Archive for July 2009
Today sustaining and growing business at any level is a challenge. Major companies have cutback which has dramatically affected many small businesses. We are at the mid-year point which is a good time to take stock and plan for the second half.
What should you be reviewing and adjusting? I recommend answering the following questions:
- Where is the current year revenue compared to the budget and last year? What do you see for the next six months, higher or lower? This is important to know as it impacts expense levels and capital spending.
- Where are the current year expenses compared to budget and last year? Did you have any surprises? What do you anticipate for the second half of 2009?
- How much have your pared down your staff? How will you operate when the recovery starts? Who do you really need at the outset?
- What are your plans for purchasing equipment and facility upgrades? Do you need to own? Have you considered leasing?
- What is working in your marketing activities and what do you need to change? How will changes impact your expense level?
- How are you managing accounts receivable and payable? Are customers paying in about the same time as last year or lagging? How are you paying your vendors? How old are your oldest receivables? The older they get, the harder they are to collect.
- What are your plans for bonus payout? About mid-year employees start to think about and even inquire about their bonus. Will you need to delay the payout in order to preserve cash? What will you say to those employees who will be affected?
- What are your plans for when the recovery starts? Are you developing new products or services? How do you plan to announce the product or service? How far behind the competition will you be when the recovery starts if you have no new product or services to offer?
Too many businesses wait to evaluate their results until the after the year is over. Failure to review now means the inability to react and respond in a timely manner. Do it now!
I work through a twelve-step process when establishing a client’s advisory board. I start the planning by asking the CEO to articulate and document their vision of where the company is going. I start here because without a vision there is no way to evaluate what is needed in advisor expertise and nothing to compel a prospective advisor to serve.
I have found the writing of Jim Collins (Built to Last and Good to Great) to be a great source of questions to guide a CEO in thinking through their vision. Based on the Collins material, I structure the vision exercise around these three questions:
- What does the company stand for or why does it exist?
- What is the company good at?
- What does the market want and need?
Check back for the other eleven steps and look for the Advisory Board Kit, a comprehensive guide to establishing your own advisory board, to be released this summer.
Brad Feld the venture capitalist explained very succinctly what he likes and dislikes about early stage entrepreneurs raising money. He states in the May issue of Inc.: they are “the ones who can explain their business on a whiteboard. They don’t need a 42-page Excel spreadsheet…they don’t need a CFO to explain the intricacies of their model.” He wants to see how you think about your business, understanding the different pieces and how they need to interact.
While not all businesses will need venture capital and some will need loans, this is a nugget of good advice. All CEOs need to be conversant in the financial statements of their company. If you avoided accounting and finance so far now is the time to enlist the aid of a CFO or someone similar. Use this individual to quickly bring you up to speed on the financial details of your business model.
I learned over the years I served as a CFO that all CEOs understand to some degree of the financial aspects of their business. All I needed to do what track the questions they asked, often the same ones weekly and I could figure out what metrics mattered to them.
Now that you have a senior financial person on board ask them to develop a basic dashboard or flash report from the questions you ask. If you start there you will eventually understand how to read the balance sheet, income statement and cash flow of your business. And the statement you need to learn to read first is the cashflow.
