I was weighing up some options for a client over the weekend. They are worried about what might happen if a plan didn’t work.
It got me thinking. What was the worst thing that could happen? If the plan didn’t work, there was still a business, a reputation, and a lot of goodwill. Life might not be easy, but life would carry on.
When starting a business, it is essential to know what your bottom line is. If the idea doesn’t work, when is the right time to walk away, or change the plan?
To some, running a small business is almost a hobby – the impact of financial failure is minimal due to other streams of income (for example a partner’s salary). But if the consequences of failure are more material (no money to pay the rent, buy petrol, or eat), then knowing when enough is enough starts to seem sensible.
Motivation to succeed is often fuelled by an appreciation of the consequences of failure.
In the same way that success can be measured in terms other than pounds in the bank, so can failure. Working out what you want, or what you don’t want to lose, is harder than you think when you start to think beyond the bank balance.
I am not suggesting that businesses should always worry about the worst case scenario, but I would suggest that having the option to quit while still ahead is better than the alternative.
So, having identified the worst case scenario, now it’s time to focus on the positives, aim high, and succeed!
I was talking to a client recently about their business. They were explaining to me what information they wanted to see on a regular basis that they believed would help them monitor their business. The indicators he felt were key were Turnover (sales income), Profit, and Cash in the bank.
Without wanting to start an argument there and then, I realised that I have a lot of work to do to get the business owner to understand what he really needs to know, why he needs to know these things, and what he needs to do about things when they are not good.
I have often talked about the Balance Sheet being more important than the Profit and loss, and I still stand by this statement. The Balance Sheet tells you what you own, who owes you money, and who you owe money to. These three facts give you a far better snapshot of your businesses health than any other measurement.
Take cash in the bank as an example. It doesn’t include cheque payments to suppliers that have not cleared. It doesn’t tell you how much you are owed by customers, or how much you owe to your suppliers.
Profit is a nice measurement if you are the taxman, but it doesn’t tell you how profitable you are. Making more profit than last year might sound good, but what will you do if you are only making 10% net profit, when last year you made 15%?
Running a business requires focus on the future. A review of the past is helpful, but only if you do things differently as a result of the lessons you have learnt. If you are measuring your performance by the wrong indicators, do you even know what those lessons are?
Ok, so fuel goes down by a penny at 6pm. It’s still expensive. On the plus side, as an employee I will be able to claim 45p per mile from my employer fro the first 10,000 miles I drive. If I own the business, I might not feel so great about parting with up to £500 per employee…
Then again, as a business, I have some good news, the VAT threshold is now at £73k, and corporation tax is reducing (unless you are already an SME, and already only paying 20%, in which case there is no change).
Tax avoidance measures are being ramped up – the government is looking to pull in an extra £1billion more per year in “lost” revenue. If you are avoiding paying tax, make sure its legitimate!
My personal tax allowance is going up by £630 per year, but not until April 2012.
The bigger picture is a mixed bag. Growth is still growth, but only just. To help kick start regions that are really struggling, Enterprise Zones have been established. At first glance they may have some attractive strengths: potentially 100% rate relief if you move into the region, and the promise of super-fast broadband.
As expected, the squeeze on public spending continues, with council taxes frozen, or reduced.
To my mind, and as a small business myself, all the above suggests one thing, opportunity. As a chair of governors of a local school, I have already received the first of what I expect to be many approaches from a private company, this time selling expertise that was previously provided free of charge by the Local Authority.
The world hasn’t stopped, its changing direction. Which way are you pointing?
A colleague told me yesterday that a mutual client has called him by mistake, when they were trying to get hold of me. As the client launched into a detailed explanation of their challenges and voicing their ideas, he hadn’t been able to explain that they had dialled a wrong number until after a few minutes.
The thought crossed my colleague’s mind that the problem the client was describing might be something he could help them with. But on reflection he knew he had to stop the conversation and direct the call to the right person.
My colleague and I chatted about how important it was that the right person helps at the right time. The “presenting problem” is rarely the real issue. As a business consultant/coach, my role is to find the heart of the real issue, and to help suggest and implement some solutions. Sometimes it’s gut instinct, sometimes it’s noticing particular words, sometimes it’s just about asking the right questions.
Consultants are sometimes accused of borrowing your watch and then charging you to tell you the time. But if your problem is that you don’t know how to tell the time, then asking a consultant for help seems like a good idea to me.
Life is difficult, and there are enough challenges for each of us without having to feel like we must do everything on our own. Asking for help from the right person at the right time can sometimes be the difference between success and failure.
Many years ago I read a story, in which a traveller asks for help finding Dave’s Bar. The local man replies after some thought, “Well, I wouldn’t start from here”.
I have had a number of meetings recently in which the subject of how best to report on financial and business performance has been debated. Traditionally, detailed reports are presented giving chapter and verse on past activity, explaining why the results are what they were, and how the variance between budget and actual is accounted for.
All this is fine, but it leaves me asking the same question, “So what?” You know (I hope) where you want to go, so given where you are now (and it may not be where you wanted or expected to be), how are you going to get to Dave’s Bar?
I suggest that reports should spend no more than 20% on historical analysis, noting key events and any exceptional activities, and the remaining 80% on what you will be doing differently as a result of what has been learned, and what impact these changes will have on your forecast.
By reporting more on the future than the past, and incorporating lessons learnt as you go, you dramatically reduce the chances of being caught out.
This should spell the end of the traditional annual budget, and the start of regular reforecasting. Yes, it’s interesting to know how we got here, but of paramount importance is to know how we are going get from where we are now, to where we want to go, even if it’s only to Dave’s Bar.
Businesses need banks, and banks need businesses. But as a business owner, how do you decide which bank to trust your money with?
I have helped a number of organisations choose a bank – some for the first time, some because they wanted a change, and some because they needed to change!
There are many considerations to weigh up, including: cost, secondary services, knowledge of your business sector, location of branches, access to help. To me, the most important factor when deciding who to bank with is the Relationship Manager.
It is perhaps a little unfair to say that all banks are alike, however, there is generally very little between them in cost, in location, and in the general service they offer. To my mind therefore, the biggest difference between banks is in their staff.
When I needed to set up a bank account for my business, I walked down the high street in my home town, and walked into every bank. I asked the same question in each branch, “Please can I talk to someone about setting up a business bank account”. Within 30 seconds of walking in, I felt I knew how much the person I was talking to cared about me and my business.
I would not want anyone to think that choosing a bank is a decision to take lightly – particularly in today’s economic climate. Never forget who is the customer. As ever, more than numbers and statistics, it’s the people we do business with that matter, and I suggest that this includes your bank’s Relationship Manager.
I was watching the Six Nations rugby international between France and Wales last night. At half time, France were winning 20-0. The commentators pulled up the traditional statistics, showing possession, territory, line-outs won and lost, and so on. Looking at these statistics, there was very little between the two teams, and yet the most important facts, the score, suggested that France were doing something very different to Wales.
Talking this over at half time, the difference seemed to come down to two points, France had had two lucky breaks, and seemed to be passing the ball out of the tackle more than Wales. And yet neither of these were included in the statistics shown on TV.
If lucky breaks can change the result of a game, then they should be counted and analysed. Do lucky breaks just happen? Or can a team prepare and train to spot them and take advantage of them?
In business, do we look at the statistics that really tell us what is going on? The amount of cash in the bank, or profit, are easy to measure and give us one indication of how we are doing, but they do not explain why the result is what it is, or whether it is better or worse than reasonably expected.
Whether as a Finance Director, or the coach of a national rugby team, I always look for the information and data that tells me what is really going on. Traditional statistics tell one story, but is it the most useful one?
This question was asked at a recent conference for new entrepreneurs and sole traders. It struck a chord; not just with those in the audience, but also those on the panel, and with others who have been asked for their thoughts.
A client of mine actually describes themselves on their website as “self-effacing”, and see this quality as helping make them attractive to potential customers, by being seen as not pushy. Others I have spoken to, talk about how they struggle with collecting money due from clients, and how they are worried about being rude. On the other hand, we can probably all think of someone who succeeds through relentless salesmanship.
As usual, I suspect the truth lies somewhere in the middle.
I would suggest that you can be incredibly persistent without being annoying; by being polite, or by pointing out the (potentially mutual) benefits of getting what you want, for example. In theory, with humour and good grace, it may be possible to be rude, without becoming annoying.
In business, and to an extent in our personal lives, persistence is a key skill to getting what we want.
The point of being persistent is to keep asking for something you want, until you get it. Becoming annoying suggests that the person you want it from has reached a point where they don’t want you to have it.
How do you get the best out of your staff? I was talking this through with a client recently, and stumbled across something that I called the Martin Johnson Syndrome.
My client was without doubt employing some of the brightest, most knowledgeable, people in their field. But he was frustrated by their unwillingness to demonstrate through actions that they had bought into his vision, to take risks, or to stop “playing it safe”.
He acknowledged that the organisation’s culture was changing, from being fairly autocratic, to one of empowerment and delegation of responsibility, but he couldn’t get his team to take the initiative.
After talking with some of his managers, I had one of those “light-bulb” moments. I knew that my client was well respected, in his field, as well as by his colleagues, but I hadn’t realised just how well he was respected. His managers were afraid of failing, and in particular, of failing in the eyes of their boss – my client.
I had read recently about the poor results of the England rugby team. There was little debate about the quality of the players, and how their collective ability was, on paper, excellent. But they were lacking that something special, that bit of magic, which turned them into a winning team. The writer surmised that they were in complete awe of their manager, Martin Johnson. Johnson is an inspirational leader, who has achieved the ultimate goals in the game (including captaining the England team that won the World Cup). The players, so the theory went, were afraid of taking risks, of trying something adventurous, in case they failed.
My suggestion to my client was simple. He needed to convince his team that he had trust and confidence in their abilities. Telling them was not enough. He needed to demonstrate through examples what his reaction would be when they failed. I even suggested that he create a situation in which one of his staff was “set up to fail”, so that he could show them how supportive he was.
Empowering people who are not used, or willing, to fail is not easy. Demonstrating your trust and confidence in them requires a special kind of management. I hope for England’s sake that Johnson has cracked it. Have you?
I have heard a few New Year’s Resolutions in the last 48 hours, and have a formed a fairly good idea which will succeed, and which won’t. How? Because the ones that will work are SMART. This old method of establishing goals is as valid now as it ever was, and here’s my logic:
“Joining a gym” is too vague, as is starting jogging. Ask yourself, why am I doing this, what is my objective – is it too lose weight (how much?), to give yourself some “me-time” (again, how much?).
As above, how will you know when you have achieved it? If you want to “get fit”, how will you know you are fit? Is there an event you can take part in to demonstrate you have reached your goal?
Do you want to run a marathon in 2010? Unless you have already started, you aren’t going to suddenly be able to complete the London this spring… Don’t set yourself up to fail. Pick one in a few months time to give yourself a good chance of succeeding.
Why do you want to do it? Why is your goal important to you? Doing something for someone else is not as powerful a motivational force as doing it for you. It may be of benefit to others (as in “I want to start volunteering”), but what will you get out of it?
Time When will you start, when will you aim to finish, are there milestones along the way to show that you are on track to succeed?
Succeeding in business uses many of the same principles we use in our personal lives. Sometimes you can succeed on your own; sometimes you need a little help. The trick is to know when to ask for help…