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.
Imagine you’re the CEO of an established private healthcare business when the economy plunges into the worst downturn since the Great Depression. Up to then, your team has delivered extraordinary results; your bottom line is growing steadily each year and your services are recognized as world class by the hospitals, city councils and large public health facilities that refer work to you.
Imagine choosing that time to tell your Board and senior management team that, in essence, you want to walk away from about half of that business and pursue a very narrow niche market.
No doubt, you may at this point be imagining yourself out of a job. But hear me out…
As you may have guessed, this story is not a fictional one and the “you” in the story is actually a business coaching client of mine. I’m happy to report that the discussion with the Board went quite well, the business has nearly doubled since that day, and my client is still the CEO.
And along the way we both learned some valuable lessons about how to increase sales and become the dominant player in the marketplace. In fact, there is a big difference between being just a good company and being one that your customers can’t live without.
Solve Your Customer’s #1 Source of Pain
Consumer sentiment and spending have decreased dramatically in the past few years and those changes are being felt across every industry. Everything you thought you knew about your customer and why he/she was buying from you has probably changed. And if you do not take the time now to re-discover your prospect’s main source of pain and the reason why she needs your product or service now, you will never increase sales. In fact, you risk losing more sales and more ground to your competition.
Now some of you may think – but my industry is different
If you had to pick 1 thing – 1 strategy or change that you could implement in your business that would allow you thrive despite tough economic times, what would it be?
Let’s make a list of the top 5 things that I hear most business owners (like you) say when I ask them the same question…
- Spend money on marketing – attract new customers
- Have a sale
- Ask for referrals or help
- Tighten your belt – cut costs
- Do more networking
Now what do all of these have in common?
They all involve you doing more of the same thing that you have always done. None of these involve a radical shift in the way that you do business, do they? None of these involve you taking a step back and re-examining what you do and whether it’s actually working. And none of these involve you changing the way that you communicate what you do to your customers.
And that is precisely why none of them will work to recession proof your business.
So why is that important?
Because consumer sentiment and spending has changed dramatically in the past few years and those changes are being felt across every industry and by both big and small businesses. Everything you thought you knew about your customer and why she was buying from you has probably changed. And if you don’t take the time now to re-discover your prospect’s main source of pain – the reason why she needs your product or service – you risk losing more sales and more ground to your competition.
Now some of you are probably sitting there thinking “but MY industry is different. You may think that you’ve been hit especially hard and that everyone in your niche has lost sales. But that’s not the case for 99% of you. Even some of the most competitive and vulnerable industries have companies who have continued to perform well and who have even stole market share.
Just for a moment, I want you to cast your mind back to the first few months after the GFC. A lot of people lost their life savings during the stock market crash and many lost their jobs immediately after that. It was a horrific few months and few industries felt the wrath of the crash more so than the automotive sector. If you remember, new car sales dropped by almost 20% in a short period of time and stayed that way for almost a year. That’s a huge drop in an industry that is vital to the health of the national economy.
Now sales of new cars were down 20% for the industry. Despite the massive drop in sales, 1 manufacturer actually managed to gain market share and outperform all other companies in sales growth. Do you remember who that was and why?
Only 1 company stopped and took a good hard look at the pain their customers were in at the time. They didn’t do what all the others did – which was spend more money on newspaper ads, lay off salespeople and slash new car prices.
Only 1 company examined the change in the market, correctly diagnosed the pain of their prospects and came up with a solution. “If you lose your job and can’t make the payments, no problem – we will take it back free of charge”.
Do you remember who that was? That’s right Hyundai.
With one simple change to their focus and strategy they stole market share from every other manufacturer because they correctly identified the shift in their customer’s pain. They didn’t keep going on with the same old strategy and approach that clearly wasn’t working. Yes, there had been a major downturn and the whole industry was hit hard, but there were still lots of customers who wanted to buy a new car but were afraid to do so because they might lose their jobs.
So how can you apply this to your market right now? First and foremost, your customers are not thinking about you, your brand and your features and benefits – they are thinking about their own survival and whether or not you can cure their pain. If you are able to correctly diagnose the pain, you will trigger the part of their brain that makes decisions and you will stand apart from your competition. That’s the power of Sales Seduction.
Think about one of your customers right now and her pain? What do you need to do in order to get more clarity around that? What questions do you need to ask her about how it is affecting her financially, personally and strategically? To the extent you can diagnose her pain, get her to acknowledge it and put forward the solution that cures it, she will listen to anything that you have to say.
Take a look around you… businesses are closing their doors everyday – which means more potential customers for the businesses like you that DO survive. And in times like these, it’s going to take more than just doing more of what you have always done to recession proof your business. Uncertain times call for deliberate decisions and proven practices. In order to recession proof your business you need to shift your thinking around the way you do business and start providing THE solution to the #1 pain or challenge that your customers have. And if you need some diagnoistic questions and a step-by-step framework to help you do this…I highly recommend that you check out Chapter 8 of Sales Seduction.
It has often been said that “profit is pointless and cash flow is King”. But do you know why?
It is possible for a business to show a profit for a period of time, yet have negative cash flow. In fact, businesses that have profit (on paper) go under every single day. Negative cash flow, if sustained for an extended period of time, will eventually cause the company to run out of money and cease operations. Therefore, knowing the cash flow position is critical to staying afloat and knowing how to unlock more cash flow is imperative to effectively coach a business owner or senior executive.
Are You Chasing The Wrong Target?
You can have the most brilliant product or service but if the business runs out of cash, it won’t matter. Most businesses make the fatal mistake of thinking that they simply need more customers. If only they had more customers, they would have more sales and more profit…and they would be more successful.
But is this true?
Can businesses simply advertise their way into more sales and better results? No. In fact, advertising and discounting often have a negative impact on the bottom line and cash flow.Simply put – the initial instinct most coaches and business owners have is to focus on increasing sales. Employing this strategy in a business coaching context – chasing customers and sales – is often the worst thing you can do for the business.
The common assumption is that if you are running a business (or involved in business coaching) where the price you charge for your products is greater than what they cost, everything will be okay: you will be profitable and successful. Profit is good – don’t get me wrong – but it is simply not enough on its own. To be sustainable, the business must also have a healthy cash flow.
If you are like most coaches and business owners, you never dreamed that the ability to understand how money flows in and out would be incredibly important. You thought: “That’s for the accountant or finance department to worry about. Sure, they may show me a few reports from time to time, but I don’t see the need to really understand what the numbers mean. If there was a problem, they would tell me, wouldn’t they?”
You probably didn’t realise that all those numbers – the financial DNA of the business – can tell you a lot more than you thought. They can tell you why the business is not growing or is struggling to meet targets. They can reveal why there is less money in the bank account [again] than there was last month.
The financial numbers ARE the story of the business. Numbers don’t lie. They are one of the few objective indicators of how a business is performing and where the problems are. Ironically, financials are the most overlooked area of business coaching with the majority of practitioners choosing to specialize in leadership, sales or marketing disciplines. Unfortunately, without a solid understanding of financials, it is impossible to coach effectively and produce predictable results.
Regardless of any justifications you (or your business coaching clients) use to explain why the business is not performing – the economy, the shortage of ‘good’ staff, competition, supply chain issues etc. – the numbers tell the truth and can lead you to the solution. You just need to learn HOW to use them to your advantage.
You need a bit of Financial Foreplay®.
Are You Avoiding The Numbers?
When is the last time you took two hours out of your week to analyze the financial statements of a client or your own business? Can you honestly say that you know exactly where you (or they) are at and WHY? Do you sometimes wonder what the numbers are trying to tell you? Are you guilty of wasting money chasing new leads and sales instead of fixing the business and making it more profitable?
Most business coaches and business owners make the mistake of assuming they can improve the business by examining the Profit and Loss and Balance Sheet on a monthly basis. Unfortunately, these statements only tell part of the story. In fact, you cannot measure the cash flow position of a business by looking at the bank balance or examining the financial statements at a specific point in time.
This is because most businesses use what’s called ‘accrual’ accounting. Rather than recording ‘money spent’, they record spending as ‘money spent plus money committed to be spent’. So if stock has been purchased on account, accrual accounting includes the value of that purchase from the point it is made – not from the point when the account is paid. Accrual accounting takes into account the amount of money that has been spent plus committed to be spent in the future. The same thing happens in reverse with earnings – it includes money received plus money expected to be received. When a sale is invoiced with 30 days to pay, the value of that invoice is included in accrual earnings even though the money won’t be received for at least another 30 days.
Therefore, when accountants talk of ‘profit’, then, they usually mean ‘accrued profit’ as opposed to what we would call ‘real or cash profit’. Accrued profit is the expected real profit after ‘spending already committed to’, and ‘earnings expected to be received’, are
taken into account along with real (cash) spending and real (cash) earnings. As a result, the profit showing on an Income (or Profit and Loss) statement is a more complicated and less useful representation of the current financial situation of a business. Net profit cannot be relied upon in isolation to gauge the financial health of a company.
Stated another way, cash flow must be tracked over a period of time and can be measured by the following calculation:
Net profit (year to date)
+/- changes in inventory
+/- changes in accounts receivable
+/- changes in accounts payable and GST and
+/- changes in fixed assets
= Cash Flow
Changes in these 4 items on the Balance Sheet have a significant impact on the cash flow and viability of a business. That is why getting inventory levels right, optimizing receivables and payables and investing only in assets that generate a return, is critical when coaching a business of any size. In fact, a coach can often have more tangible impact and influence on a business by focusing on these 4 areas than on directing effort towards gaining new customers and increasing sales. And oftentimes, it costs the business very little to implement highly effective strategies in these 4 areas.
In practice, it is vital to have an eye on both real profit (cash flow position) as well as accrued profit. It is a common error to focus solely on accrued profit – an error which has the potential to send a business to the wall prematurely.
Are You Sure It’s Profitable?
Profitable growth should be the goal of any business. However, you cannot achieve profitable growth without first establishing that the business is in fact profitable. Attracting more leads or closing more sales may not be enough – the costs and efficiencies in a business change every day and this means that we must constantly monitor and measure results and take appropriate action. Focusing solely on customers and sales is a bit like spending 100% of your time practicing your tennis serve while neglecting to watch the scoreboard, analyze the strategy of competitors and practice your returns.
Break-even is one of the most simple and powerful calculations that you can use yourself and with your clients each month to measure and enhance profitability. A company is said to “break-even” for a period (usually a month) when its sales revenue catches up to its costs. Specifically, accountants talk about break-even as the point where ‘fixed costs’ (rent, salaries, etc.) are matched by ‘gross profit margin’ (sales revenue minus COGS).
Therefore, it follows that break-even with profit is the point in the month where the business covers all of the fixed and variable costs and starts making the desired profit target. Remember, if you and your clients are in business and not running a charity, the goal is profitable growth. In order to achieve profit, you MUST in fact plan to achieve it.
Calculating break-even (and break-even with profit) each month and knowing specifically which day of the month the business breaks-even, allows management to make informed, strategic decisions about how to achieve growth that is profitable for the bottom line and enhances the cash flow position.
Are You Ready To Get Results?
Knowing where the financial pain is when you are coaching a business allows you to focus your time and resources where they will make the greatest impact on the bottom line. And if you are truly serious about being a successful business coach, and it is not just a hobby or a way to pass the time, you will find a way to fit a bit of Financial Foreplay® into your day so that you can help others to whip their businesses into shape and start taking home more cash! It’s the quickest and most effective way to get your clients working ON not just IN their businesses.
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