Over the past decade I have learned a lot about what it means to own a business, how business owners think, and what is most important to them. I have narrowed this down to a list of five recurring themes in the order that they manifest most frequently.
Not all owners want the same things in the same order, and that is perfectly ok. You are allowed to want it your way. My job is to help you achieve your goals either by moving more quickly in the right direction, or by nudging down a path that will work better for you.
The five goals are Cash Flow, Profit, Growth, Satisfaction, and Harmony.
Of all the goals, cash flow is the most critical. It is emotional and practical. Cash is oxygen and when in short supply, owners become light-headed, then despondent, then desperate. Cash represents success and lack of it, failure. This is the one objective that always goes home with the small business owner. You might leave all other issues behind when you depart the office, but not this one.
Seven tips to improve cash flow
- Short Term
- Expect to get paid. Give customers multiple options to pay, including credit cards. Offer discounts for prompt payment. Require non-refundable deposits where appropriate. Cash in hand is always better than receivables.
- Get better terms from suppliers, landlords, and banks. A 90-day reprieve on loan repayments is probably there for the asking. Try this experiment: Contact ten suppliers and ask for 5% better pricing for your continuing trade. You will be amazed at how many say yes.
- Cut back on discretionary spending for 90 days, then decide if those expenses were really important. Maybe cut out janitorial services or those season tickets? Do not risk morale, quality, or timeliness. That’s a false economy.
- Longer Term
- Increase your line of credit. As long as you can pay it down twice a year, a LOC is a tool, not a crutch. Don’t think of a line of credit as debt; think of it as cash flow. Never borrow against LOC if you have no means to pay it back.
- Reduce overhead – make some hard decisions on headcount, office space, utilities. It is far better to outsource and decrease margins on a per-project basis than retain too many employees and lose money year-round. Put someone in charge of building out your supply chain.
- Take a hard look at products, services, and pricing. Many companies have out of date or inaccurate cost assumptions that hurt profits. Rebalancing margins as the market changes is a critical task. In my experience, you should be charging 10-20% more and spending 10-20% less to deliver.
- Eliminate Owner Burden – Get your personal finances in order to eliminate unplanned draws. You have a tax bill at the end of the year - every year. Plan for it. Pay yourself a salary you can live on and stick to it. Owner draws are for retirement savings. Owners should treat themselves like an employee and buy their perks with their own money.
My old boss used to say, “We are in business for fun and profit. If we are not making a profit, it’s not any fun.”
For most owners, profit represents the freedom to make choices. It represents fuel for growth, and an abundance affords you more choices about how to grow. Profit is also a driver of valuation. It’s a way of keeping score – slightly edging out growth as the second most frequent need that owners have for their businesses.
When it comes to making a profit, most small business owners do not respond quickly enough to market changes.
An example all too close to home has been the Covid-19 Pandemic. Most companies had to quickly convert to some sort of virtual business model. It might have been restaurants switching to curbside delivery or corporations operating decentralized project teams working from home, but the shift in how you deliver also triggered a shift in what you deliver.
When it comes to making a profit, market disruption is a major opportunity.
For many small businesses, services suddenly became more important than the product. We only need to look at Amazon to understand that consumers would pay a premium to have things delivered to their door in a pandemic.
Moving more of your margin to the service side should positively impact profit and draw a clear distinction in where value for the customer is created.
That one step alone will make your business more scalable, plus it will significantly increase the profit margin on a majority of your projects.
When an owner tells me that Growth is a high priority, what that often means is that the company is not yet large enough to represent success to in his or her mind. Growth is only third on my prioritized list, because even the owners that want growth don’t want it forever. They have a target and want to get there faster.
If you want to grow, then take logical steps to get there. Here are the three biggest obstacles to growth and what to do about them:
- Your Team says they are at capacity already: In order to successfully and grow and remain profitable while you do it, businesses have to embrace outsourcing. Labor-intensive tasks that increase when you are busy are prime candidates for third-party services. Read this blog: Outsourcing is the Key to Growth
- As companies grow, processes need to evolve. You need to add or improve software tools, management structures, and pricing. In other words, you need a process for process change. Check out this blog on Crossing Growth Plateaus
- Finding the new business is easy. Finding the right customers is hard. Time spent profiling your ideal customer (and sharing that with the sales and marketing team) is priceless. However, if that profile is almost impossible to find, then you need to loosen up your expectations. Here are some thoughts on why The Perfect Customer Ruins Good Enough
This is the one goal that seems to be on everyone’s list. Is satisfaction an outcome or part of the journey? The fact that it makes this list tells me that it’s both. Having better cash flow will make the journey nicer, but without satisfaction – many owners will struggle to take the steps to fix cash flow. Satisfaction is glue, cash is lubricant, and both are essential.
Try this exercise: Think about times that your business was fun. Write them down – just a few words to remind you of the time period.
Now answer these questions: What was fun about it? What seems to be getting in the way of that now? What can your team do to help reverse that trend?
Tell the stories: Start your next team meeting with a story about having fun. Explain what made this a good memory and talk about the importance of letting this happen again.
Let the team know that satisfaction is the goal, not going back to how you did things twenty years ago.
The desire for harmony stems in part from wanting to be understood. Being an owner is a lonely job and the decisions you make often create discord amongst employees. Can’t we all just get along? Aren’t we on the same team?
Here are three things you can do to help reduce the stress of being a team member in a busy, growing company:
- Instead of an Organization Chart, develop a Process Owner chart. Show who is in charge of making sure key processes are followed. Then, employees won’t spend so much timing wondering who their “boss” is. It’s the person in charge of the process they are helping with right now.
- Keep meetings on topic. A weekly “Production Meeting” that wanders off into non-project topics or gets hijacked by owners or managers to talk about something should be another meeting is demoralizing and frustrating. Respect everyone’s time.
- Focus on behaviors, not personalities. When conflicts arise, work on the behaviors that made the problem worse. Personalities are things that you cannot change in other people, but you can talk about the results of the behaviors that they employ.
There is a direct correlation between team work and systems. Overworked or over tasked individuals make lousy teammates. If you want to improve the potential for harmony amongst your employees, then take a hard look at how responsibility and authority are delegated.
Here’s a blog to get you started on this topic: Why Your Team is Always “Too Busy”
The five goals are equally important, but differently prioritized based on your situation and tastes. Each affects the other in much the same way that removing one petal from a flower affects our perception of that flower. To that end, what I have learned is that in order to help owners be more successful, we have to work towards all five goals.
As an owner, you often put the business first. You make sacrifices in time, money, and peace of mind. However, if you focus on these five goals, you will better understand where to invest your energy towards your relationship with your business.
When you are ready to love your business the way you used to, let's have a conversation about how to make that happen faster.
Note: This article was originally published in May 2017 and has been updated for accuracy.