discussed.

There is lots of gold in your financial statements. You just need to sit down with your accountant, mine it, and turn it into cash. Every month!

Did I mention the ‘every month’ part? By staying on top of your financial statements, you will maximize your cash flow and prevent small problems from growing into large problems. You will also be utilizing your accountant more effectively. They’re not just data clerks, they’re gold miners.

Well, what are you waiting for? It’s the 7th of the month. Don’t you have your financial statements yet?

Copyright 2012. Phil Symchych. All rights reserved.

Fear means that you’re trying to retain existing clients and business. It’s like you’re trying not to lose and most sports teams know this is a lousy strategy that rarely works. You can’t score touchdowns when you’re trying not too lose.

Greed means you’re trying to grow and gain new clients and business. You’re trying to put points on the board. Furthermore, the natural desire of a living organism is to grow. It’s part of our DNA to grow. If you find someone who doesn’t want to grow or learn any more because they think they know everything, well, that’s not a healthy perspective. Isn’t that how you define arrogance?

Greed is a negative word, but who cares.In my opinion, greed is great. If you have to pick one….

Our goal in business should be to grow. If your business is in decline, I hope that position is not intentional or permanent.

Here are signs of a business (or a business owner) driven by fear:

• They are strict rule followers and have a policy or procedure for everything.
• They punish failure.
• They assign blame, almost with glee.
• They have been through tough times and may still be in shock.
• They are unwilling to take risks.
• They aim very low.
• They don’t aim for anything.

Here are signs that a business or entrepreneur is driven by greed (remember, greed is great!):

• They have clear principles and values but don’t need rules for everything.
• They celebrate and reward failures because they learned something new.
• They blame the process (and fix it) instead of blaming a person.
• They have been through tough times and know they’ll survive the next ones, too.
• They’re willing to take risks and are bored or unsatisfied with the status quo.
• They aim high and their trajectory, even if they miss, still lands them in a higher place.

Greed is great. How are you using greed to achieve more in your business and your life?

Copyright 2012. Phil Symchych. All Rights Reserved.

Do you stress test your own business plan? If you don’t, who does?

What would happen if revenues drop by 50%, like they did for many businesses in 2009? 50% may be drastic, but what about a 10% or 20% drop?

If sales don’t materialize, how will you fund your own business? Will you invest cash in your business? Your banker doesn’t want to be the only person with skin in the game, especially when it’s your game.

If you are growing rapidly, say faster than 20% per year, how will you fund your increasing working capital needs? Most businesses under-estimate how much cash they need for growth, even highly profitable growth.

What if your largest customer demands a price reduction or leaves you altogether?

What if your best sales person is unable to work or leaves your company?

What if the owner can’t show up for work for two or three months?

What if your main supplier increases prices dramatically or is acquired by a foreign company or goes out of business or tightens up your credit to cash on delivery?

These things might be keeping you up at night but they shouldn’t be. Sit down with your key people and hammer out some contingency plans if these things occur. Better yet, discuss preventive measures so that you are proactively monitoring these areas and can respond quickly at the first sign of problems.

Remember, if everything is running great, you need to work hard to maintain it. Taking success for granted just leads to predictable pain.

By stress testing your business, just like running on the treadmill at the cardiologist’s office, you can identify potential problems and work to prevent or reduce their impact.

Copyright 2012. Phil Symchych. All rights reserved.

Are You As Smart As Your Banker?

This article will be of interest to you if your banker is important to your business, if you want to borrow more money, or if you want to improve the financial health and value of your company.

Phil’s Profit Points™ in Brief:

• Bankers say that their most profitable and successful clients have a strong understanding of their numbers and have good financial management skills or financial people to support them.
• The critical metrics in your business, according to all the bankers I’ve interviewed, are cash flow, working capital, profit margins and leverage.
• Critical banker ratios are your current ratio, debt to equity, and net income to gross revenue.
• Your banker has a wealth of knowledge and advice about your business.

The most common complaint from bankers that I’ve talked to is that many entrepreneurs and business owners don’t know their numbers.

We’re talking about small businesses and some pretty good-sized businesses, $10 million or $20 million in annual revenues. Sure, they know operations and how to take care of the customer. But some don’t understand their own financial statements and make major decisions based on gut-feel. This gives bankers indigestion.

Do you know your numbers?

1. Working capital – the cash necessary to pay your suppliers by collecting your accounts receivable and selling your inventory. How much working capital do you have? Two to three months would be a comfortable number.
2. Days to cash – how long does it take you to convert your labour and materials expenses into cash received from your customer? When you order a computer to be custom-made online, the company takes your money and then either assembles the computer (zero days to cash) or ships one out of inventory (could be 30 -45 days to cash).
3. Inventory aging – A Tim Horton’s coffee shop drive-through restaurant turns its coffee into cash every twenty minutes and then it pours the ‘old’ inventory down the drain.
4. Accounts receivable – are the customers that owe you money all current and under 30 days? If not, are you your customers’ banker? Do you have project hold-backs that are accumulating faster than your profits?
5. Debt to equity – is your total debt within two times your equity? Or, are you taking aggressive tax strategies to reduce your taxes, thereby driving down your profits and killing your retained earnings? Minimizing taxes is the best way to shoot yourself in the foot and prevent your company from being able to borrow money for growth.
6. Net to gross – is your top line growing faster than your bottom line? That is, are you working harder for less? Your bottom line should be growing faster than your top line.
7. Your accounting department or external accountant should be able to help you understand these numbers and set up a measurement system so that you can get this important information every month. If you’re generating the information and sending it to your banker without looking at it, then your banker knows more about your business than you do. Only you can fix that.

By the way, the bankers told me that their most successful clients, with the most profitable and valuable businesses, know their numbers, and use this information to make wise borrowing decisions that accelerate their profits and growth. The information exists in your business. It’s up to you to use it.

Tough Question

Are you using your banker as a money vendor or a strategic partner?

From The Piggy Bank

Bankers want to say ‘yes’ to your financing request. Are you presenting yourself and your information in ways that makes them say yes?

Resources

For free articles to help you grow your business profitably, go here.

For information about how we can help you to borrow wisely, go here.

Have a profitable week!

Phil Symchych, C.A., M.B.A., is the president of SYMCO & CO., author of Phil’s Profit Points™, and owner, or part-owner, of four businesses.

Share the Wealth

If you find this information valuable, please feel free to forward it to a fellow entrepreneur, friend, customer, supplier, banker, advisor or business associate. We are improving entrepreneurs’ lives and strengthening our economies. Thanks!

You may subscribe and encourage others to subscribe by clicking here.

We are now on iTunes! Check out our podcast series called Phil’s Profit Points.

Family businesses face many unique challenges that threaten their short term success and long term survival. Things like professional management, leadership development, performance and profits are critical to any business and even more important to a family business that may be reluctant to hire outsiders for key positions. Yet many family owned businesses grow to become successful global companies because their strong family values and long term perspectives prevent the financial weaknesses of focusing on quarterly earnings.

Ford, a family owned business, is the only major North American car manufacturer that did not declare bankruptcy. Cargill, another family owned business based in Minneapolis, is one of the largest companies that feeds the world. Both of these companies generate excellent results and have very strong brands in the market.

Regardless of the size of your family business, you can access help, advice and resources from other successful family businesses.

The best organization that I know of for helping family businesses is the Canadian Association of Family Enterprises, or CAFE for short. Their website is here.

CAFE has many local chapters across Canada. The fees for a family business to join are ridiculously low compared to the value received.

I’ve been a member for several years. CAFE provides value in several ways. My favourite is the Personal Advisory Group, or PAG, where a small group of people from different families/businesses gets together monthly for a couple of hours in a confidential and safe environment to discuss and share experiences. The process is structured and lead by the group’s moderator. My PAG has provided me with great perspectives and advice and helped me to be a better husband and father in addition to being a wiser consultant and business owner.

The local chapters run workshops and have guest speakers that educate the members and exchange ideas.

There is a bi-annual symposium coming up in Ottawa on May 23-25, 2012.

If you own or work in a family business, then I recommend that you consider joining. Running a business, even with family, can be a lonely adventure. Joining CAFE will strengthen your business and your family.

Copyright 2012 Phil Symchych. All rights reserved.

In my experience, here are some great standards:

• Hotel staff at the Ritz Carlton acknowledge every guest with eye contact and by saying ‘good morning/afternoon.’
• A good retail store (such as Colin O’Brian) acknowledges you by name as soon as you enter.
• When you phone a business, they answer on the second ring.
• When you leave someone a voice message, they call you back within a couple of hours. My banker, the one with the red ‘S’ usually calls me back in ten minutes!
• I placed an order with printingforless.com and they emailed me because they required additional information. I sent it, they acknowledged, implemented and sent back a proof in a matter of hours. Very impressive!
• When you place an order online, you receive an immediate acknowledgement, just like Amazon does.
• When you receive your order, you are sent an acknowledgement by the shipping company within minutes of delivery.
• I emailed my technology gurus, KSP Technology, asking for a password. We received the information in four minutes! I love KSP!

On the other hand, here are some poor service examples that I’ve experienced in the last week:

• I called a business today, was placed on hold, then the line became live and I listened to background noise. I hung up after one minute.
• I called the same business back-twice-and no one answered.
• Standing in line at the grocery store, the clerk is polite once I finally hit the jackpot and can put my stuff on the big belt. It wouldn’t cost anything for the manager to train the clerk (always blame management) to say, ’sorry for the wait, other than than total waste of time, how is your day going?’

Businesses use a combination of human contact and technology to provide fast service and, most importantly, acknowledgement to their customers.

Apparently, customers still like to be treated like human beings.

How are you doing this in your business?

Copyright 2012 Phil Symchych. All rights reserved.

The largest, main burner on our cook-top stopped working. “We’re supposed to host Christmas dinner and I need all my burners,” exclaimed my wife. She called the warranty company – because the repair man told us to always buy an extended warranty on today’s electronically sensitive appliances – and this commenced a lengthy exchange. She provided the serial number and the warranty company needed to send out the local service representative to take a look. Two weeks later, the service rep showed up, made a diagnosis, and left. Then, nothing.

My wife called the warranty company back. They never received any information from the service rep. My wife called the service rep. He said that he faxed the information and will resend it. We waited, and waited. My wife called the warranty people, to whom she wished a “Merry Christmas” because the season was upon us and we, well, my wife, weren’t cooking anything on the main burner. The warranty company still hadn’t received any information.

We called the service company, again. Eventually, my wife helped everyone figure out that the service company had the wrong fax number and sent our information to fax purgatory. Finally, my wife connected the service company’s information with the warranty company.

This is why consulting is so easy, sometimes. Large companies lack management skills and processes and don’t test their own products and services. Small and medium business managers can run circles around any big company manager who has a single department specialty and is busy protecting his turf, but I digress.

Our local company sent the information for the third time. We appreciated their persistence. My wife was now on a first name basis with the warranty people and had elevated her concern to the supervisor. The repair was finally authorized, then scheduled and, finally, performed.

Total time: November 24 to January 17. Only 54 days to fix a burner.

Dr. Faber has extensive global experience, having lived and worked in many interesting countries. His best credential wass that he visited Saskatchewan in January.

Here are the lessons for entrepreneurs.

1. There are many investment alternatives including bonds, equities, real estate, cash and precious metals. These alternatives become more complicated when you factor in which industry sectors, countries and foreign currencies provide the best upside with the lowest risk. You need the help of a good professional to navigate all of this.
2. Remember when our parents invested in Canada Savings Bonds? Life is definitely more complicated now.
3. Interest rates will go up.
4. Deficits in major economies such as the United States will continue to increase financial risk globally.
5. Spending-and by that I mean government supported programs-on consumption is a short-term band aid solution that isn’t sustainable. Spending on capital such as equipment or research and development knowledge can create long-term value.
6. Countries that print money, and that’s most of them, to try and stimulate the economy, end up creating long-term problems because they can’t control where the new money is being spent.
7. A business that’s losing money won’t fix its problems by borrowing more money. You have to stop the bleeding first.
8. The key difference between economists and entrepreneurs is that economists measure things with charts spanning decades and entrepreneurs measure cash today.

In my opinion, it appears that the best investment is in your own business! You know the customers, the suppliers, and the industry. You are in the best position to grow your business. Are you generating a healthy 10% or 20% return on investment in your business? You should be.

You must be proactive, know your numbers and act decisively. Otherwise, there is a factory in some foreign country that is using government funding to create jobs, doesn’t have a profit motive and is trying to enter your market with a ridiculous price. Sound familiar? Are you competing with five dollar an hour wages somewhere?

Here is my economic prediction: the experts still won’t be able to predict the future. No one can. That’s why you have to use your common sense. And, invest in yourself.

Copyright 2012. Phil Symchych. All rights reserved.

Attracting More Customers

This article will be of interest to you if you want to strengthen your marketing presence, increase awareness of your products and service, make them more accessible, and increase your revenues and profits.

Phil’s Profit Points™ in Brief:

• Marketing isn’t just about advertising.
• Marketing has a much broader definition and includes the product’s unique characteristics, value to your customer (this can vary for each customer), pricing (when combined with unbundling, this is the fastest way to increase your profits), promotion (includes advertising and many other things), distribution (how do they buy, how do you deliver), online presence and branding.

Attracting More Customers

• Characteristics — what does your product look like or feel like. What does it do? For service companies, it’s very important to make the intangible parts more tangible. Does you customer need responsiveness, quality or low price? They can’t have all three. Which characteristics are most important to your customer?
• Value to your customer — your customer makes an intentional decision to acquire your products and services. Do you know why? Why do they purchase yours instead of someone else’s? The best way to answer these questions is to ask your customer. What are the logical and emotional needs and wants that you meet?
• Pricing — the best pricing strategy is to have multiple price points reflecting different levels of value. Give your customer choices. Too often, entrepreneurs include everything they can think of to make the sale. Unbundle and price separately; just like manufacturers who sell warranties or service firms who sell responsiveness options.
• Promotion — advertising is the most expensive form of promotion. Giving away some of your knowledge and expertise for free can be a more cost-effective way to attract and retain customers than advertising. Your best promoters are your happy customers. Do you have a formal referral system? The yellow pages are dead: “Long live the yellow pages.”
• Distribution — where, when and how do you deliver your products and services? Technology is making it easier, faster and cheaper to provide services across borders and around the world. Amazon ships globally. I provide mentoring services to clients in Canada, the United States and Australia; all with the free Skype service.
• Online Presence — your website and blog are critical pieces of your marketing strategy. They enable you to demonstrate your expertise and differentiate yourself from your competitors. How often do you update your website and blog? Are you talking about yourself or providing value that is building your credibility?
• Customer Experience — how does your customer feel when they deal with you? Even in industrial or construction environments, emotion plays a part in decision-making. A contractor wants to feel confident that their materials will arrive on time, as ordered, and in great condition. How do you reduce your customer’s stress?
• Branding — what is your brand? Branding can be defined as your customer’s perception of your business. How do your customers and prospects perceive your business?

Tough Question

How much time do you spend on improving your marketing compared to running the day-to-day operations?

From The Piggy Bank

Most companies under-invest in marketing and over-invest in production — but nobody knows they have a better widget.

Have a profitable week!

Phil Symchych, C.A., M.B.A., is the president of SYMCO & CO., author of Phil’s Profit Points™, and owner, or part-owner, of four businesses.

Share the Wealth

If you find this information valuable, please feel free to forward it to a fellow entrepreneur, friend, customer, supplier, banker, advisor or business associate. We are improving entrepreneurs’ lives and strengthening our economies. Thanks!

You may subscribe and encourage others to subscribe by clicking here.

We are now on iTunes! Check out our podcast series called Phil’s Profit Points.