Tuesday, September 27, 2011

Can Small Business and Finance Co-Exist

Small businesses usually resist everything they hear about the best practices and things they should do with the finaincial and accounting matters of their business. Why? Common excuses include:
'It takes too much time'
'It costs too much money'
'I'll just give all my receipts to my accountant at the end of the year'
'Only big companies can afford to accept credit cards from their customers'
'I'll just pay my taxes later, I'm sure the IRS will waive all the interest and fees'

In my recent article on @SmallBizLady's blog, 5 Finance Secrets to Make Your Business More Successful, I make an effort to explain why these excuses are not valid. They are myths, really, all of which will keep you from making

Monday, September 19, 2011

Know Your Customer or Die

With four young children in tow more than five years ago, my wife and I gave a child-themed haircut establishment a try. It seemed like letting the kids play video games during a routine haircut was a great idea, and our older boys loved it. However, amid the chaos of loading up all the kids and making our way to the store, one of my boys forgot his shoes.

When he needed to use the restroom and one of the employees saw his bare feet walking across the floor, she yelled: "Don't walk on our floor without shoes!" He started to cry, and the employee began to lecture my wife, in a not very kind way, about why letting her shoeless child engage in such a crime was a felonious act. My wife picked him up and returned to the waiting area.

Rather than jump in, I watched for another minute to see what would happen. This employee walked over to the other employees who were working with other customers. She began complaining about our poor parenting skills, talking, then pointing at us, then talking more.

"We're not staying here," I said to my wife. "Let's gather up the kids and leave. I've never seen someone treat you so disrespectfully. They'll never get our business--not today, not ever."

Yelling at the children of the people who pay you is not good business. Belittling, both directly and indirectly, the person who is parting with their hard-earned money for your services contradicts everything I was taught in business school. But the real problem is this--that employee did not know, and, therefore, did not care about the customer. What parent of four young children, all under the age of 8, doesn't feel a little frazzled, lucky to get them all into the store successfully? Rather than hammer an already-overwhelmed mother, why not help her succeed. Maybe carry the child across the floor. Have an extra pair of flip-flops for such an occurrence.

Notice I am not suggesting that an employee should deviate from a policy that exists to protect the customers and the employees. But how about a little creativity to help the customer succeed? With a little kindness, my wife would have frequented that business for a long time. A total of six kids, each needing a haircut every 6-8 weeks, for their entire childhood--any idea what the lifetime value of my wife, the customer, was when she walked out the door, never to return? Clearly they didn't, and I'll bet that has something to do with why they're no longer in business.

My point is this--every business needs to know their customers, intimately. Know what their challenges are, what makes them tick, what helps them succeed. Become an advocate for them. If you do so, it's pretty unlikely your company's fate will be likened to past, present, and future businesses too focused on their company, their policies, and their procedures to notice, and know, their customers.

Tuesday, September 13, 2011

Software Doesn't Solve Problems, People Do

Having attended a well-run Corporate Performance Management Conference by CFO Magazine, I heard almost every business leader, CFO, and finance executive present talk about being “tool agnostic.” This phrase references the need to define what metrics and data your organizations needs, figure out where it will come from, and then you can find a tool to help you accomplish the task.

This supports a long-time philosophy I’ve always followed: software (the tool) doesn’t solve problems, but people do. I have seen many companies that buy expensive ERP, accounting, project management, and other kinds of software, thinking that the purchase and tool alone would magically fix the much deeper-rooted problems.

For example, a manufacturing company could not close its financial books within 15 days of the end of the month. They recently bought a new accounting system, hoping their flawed processes would somehow correct themselves with new software. No such luck. The expensive purchase only exacerbated their internally-flawed processes.

Here’s another, much more effective example. Another manufacturing company was having issues with its ERP system. It just didn’t do everything they needed it to. The company did everything it could to improve its processes to solve the problem, but the ERP was truly the limitation.

This is where your people come in. You hire smart people to solve problems. Before you buy software, make you and your team have solved the problems. Then, build a process to keep that problem fixed. Then, and only then, do you deploy technology and software to automate the process. From here your team can monitor and tweak your processes as your business adjusts and pivots according to its strategic plan, after which they can update the way they are using technology to automate the process.

Key Take-Away: 
Do not rush out and buy software or other technology until you have analyzed exactly what your needs are and you are confident you have diligently vetted your processes, finding them rock solid. Only then should you invest in the appropriate tools to automate the processes and deliver the results you desire--the most cost effective yet high-impact method to manage and improve your business performance.

Monday, September 12, 2011

Clarity and Fear, an Inverse Relationship

Guess what I did to commemorate 9/11? I got on an airplane and flew somewhere, specifically to CFO Magazine's Corporate Performance Management Conference (search Twitter for #cfocpm to catch the string of updates throughout the day). The 9/11 terrorists were far less concerned with the destuction and tragedy they caused 10 years ago than they were with instilling fear into those of us who were left pick up the pieces, trying to make sense of it all. What better way to remember and honor those who made sacrifices 10 years ago than to make sure the perpetrators did not accomplish their desire? Getting on an airplane, as insignificant as it was, seemed like a good way to honor them.

Was I afraid? No, not really. Fear is debilitating, but so many of us, especially those who are trying to make a go with one or more entrepreneurial ventures, allow fear to cripple our ability to make the right decisions. Let me explain...

Business analytics, business intelligence, corporate performance management, scoreboards, dashboards, etc. all lead to one thing if they are done correctly--clarity. The more clarity you have about your future, the less anxiety and fear you will feel as it relates to your business. You may not like the outcome you see in the future, but that creates a positive kind of anxiety and fear, the kind that drives you to overcome obstacles, solve problems, and make your business a success.

A major theme at the conference today was the best practices employed by CFOs to accurately forecast and plan for the future. Thomas Davenport's list of Performance Management Nirvana had this at the very top: "We'd have predictions of future corporate performance, not reports on the past." It's not just a state of nirvana. It can be accomplished in every business.

The other major theme that came out of the various meetings and workshops was the trend toward rolling annual plans, or budgets. Rather than create a 12-month budget only to see the number of forecasted months tick off, resulting in 1 fewer month forecasted as each one passes by, many organizations are moving to a rolling forecasting process. The static, one-time per year budgeting process is being set aside in favor of a dynamic forecast that adjusts and upates, sometimes as frequently as monthly but never less than quarterly, according to changes in your assumptions and the key drivers of your business model.

To validate this paradigm shift, John O'Rourke asked a room full of CFOs who among the group was adopting this new philosophy. He estimated 50% raised their hands, a pretty powerful testimony--CFOs take a lot of convincing to change, so obviously many are seeing positive results from the rolling forecast process.

Your competitors want you to be afraid. Your lack of confidence in your own abilities will make you feel afraid. The doubts of family and friends will generate some fear. Customers and employees leaving will create some fear. The way you face these fears and refuse to let them control you is to devote the resources necessary (a combination of staff, processes, and technology), which is usually much more affordable than you might think, to use the analytics of your business to improve performance and better understand the future. This brings clarity and reduces the anxiety and fear so many business owners experience.

Tuesday, September 6, 2011

When Good Habits Become Bad

Starting and running a small business (less than $1 million in annual sales) is a lot different than running a bigger business. A founder that breaks through that $1 million in annual sales barrier often finds many challenges waiting for him or her on the other side, and parting with old habits to embrace a new way of doing and seeing things is harder than it originally appears.

In a small company, the founder has to do everything and be involved in everything. Letting go of every detail is required to grow. In fact, failure to do so can actually hinder growth (see my recent AMEX article 5 Ways to Stop Stunting Your Growth).

When the company is small, it is easy for the founder or business owner to keep all of the details of the company in their head, elimating some of the need for timely financial and operational reporting. However, as the size and overall complexity of the business increases, reporting has to replace being involved in every detail of the day-to-day operations.

KEY TAKE-AWAY:
You need to grow and evolve as your business does, or else you need to hire someone to run your company while you focus on bringing it value in the most effective way possible.