I believe there is a huge amount of success to be gained from focus, and this year I have endeavoured to concentrate on a select few things, which I think will provide me with the best long-term value. I’m also committed to doing everything with a long-term strategic intent. I’ve made a huge effort to sit down with people smarter than me and pick their brains, with some common themes emerging. Some of the smartest people I know have agreed on one thing; It all comes down to having a sound economic model, with the right people on board.
So, let’s get into it. Firstly, let’s talk about the numbers. The skill-set that truly seems to be lacking for New Zealand business owners.
I looked at my customer list earlier today and reflected that out of my ninety-two current clients , only a handful had come to me who truly knew their numbers (P&L, Cashflow & Balance Sheet). One of the first things I do with a client when I take them on is go over their budgets and forecasts, talking them through how to interpret, understand, and stay on top of their numbers, themselves. This is a liberating experience for SME owners and is something they can do so easily for themselves, particularly with simple-to-use tools like Xero’s budget manager.
Let me give you some food for thought. Opening a new premises? Hiring a staff member? Launching a new product line? None of these actions should be taken without knowing the financial implications on your business – especially when you are a small business. Any large fixed cost you may take on, or cashflow decisions that you make can have a huge effect on the viability of your business.
A huge number of businesses come through my door that can’t cover their debts or they have liabilities that exceed the assets, meaning they are actually insolvent. This means they are trading illegally, and as the director of the company, you may be liable when things go wrong. Let’s think about why this could happen. Have you grown too fast and over invested in equipment without enough capital resources? Do you have no margin and aren’t actually profitable? Do you simply need more capital funding?
Many people don’t know the viability of their model and whether it actually makes money.
Always run your numbers, if it’s not making money, how could you turn that around? How much more do you need to sell? How much extra margin do you need to make? Don’t be afraid to tweak prices and costs – people are amazed by how tiny adjustments in these areas make such a huge difference to the bottom line.
Another query that regularly comes up is business owners asking where their profit is. ‘I made X amount last year, I haven’t seen a cent of that, where is it?’ Let me introduce the balance sheet. Small business owners often buy stock, assets, or equipment, which sit on the balance sheet. All of these items don’t subtract from the profit on the P&L until they are depreciated or the stock is sold (turning into receivables, and then cash). What’s more important to you – owning the equipment or taking cash out? This is where a lease of equipment may come into play.
That brings us to the second factor – the people. People are an asset (or liability) that I have struggled with in the past, it can be incredibly difficult to build the right team. What are you lacking, what do you need? My strongest recommendation is if you are not an industry expert in what you do, make sure you have one on board. It’s also important to understand what the feel of the team is, and, are you actually a team? Everyone needs to live and breathe the company culture and what you stand for.
Toss Grumley, Business Coach of Wolf & FoxUsually, as entrepreneurs, we are driven, and we know we make things happen. This may be where the gap comes in for someone with operational excellence or financial acumen. As entrepreneurs, you must be realistic about your skills and weaknesses, and find the right people to fill those gaps, freeing you up to do what you do best. If you are operational or financial focused, who is going to drive this thing for you?
Many clients come to me in the early stages of their business, before they need a big team. We are the country of the one-man business. There is a fix to this – outsourcing. You can usually get people to do the little bits and pieces you need, at the drop of a hat. You could spend a tonne of time learning things, or, you could just push ahead and get the help necessary.
I learnt a lot of what I know from doing it all myself on my first business (and the following three!) – but what I know now, and what is a vast improvement, is using people better than me! People are constantly shocked when they find out it’s just me in this business, servicing over seventy clients. Over time, I have given away lots of the responsibilities in my business – I don’t do my marketing, accounts, admin, most of my emails, even the newsletter! All these things are outsourced to people more efficient at them than me. Whilst I endeavour to spend over 90% of each week client facing and building the business, outsourcing handles the rest and allows me to do what I’m best at.
At this stage I bet you’re thinking I’ve forgotten marketing, sales, hustle, knowing your customer – all my usual favourite gaff. I definitely haven’t, those are the areas that will make you great. But – none of that actually matters if you don’t have the right economic model to make money, and the right people to drive it forward. What I would say is check the basics; make sure it all makes sense and the money adds up, then seek out people with the right advice or skills to help you take it further.
