“Communication is to leadership as the swing is to golf; everyone can do it, but few do it well.”
Consistently, “being in the know” ranks near the top of employee satisfaction surveys. People want to know what’s going on around here. They want to know what their part is. They want to know how events, both good and bad, are impacting the company.
Imagine an assembly line worker at an automobile plant. His job is to insert the same size bolt into the same hole for each part that comes down the line. He doesn’t know what the part is, doesn’t know why it needs to be in the car, and doesn’t know how the car would perform without it. All he knows is that he’s supposed to put the same size bolt into each and every part that comes down the assembly line.
Now let’s assume our worker knows that the part coming down the assembly line is part of the braking system. He also knows if he inserts the bolt incorrectly, the braking system could fail and cause a collision. And let’s assume he understands that the company wants to position itself as making the safest car on the road. Doesn’t it stand to reason that under these circumstances, our worker would be more careful and more diligent in doing his job?
Your employees will help you reach your goals, but only if they know what they are. They need to know what the company is trying to do and where it’s trying to go. They need to know why their job is important and how it fits into the overall company objectives. So if the job of leadership is to get everyone efficiently and effectively pulling in the same direction, then good communication is key.
Good communication is accurate, complete, and truthful. It’s frequent and sends a consistent message. It invites feedback. And it’s offered in a variety of formats . . . newsletters, memos, all-company meetings, departmental brown bag lunches, individual 1-to-1 meetings. Longer term issues such as the company’s annual goals or its overall direction need to be constantly and consistently repeated, not only to make sure new employees get the message, but also to make sure the message is top-of-mind for existing employees. If we’re exceeding our goals, tell me so I can help celebrate. If we’re falling short of our goals, tell me that too and tell me how I can help get us back on track. If the company’s direction needs to change, tell me what the change will be, why it’s necessary, and how the change may affect my job.
There’s a temptation to withhold bad news or worse, to sugar-coat it. Always a bad idea. When you’ve got bad news to deliver, deliver it straight up. Don’t over-dramatize it, don’t dress it up. Just tell it like it is and describe how the company intends to respond. Invite suggestions and feedback. Your people can’t help you if they don’t know what’s going on.
It’s all about building trust. Employees need to know that you trust them with important company information. They also need to know that they can trust the information they are getting. If you nurture, protect, and validate that trust, you will have created a powerful leadership resource. If you have their trust, your employees will follow you almost anywhere.
For more small business blogs, visit my webside at www.rocksolidbizdevelopment.com.
Monday, March 29, 2010
Monday, March 22, 2010
Cash is King
Is it in your organization? It should be. You should be forecasting your cash for the next thirty days, reviewing it daily, updating it weekly.
Some small business owners are unclear on the difference between “cash” and “profit.” They are totally different. You can be very profitable and still run out of cash. Likewise, you can be in a good cash position even if your financial statements are showing a loss. If you’re not clear on this, have your accountant explain it to you. But for purposes of this discussion, “cash” is the money you have immediately available . . . usually whatever you have in your checking account plus whatever you have in a bank line of credit. When you spend more money than you deposit, your cash goes down . . . you have negative cash flow and that’s bad. When you put more money into the bank than you are drawing out, you have positive cash flow and that’s good.
When you think of a cash flow forecast, think of your check book. Your check book is an historical record of what you deposited, what you spent, and what your balance was at any point in time. A cash flow forecast is the same thing except it’s predicting future deposits and withdrawals rather than recording past transactions.
So to start, you record your “opening balance” which is the cash you can access immediately as described above. Then you schedule the bills you expect to pay (including payroll, taxes, etc.) over the next thirty days and predict the receivables you will collect over the same period. Of course, your “opening balance” will go up and down during the course of the month as bills are paid and deposits are made. If you finish the month with a “closing balance” that is below your opening balance, then your cash flow for the month was negative. If your closing balance is higher, your cash flow for the month was positive.
The real value of this cash forecasting is that it allows you to closely manage your cash on a daily basis. If receivable collections don’t occur as predicted, you may elect to postpone paying some bills until the expected receivables arrive. Or if receivables arrive more quickly than expected, you may elect to accelerate some vendor payments. But most importantly, cash forecasting is an early warning system that alerts you if you are going to run out of cash and gives you time to arrange some bridge financing with your bank
Good cash management is essential to the financial health of a business. Worrying about running out of cash is one of the things that keeps small business owners awake at night. But there’s a cure for insomnia. Each day, look at how much cash you had to start the day, how much was deposited, how much was paid out, and how much cash you had at the end of the day. It can be a simple report that doesn’t take any time to generate or to read. Do it. You’ll sleep better.
For more small business blogs, visit my website at www.rocksolidbizdevelopment.com.
Some small business owners are unclear on the difference between “cash” and “profit.” They are totally different. You can be very profitable and still run out of cash. Likewise, you can be in a good cash position even if your financial statements are showing a loss. If you’re not clear on this, have your accountant explain it to you. But for purposes of this discussion, “cash” is the money you have immediately available . . . usually whatever you have in your checking account plus whatever you have in a bank line of credit. When you spend more money than you deposit, your cash goes down . . . you have negative cash flow and that’s bad. When you put more money into the bank than you are drawing out, you have positive cash flow and that’s good.
When you think of a cash flow forecast, think of your check book. Your check book is an historical record of what you deposited, what you spent, and what your balance was at any point in time. A cash flow forecast is the same thing except it’s predicting future deposits and withdrawals rather than recording past transactions.
So to start, you record your “opening balance” which is the cash you can access immediately as described above. Then you schedule the bills you expect to pay (including payroll, taxes, etc.) over the next thirty days and predict the receivables you will collect over the same period. Of course, your “opening balance” will go up and down during the course of the month as bills are paid and deposits are made. If you finish the month with a “closing balance” that is below your opening balance, then your cash flow for the month was negative. If your closing balance is higher, your cash flow for the month was positive.
The real value of this cash forecasting is that it allows you to closely manage your cash on a daily basis. If receivable collections don’t occur as predicted, you may elect to postpone paying some bills until the expected receivables arrive. Or if receivables arrive more quickly than expected, you may elect to accelerate some vendor payments. But most importantly, cash forecasting is an early warning system that alerts you if you are going to run out of cash and gives you time to arrange some bridge financing with your bank
Good cash management is essential to the financial health of a business. Worrying about running out of cash is one of the things that keeps small business owners awake at night. But there’s a cure for insomnia. Each day, look at how much cash you had to start the day, how much was deposited, how much was paid out, and how much cash you had at the end of the day. It can be a simple report that doesn’t take any time to generate or to read. Do it. You’ll sleep better.
For more small business blogs, visit my website at www.rocksolidbizdevelopment.com.
Monday, March 15, 2010
Anticipate Your Cash Requirements
“Most companies grow themselves out of business. They either can’t finance (the growth), or they can’t manage it.”
Sadly, when a business fails, it is often not because it was founded on a bad idea. It’s because it simply runs out of money. Even if the business is profitable, it can still be cash-starved out of business. How does that happen?
Several ways.
If the business is a brand new startup, the entrepreneur at the controls will often underestimate his or her expenses. It might be that s/he misunderstood the labor market and ended up having to pay more than expected for key positions. Or, the cost of raw materials or inventory might have spiked unexpectedly. Or maybe sales just didn’t ramp up as quickly as expected. The bottom line is, too many startups try to get their doors open on a shoestring. If their sales forecasts and expense projections are right on target, they may get away with it. But more often, something is overlooked or something unanticipated occurs, and before the fledgling business knows it, it’s awash in red ink.
The second problem small business owners tend to bring on themselves is trying to grow the business too quickly. In almost every case, growth is expensive. A business may need to add people or inventory or equipment or office space to handle the additional volume. An owner may try to handle growth expenses out of earnings (rather than borrowing from a bank or a private investor), but like his startup counterpart, this owner may fall victim to an overly optimistic sales forecast. When sales don’t explode as planned, we suddenly have some significant extra expenses (people, inventory, equipment or office space) without sufficient new sales to cover those expenses.
The problem in both cases is the natural optimism of the entrepreneur . . . the expectation that everything will work out somehow. The “can do” spirit and “full speed ahead” determination is what makes entrepreneurs unique and successful. But it can also get them in trouble if they don’t correctly anticipate their cash requirements.
The answer, of course, is to keep a cash reserve beyond what you believe you’ll need so that when you hit an unexpected bump in the road, it doesn’t put you out of the game. And the bigger the reserve, the better. The bigger the reserve, the bigger the bump you can hit.
For more small business blogs, visit my website at www.rocksolidbizdevelopment.com.
Sadly, when a business fails, it is often not because it was founded on a bad idea. It’s because it simply runs out of money. Even if the business is profitable, it can still be cash-starved out of business. How does that happen?
Several ways.
If the business is a brand new startup, the entrepreneur at the controls will often underestimate his or her expenses. It might be that s/he misunderstood the labor market and ended up having to pay more than expected for key positions. Or, the cost of raw materials or inventory might have spiked unexpectedly. Or maybe sales just didn’t ramp up as quickly as expected. The bottom line is, too many startups try to get their doors open on a shoestring. If their sales forecasts and expense projections are right on target, they may get away with it. But more often, something is overlooked or something unanticipated occurs, and before the fledgling business knows it, it’s awash in red ink.
The second problem small business owners tend to bring on themselves is trying to grow the business too quickly. In almost every case, growth is expensive. A business may need to add people or inventory or equipment or office space to handle the additional volume. An owner may try to handle growth expenses out of earnings (rather than borrowing from a bank or a private investor), but like his startup counterpart, this owner may fall victim to an overly optimistic sales forecast. When sales don’t explode as planned, we suddenly have some significant extra expenses (people, inventory, equipment or office space) without sufficient new sales to cover those expenses.
The problem in both cases is the natural optimism of the entrepreneur . . . the expectation that everything will work out somehow. The “can do” spirit and “full speed ahead” determination is what makes entrepreneurs unique and successful. But it can also get them in trouble if they don’t correctly anticipate their cash requirements.
The answer, of course, is to keep a cash reserve beyond what you believe you’ll need so that when you hit an unexpected bump in the road, it doesn’t put you out of the game. And the bigger the reserve, the better. The bigger the reserve, the bigger the bump you can hit.
For more small business blogs, visit my website at www.rocksolidbizdevelopment.com.
Monday, March 8, 2010
Develop Your Own Leadership Style
“The result of leadership is a group of people working toward a common goal because they want to, not because they have to.”
This is only one quote on leadership among hundreds, or more likely, thousands. There is probably no other concept in business that’s gotten as much attention as leadership. But what is it? Most of us think we know it when we see it, but it shows up in so many diverse situations and in so many different styles that it’s difficult to give it a succinct, one-size-fits-all definition.
My trusty dictionary defines leadership this way:
the position or function of a leader
the ability to lead
an act or instance of leading
the leaders of a group
Not really very helpful, is it?
I think the quote at the top is correct in terms of an outcome of leadership. The outcome has to be to give people the confidence and desire to work together toward a specific goal. But what does it look like in action? As it turns out, it has hundreds and thousands and millions of looks. That’s why it defies definition.
I believe true leadership means being authentic, being yourself. You can’t fake it. You can’t imitate someone else’s leadership style. You develop a style of leadership that reflects who you are . . . your personality, your values, your way of communicating. Great leaders come in all sorts of packages. Some are quiet and thoughtful, some are brash and commanding, some are humble, some are arrogant. They all can work. So don’t try to fit into somebody else’s package. Work on developing your own.
For more small business blogs, visit my website at www.rocksolidbizdevelopment.com.
This is only one quote on leadership among hundreds, or more likely, thousands. There is probably no other concept in business that’s gotten as much attention as leadership. But what is it? Most of us think we know it when we see it, but it shows up in so many diverse situations and in so many different styles that it’s difficult to give it a succinct, one-size-fits-all definition.
My trusty dictionary defines leadership this way:
the position or function of a leader
the ability to lead
an act or instance of leading
the leaders of a group
Not really very helpful, is it?
I think the quote at the top is correct in terms of an outcome of leadership. The outcome has to be to give people the confidence and desire to work together toward a specific goal. But what does it look like in action? As it turns out, it has hundreds and thousands and millions of looks. That’s why it defies definition.
I believe true leadership means being authentic, being yourself. You can’t fake it. You can’t imitate someone else’s leadership style. You develop a style of leadership that reflects who you are . . . your personality, your values, your way of communicating. Great leaders come in all sorts of packages. Some are quiet and thoughtful, some are brash and commanding, some are humble, some are arrogant. They all can work. So don’t try to fit into somebody else’s package. Work on developing your own.
For more small business blogs, visit my website at www.rocksolidbizdevelopment.com.
Monday, March 1, 2010
Keep Your Company on Track with Key Performance Indicators
I normally begin with a “Quote of the Week,” but I wanted to talk about Key Performance Indicators (KPIs) and didn’t really have an appropriate quote for that topic. So I guess this is a “Tip of the Week.”
While monthly financial statements provide vital information to the management of a business, they have a significant flaw: they are ancient history by the time we get them. There’s not much we can do about events that shaped our financial condition when those events happened four, five or six weeks prior to our seeing the financial statements. So we really need an early warning system . . . quick snapshots so we can see, on a weekly or even daily basis, how the business is performing in key areas. These are Key Performance Indicators or KPIs.
KPIs are different for every business, but there are a few that are fairly universal. For instance, many businesses track sales on a daily or weekly basis to make sure sales are on pace to meet that month’s goal. Cash flow is critical to all businesses, so virtually all of them will watch how efficiently and effectively they are able to collect their receivables.
Then there are KPIs that are not necessarily universal. If you are a wholesaler or a distributor, you probably need a KPI to make sure inventory levels are where they should be. If you are a manufacturer, you might need a KPI to watch waste levels, or another one to watch manhours per unit produced. A service business, on the other hand, may not have inventory or waste to worry about. It may be more concerned about billable hours vs. non-billable hours, or how many proposals are going out the door per day or per week.
The point is, you need to understand what indicators are the most critical to diagnosing the health of your business. And you shouldn’t need a lot of them. If they truly are “key” indicators, you shouldn’t need more than six or eight of them. Think of it like this. Suppose you’re on vacation. You’re having a great time and you would really like to stay a few more days than you originally planned. But before you do that, you better call the office to see how things are going. When you make that call, you can ask six and only six questions to determine if you can stay a few extra days or if you need to hop the next plane home. Those questions are your KPIs. They are not intended to tell you how every last detail of the business is performing. They are only intended to tell you that the most important parts of the business are performing within tolerances, and that the business is not in any imminent danger. If the patient has a hang nail or a sore throat, that’s OK. We need to address those ailments, but the patient isn’t going die from them. But if the patient’s heart is showing danger signs . . .
KPIs can be great tools to spot and address problems early. Used correctly, they can be one of your most powerful business management resources. If you want to learn more about how to use them, pick up a copy of Kraig Kramers “CEO Tools.” He discusses KPIs at length, in easy-to-understand terms.
For more small business blogs, visit my website at http://www.rocksolidbizdevelopment.com/.
While monthly financial statements provide vital information to the management of a business, they have a significant flaw: they are ancient history by the time we get them. There’s not much we can do about events that shaped our financial condition when those events happened four, five or six weeks prior to our seeing the financial statements. So we really need an early warning system . . . quick snapshots so we can see, on a weekly or even daily basis, how the business is performing in key areas. These are Key Performance Indicators or KPIs.
KPIs are different for every business, but there are a few that are fairly universal. For instance, many businesses track sales on a daily or weekly basis to make sure sales are on pace to meet that month’s goal. Cash flow is critical to all businesses, so virtually all of them will watch how efficiently and effectively they are able to collect their receivables.
Then there are KPIs that are not necessarily universal. If you are a wholesaler or a distributor, you probably need a KPI to make sure inventory levels are where they should be. If you are a manufacturer, you might need a KPI to watch waste levels, or another one to watch manhours per unit produced. A service business, on the other hand, may not have inventory or waste to worry about. It may be more concerned about billable hours vs. non-billable hours, or how many proposals are going out the door per day or per week.
The point is, you need to understand what indicators are the most critical to diagnosing the health of your business. And you shouldn’t need a lot of them. If they truly are “key” indicators, you shouldn’t need more than six or eight of them. Think of it like this. Suppose you’re on vacation. You’re having a great time and you would really like to stay a few more days than you originally planned. But before you do that, you better call the office to see how things are going. When you make that call, you can ask six and only six questions to determine if you can stay a few extra days or if you need to hop the next plane home. Those questions are your KPIs. They are not intended to tell you how every last detail of the business is performing. They are only intended to tell you that the most important parts of the business are performing within tolerances, and that the business is not in any imminent danger. If the patient has a hang nail or a sore throat, that’s OK. We need to address those ailments, but the patient isn’t going die from them. But if the patient’s heart is showing danger signs . . .
KPIs can be great tools to spot and address problems early. Used correctly, they can be one of your most powerful business management resources. If you want to learn more about how to use them, pick up a copy of Kraig Kramers “CEO Tools.” He discusses KPIs at length, in easy-to-understand terms.
For more small business blogs, visit my website at http://www.rocksolidbizdevelopment.com/.
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