11 Feb 2015
If you’ve ever watched reality TV (and don’t say you haven’t because we all know it’s too easy to get sucked in by the drama and controversy), you may have noticed a specific formula…
First you find a cause – dating, small business, cooking or home improvement. Next, you add a few unassuming characters – some very relatable but also few who are downright crazy, nasty or delusional. And last but not least, you add just enough controversy, intrigue, shock and cutting remarks to keep the masses coming back for more each night.
In the end, are any of these contestants (or their small businesses in the case of Shark Tank) really any better off? Probably not, but what you have done is create some compelling TV and sold a bucket load of ads to big brands like iSelect, Swisee, Safeway, NAB and Mitre 10.
The other night, I watched Channel Ten’s latest reality TV import, Shark Tank. The premise is pretty straightforward.
A few naive and nervous and numerically challenged small business owners lined up to pitch to a panel of cool, critical and cashed-up potential investors.
Some ideas got funded for relatively small amounts. Most ideas (and their creators) got ripped to shreds by the panel.
So, the show is essentially Survivor, The Apprentice and The Bachelor all rolled into one with Australian small business contestants, and a catchy brand that has the ominous word “shark” in it.
How could that possibly fail?
As I watched, I wondered, ‘Are any of these small businesses likely to breakeven or become profitable and cash flow positive?’
And, perhaps not suprisingly, the answer is “not likely”.
Why is that? Because some of the ideas were pretty interesting. The cricket cooler, the motorized skate board and the hamdog may actually have global potential, but to be viable in the long term, the owners really need to do their homework first and know their numbers.
Case in point – not one of the small business owners who pitched had done market research with their product (or prototype) and could quantify the size of their market. Without that vital information, how can they possibly estimate topline revenue, market penetration or the value of their business with any precision or clarity?
And without those last three things, it’s impossible to give a meaningful pitch or ask for the “right amount” of capital. I’m sure you will agree, other than the guy who thought his hairbrained rental resume idea was worth $2.5million, most of the entrepreneurs vastly underestimated the amount of working capital that they needed.
Several contestants floundered when they got asked the big questions about breakeven, margins and cash flow. Yes, the dreaded cash flow question pretty much stumped everyone.
Most were asking for arbitrary sums of money to commercialise their inventions without regard for how much it might really take to get their brand out there and win their first major customers. One pair even thought it was clever to ask the investors to chip in $150,000 so they [the founders] could leave their secure day jobs and start working in the business full time. Crazy right? If you the owner don’t have skin in the game or work in the business full time, chances are you should still be writing your business plan, not pitching it on national TV in front of 5 sharks and a million viewers.
The cricket cooler duo were the most polished in terms of delivery and presentation. They recognized that patents and intellectual property were vital to their valuation and attractiveness to the sharks, but drastically underestimated the value of locking things down in India – the number one cricket market in the world. And the sophisticated sharks knew that Australia is just a mere drop in the bucket, compared to the potential in a market like India.
Unlike the really trashy stuff – Bachelor, Idol, or Real Housewives of Melbourne – the show didn’t make me feel icky or shocked while watching the sharks tear the flesh off the bones and gnaw away at the contestant’s dreams. I sort of expected that would be the main draw card and the whole premise of the show. Why call the show shark tank if you don’t intend to set up a blood bath and feeding frenzy?
But as an entrepreneur, I did feel genuinely remorseful for each of the contestants. The small businesses who got funded gave up decent chunks of equity for relatively small injections of capital – which may or may not be enough to get them to market and earn their first customers. And the ones who didn’t walked away without any constructive advice or tangible instructions on how to go away and get their idea investor-ready.
Closing your eyes to the financial reality of where you are at and letting your business run itself — without clear key performance indicators from your financials (KPIs) and a business plan — is asking for trouble.
Your financials are the engine that drives your business forward. Your financial statements — and the KPIs you glean from them — serve as the dashboard that lets you know if you are heading in the right direction. Ignoring the gauges and warning lights in your financials is akin to sitting back and simply waiting for the inevitable crash to happen in your business.
See full article: http://mvb.me/s/0b9a58
12 Sep 2012
While only 2 pages in length, the executive summary is by far the most important component of your business plan or proposal. It is designed to summarize the key elements, capture attention and most importantly, showcase the financial highlights.
So, if you only have 2 pages to convey a significant amount of information and summarize the financial upside, how do you decide what to put in and what to leave out? Which financial features are critical to emphasize?
Depending on the purpose of your document and the intended audience (investment, sale, partnership, strategic alliance, joint venture etc.), you will want to tailor your financial disclosure to suit their needs and expectations. What would they want/need to see in order to make an informed decision?
At a minimum, you need to clearly state what financial input is required from them and what they will get in return – i.e. a share, debt instrument, license, exclusive right etc. Next, highlight the expected net profit and cash flow over 2-3 years. Also, give a clear indication of return on investment (ROI) AND a realistic, well defined exit strategy.
In an executive summary, it is important to be succinct and focused. It is not the time to tell your life story, overpromise with unrealistic projections or overwhelm with too much detail. You will only get one chance to make a good first impression and capture the attention of the reader. In fact, many sophisticated investors have told me they rarely read a business plan or proposal in its entirety. They make their decision on the strength of the executive summary and their assessment of the owner/manager (in terms of character, knowledge, skills and tenacity).
Focus on “what’s in it for them”. Show them clearly how they can benefit and when the result will be crystallized. Give them enough detail to understand the industry, opportunity and unique solution you provide. And most importantly, clearly summarize the key financial metrics of profitability, cash flow and ROI.
In short, make it EASY for them to invest in YOU.
Article Source: http://EzineArticles.com/6107414
When clients ask how to close more sales and free up cash in their business, I like to tell the story of Byron the guns and collectibles dealer. He lives for his business because it gives him the chance to make a living out of doing what he enjoys most: collecting.
He was struggling 12 months ago because he was out of cash and unable to buy new stock. This was a real problem because the strength of his business lay in constantly having new items to show off. New stock encouraged his customers to come back often; no new stock meant they would tend to check out his competitors first.
When I first walked into Byron’s shop, one of the most obvious items was a beautiful old gun, proudly (and securely) displayed in a glass cabinet. I couldn’t help but ask how much it was worth. He explained that it he had bought it for $5,000 dollars, but was looking to sell it for $7,000. Following a hunch that I had hit on his problem straight away, I asked Byron when he had bought the gun. He didn’t remember exactly, he said, but thought it was about five years ago.
I asked Byron how many other, similarly high value items he had in his store. We went for a walk and in the course of showing me around, he pointed out at least a dozen items which he had bought for over $5,000 over the last few years. In each case, he was quick to tell me how much he was intending to sell the item for, and the margin was always 30 to 40%. But the fact was he hadn’t sold these items so they were costing him money and, most importantly, causing him to miss the opportunity of buying new stock.
Byron had spent nearly $100,000 on expensive items over the years. The items were attractive and valuable, but they weren’t particularly rare, so they weren’t appreciating in value significantly. In effect, Byron had put $100,000 on the shelf of his office and left it there for all that time. In other words, while he wasn’t borrowing money from the bank, in effect he was borrowing it from himself. He had missed the opportunity to invest the money somewhere where it would give him a solid return, such as in a term deposit or in blue-chip shares. And he missed the opportunity of using that money to buy smaller, less expensive items that he knew would sell quickly. He needed to do something (and fast) if he wanted to close more sales.
Compounding all of this was the fact that the global financial crisis had caused demand to drop markedly which meant his customers just weren’t coming in or spending as much as they used to.
By making a few simple adjustments, responding to trends in the industry and addressing a need that his customers, Byron was able to turn his business around, close more sales and double his bottom line.
The first thing he did was to free up some cash by actively selling some of his more expensive and slow moving items. He used online auction sites and his own network to find buyers, while keeping his marketing costs low. In some cases he had to sell the items for a little less than he had intended, but the benefit (when he was able to close more sales) was cash in his pocket.
The next thing he did was set up some systems to keep better track of inventory. He started by recording everything and noting the age of all the items (i.e. the length of time he had held it in stock). We agreed that in future, any item that had not sold after 8 months would be reviewed. Byron would investigate the item’s market value and decide whether or not it was increasing in value sufficiently to be worth keeping. If not, he would act to move the item on.
After a few months, Byron was making much smarter purchasing decisions. He was still enjoying ‘collecting’ for his store, but his focus was different. His focus was less on attractive, expensive but not-so-rare items, and more on smaller items he knew he could sell quite quickly. To his pleasant surprise, he increased cash flow by $100,000 in 3 months and found that by using this strategy, he was able to do more shopping rather than less, because he had more cash available to spend.
Lastly, but perhaps most significantly, Byron introduced 2 new complementary strategies which literally transformed his business. To counteract the soft demand for firearms and the relatively fixed, low margins, Byron convinced his customers to purchase 18 months worth of ammunition upfront and he provided storage (if required) onsite. This allowed him to renegotiate terms and pricing with his suppliers, plus generate more cash flow in the short term. Since the margins on bullets was much higher than on the guns themselves, his overall profitability improved. In addition, Byron incorporated training and certification into his standard offering and opened up his target range to paying customers 3 nights a week. This allowed him to create new, highly lucrative income streams and increase the frequency with which his customers came into his business.
While Byron’s story on how to close more sales might seem unique and industry specific, there are many ways to take the overarching philosophy of what he did and utilize it to improve your operating cash position.
How can you identify and start selling silver bullets in your business? Begin by first examining the big picture…
Identify the items in your inventory that are essentially dead stock – i.e. haven’t sold in over 8 months. Determine what the total value of the stock is and devise a plan to convert it quickly into cash using a minimal amount of advertising.
Focus on the gross profit margin of all of your products and services. Are some of these more profitable than others? To improve your overall performance, concentrate on the former, and improve or eliminate the latter. What items or services could you add which would allow you to service a need, improve your relationship with your customers and grow your bottom line?
Negotiate better terms and/or prices with your supplier in order to increase the amount of gross profit you make on each sale. Consider which items you could sell in bulk upfront to your customers and use this new volume to improve your buying leverage or cut out the middle man.
Marketing should not be treated as a fixed and sacred cow in your business. Do not spend another dime on marketing until you ensure that you are maximizing the amount you retain on each sale to cover fixed costs. Also, only spend money chasing customers and sales if you can measure the financial return that you will get. Unless you are a multinational brand, money spent solely on branding is wasted.
Make it easy for your customers to find you and see what you have to offer on the internet. The database of potential shoppers that you have earned the right to speak to, is in fact your greatest asset. What can you do today to add value, enhance their experience and close more sales?
Finally, examine the fixed expenses in your business. Identify whether or not there is a cheaper, faster or superior alternative that doesn’t compromise quality or customer service. Is there a way to shift how and what you do so that fixed expenses can vary (i.e on a pay per use basis) with the level of production and/or sales? And remember, no one has ever grown their business by [exclusively] focusing on cost cutting – so use this tactic as your final step in a comprehensive plan to get your business firing and hitting targets. Your primary goal is to close more sales and increase the amount of gross profit (or contribution margin) that you make from each sale.
02 Oct 2011
It doesn’t matter whether it is springtime or autumn where you live – the best thing that you can do to improve your business right now is a bit of spring cleaning.
By this of course, I mean reinvigorate some of the housekeeping issues that you may have overlooked in recent times. Over the last few years you may have found it possible to get away with a few loose ends and haphazard processes, but not any more. The tough economic times have changed all of that. It’s time to get serious about tightening up your systems and securing your future. Here are my Top 10 Tips to improve your results:
1. Have a plan
Position your business for the year ahead. Decide on your strategy, set your goals and work on your tactics. Put these together in a one or two page business plan. Uncertain times call for certain actions.
2. Forecast your cash flows
Maintain a cash flow forecast so you can use it as an early warning system. The sooner you get an indication that your cash is tightening the more time you will have up your sleeve to take action.
3. Collect your debtors more quickly
On average how long do your debtors take to pay you? Aim to reduce this by at least 10 days – if your annual revenue is $1 million you could save yourself $3,000
4. Reintroduce credit checks
Have you got a bit lazy about running credit checks? Reintroduce them.
5. Monitor your customers debtor history
Are any of your customers starting to take more credit than usual? Keep a close eye on them. They could be feeling the squeeze so be careful about extending too much credit.
6. Evaluate your customers
Do you know who your best and worse customers are? How much profit are you making from each customer? If you don’t know, now is the right time to set up systems to track this and….
7. Cull your bottom customers
Harsh as it may sound, concentrate on your best customers. Lavish them with attention. If you have unprofitable customers, cull them. You have no room for passengers.
8. Trim your product range
If you are carrying a wide range of stock trim it. Do this by calculating which of you stock lines are your worst performers; sell those lines quickly to release some cash. Reduce your overall investment in stock.
9. Look at your processes
Mistakes are costly so take a look at your processes. What can you tighten up or do differently to lower the chance of errors?
10. Have a budget
Having a budget isn’t about cutting costs, it is about managing costs. So budget your expenditure for the year and track your actual costs closely. If you see costs starting to climb take steps to reduce your non essential expenditure.
So in the face of rising interest rates and a global economic downturn the best thing that you can do to improve your business is to tighten up your belt and the system in your operation.
Article Source: http://EzineArticles.com/5442279