Cash is King -Yes, But Not at Any Price

I was reminded the other day how people can get so focused on a mantra that they lose sight of context. Yes in a tough market Cash is King but not to the detriment of everything else.

Cash Is King

Let me explain, I was having a discussion with an internet business owner who was moaning about poor sales, and the fact that to get cash in he needed to reduce his margin. The more we talked the more I began to question the strategy of reducing price to get the cash in. His response always started with "well you know in these times Cash is King... 

Eventually I got him to show me an example of how this worked for him. Once he had finished I asked him a question "Ok, so if you are giving away margin, are you making any profit at the reduced level?" 

"Well that doesn't matter what is important is to get some cash in to pay suppliers and re order product." came the response.

"But surely if you are losing money on each sale getting the cash in, you are making the situation worse, not better. " 

"At the moment getting cash in is whats important"

"How regularly are you doing this? Is this just to clear dead stock for example?"

"Quite frequently because when we put our products out at full price we are losing sales to cheaper providers so we use this to strategy to get the cash in"

At this point I was getting a little concerned, "But surely you must know if you are making a profit otherwise you will only be building up bigger and bigger losses, after all if you are only losing £1 per item if you sell 1000 of them you've lost £1000!"

"Yes but if you don't get the cash in when you need it you can't pay suppliers and they put you on stop"

We were in danger of getting into a circular argument, so I suggested that if he wanted we could look in detail at his pricing to see if he was making the situation worse or better. What we discovered subsequently was that he was indeed making a loss on his reduced items but more worryingly also on some of his regular priced items, and that his dedication to blindly follow the Cash is King mantra was killing his business.  

So the moral of this story is yes "Cash is King" but getting cash in is only worth pursuing if its in the interests of your business. I do appreciate that there are times when you may make a loss sometimes; for example if you are off loading poor moving stock, but generating cash flow by cutting your margin without understanding the consequences of your actions is a dangerous strategy.

Exigent Consulting provides specialist services for High Growth Business , Business Turnaround, and Mentoring to the Small and Medium Business. We help Business Owners improve the profit performance of their business. 

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Why Businesses Are Too Late in Seeking Turnaround Help

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We all know that addressing problems early makes them easier to solve, and even when the treatment is unpleasant, like going to the dentist by and large we go in good time. Why is it, then, despite the harsh economic conditions and the large number of business owners clearly struggling to cope; it still seems that too many smaller businesses in the UK are reluctant to call in outside assistance even when it is clear that finding solutions to the issues impacting their business is beyond them?

Most independent businesses are in the hands of its founders, consequently these more than others find it difficult to view their business objectively. Most don't follow best practice and won't have regular management meetings nor generally do they have a detailed financial knowledge of the business. This lack of objectivity is the real issue. I cant count the number of times I've gone into a turnaround to discover that the owners have reluctantly called someone in, not because the business is in bad shape, but because they've exhausted their personal wealth in propping up a non performing business and now they've GOT to do something. Sadly, often at this point its too late.

Whilst no doubt there are clear legal tests to signify insolvency, these are seldom recognised by the management. They are invariably late talking to IP or turnaround specialists such as myself for the following reasons 

1.they're emotionally tied to the company, 

2 the stigma of failure, 

3 being overly optimistic (well you have to be an optimist to run your own business) and as such you tend to overestimate income and underestimate costs,

4 poor business management. 

There is a debate to be had about the almost complete absence of any type of business related subjects in general education which I submit leaves our entrepreneurs and business owners unnecessarily exposed. Many run businesses without even the most basic knowledge of financials or business or people management, so the wonder is why more businesses dont fail!

I would also observe that whilst accountants should provide advanced warning to business owners many don't because they are themselves technicians, and they concentrate on getting accounts completed on time. Experience has demonstrated that accountants are no better at running businesses than owners of other types of business. Also, because often their relationship with their client is too weak to survive bad news.

Exigent Consulting specialises in providing Business Turnaround, Sales, Marketing and Mentoring to the Small and Medium Business. We help Business Owners improve the profit performance of their business.

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Taking Your Business to the Gym - Managing Creditors

When you are in a situation where you cannot pay all your current creditors you must start to prioritise who you pay, and when you pay them. If you are a retail business for example; then your suppliers are the most important since without them you have no products to sell. If you have credit terms try to extend them, if not, at least attempt to maintain your existing terms otherwise your cash position will get worse. Some may be prepared to offer you extended credit terms for a payment schedule but it must be your judgement call what to ask for and you must be confident that you can manage any agreements. Nothing annoys a creditor more than having agreements continually broken.

In order to make this strategy work you must have a clear and detailed breakdown of your exposure by creditor. You ought to be able to get this from your accounts system. If you don't have this information then you must get it as soon as possible as without detailed understanding of your financial position you will not be able to manage your creditor position. It will require you however, to manage your cash flow a very tightly. I would recommend that if you haven't already you should subscribe to the Internet banking. This why you can see your available funds on a daily basis and can apply them knowing that you have funds available to pay your creditors. Often making weekly payments to creditors' works well as it's often easier to find £250 a week than a single sum of £1000

Based on the fact that you can now identify all your costs you will be able to see easily, your regular payments. In common with most businesses suffering cash flow difficulties the creditors which tend to suffer first are Rent, Rates and Government. It is not surprising therefore that Landlords' tend to get very aggressive with delinquent payers. They will however accept, albeit reluctantly, some variations in how are you pay. So in dealing with your Landlord, I would suggest that you deal with them direct and not through their agent.

Most rent is paid quarterly in advance; you should ask your Landlord if you can pay on a monthly basis. This will be much easier on your cash flow in circumstances where you are likely to be at or near your overdraft limit, and therefore working out of the cash flow generated by your business. Creditors can only be paid against money that has been received. Under these circumstances it will be advisable to cancel as many of your standing orders and direct debits as you can. This will prevent you from going overdrawn and suffering the embarrassment of returned cheque payments, or excess overdraft fees.

The UK Government currently is quite lenient towards tax and VAT arrears as it doesn't want to be seen to be pushing companies into liquidation. However expect this to change in 2010 where the pressure to collect tax revenues outweighs the political pressure to keep companies working.

The most important piece of advice is to talk to your creditors; you won't be the only company they've got who's in trouble but if you explain your difficulties and most importantly have a plan to get out of it you'll most likely get a sympathetic hearing.

ExigentConsulting specialises in providing Business Turnaround, Sales, Marketing andMentoring to the Small and Medium Business.

We help Business Owners improve the profit performance of their business

The 5 Stages in a Business Restructure- Taking Your Business to the Gym

Most Businesses at some time or another will need to restructure their business. In times of recession this becomes an important priority as a business restructure is often the key to survival. In truth all businesses should plan a restructure review to keep their organisation "light & agile" to quote Jack Welch. These past 8 years business conditions have been particularly benign and as a result many businesses have not felt, sufficiently, the cold wind of competition to encourage them to restructure. Now faced with a veritable storm of fierce competition the need for a business restructure becomes urgent.

Stage 1 of a Business Restructure is to establish a baseline. Before imposing change the company would need to understand what is working well and what is not. So to confirm this it is important to perform an audit on the business covering all the main operational functions and in addition we'll look at Strategy, and management strength.

Stage 2 of a Business Restructure is to prioritise the issues identified and set out a timeline for their implementation. At this stage of a business restructure its important to achieve some quick wins as this builds confidence in the process.

Stage 3 of a Business Restructure is to revise the business strategy based on the outcomes from Stage 2 which will identify weaknesses and gaps in your current strategy. This part of the business restructure process is critical as it will lay the foundations for the long-term success of the business. The difficulty, particularly in a recession is that there are serious time pressures. In order to prevent a long drawn out soul searching process we have developed techniques to get to the nub of the matter in a few short hours and within a couple of days we can have a new and more relevant strategy in place.

Stage 4 is the most difficult part of any business structure and that is implementation. This is the point at which most businesses fail, why? Because it is at this stage that the rest of the business experiences significant change. Everybody, with the exception of a few souls, is resistant to change. It is at this time one needs to be clear about what individuals say and what they do. To improve your chances of success a detailed implementation plan needs to be established.

Stage 5 of a Business Restructure is to assess the success of the restructure by measuring the results of decisions made. This review and measurement system should cover all aspects of the business but concentrated on a relatively small number Key Performance Indicators. In addition the company should seek to ensure that the benefits identified that the beginning of this process are achieved.

Exigent Consulting specialises in providing Business Turnaround, Sales, Marketingand Mentoring to the Small and Medium Business. We help Business Owners improve the profit performance of their business

Take Your Business to the Gym - Pricing

This is one of a series of occasional articles about dealing with the downturn and what you can do to get your business fitter to survive, whilst many of your competitors may fail. The idea of Taking Your Business to the Gym comes from the view that over the last 8-10 years things have relatively speaking been easy. Company liquidations have been at low levels both consumer and business to business markets have been strong and companies have had no real pressure to look at themselves and seek improvement. Many have but most have become a little complacent over optimistic and so flabby. This recession has thrown an assault course in the way and you've got to get fit quickly to make it through.

Pricing is perhaps one of the most misunderstood issues in business, if used properly it's one of the simplest ways to help you maximise your profits. Easy then, so what's the problem?

Simple question: who sets your company's prices is it determined by you or the market?

All those who said the market – Your Wrong – it's YOU! It's one of the most basic misconceptions about business whilst the market might dictate general pricing levels individual companies set their own prices. The problem with owner managed business is that they assume that they must be the cheapest to survive. If I had a £1 for every time I've heard this I'd be very rich – sadly I'm not.

Why do so many people think like this? It's conditioning, let me give you some examples

You're visited by a salesman who can't articulate the benefits of his product. What do you tell him when he asks for the business, I'm sorry but it's too expensive.

You're visited by a salesman who you just don't like. What do you tell him when he asks for the business, I'm sorry but it's too expensive.

You're visited by a salesman who just doesn't get the point you're trying to make. What do you tell him when he asks for the business, I'm sorry but it's too expensive.

You're visited by a salesman who's too pushy. What do you tell him when he asks for the business, I'm sorry but it's too expensive.

You should be getting a message by now pricing is rarely the issue, price objections are mostly a cover for some other objection. So why is it we know we're not telling the truth when we hide behind price, but assume others are telling the truth when they tell us we're too expensive. I really can't explain I can only assume that we just don't want to face the real issue so we accept pricing as the issue.

So now you know let's look at what you can do. Well one thing you could try is to increase all your prices by 1% immediately. Why, because you can; if you're selling something for £100 pounds people aren't going to stop buying it because it now costs £101.

I can't we're in the middle of the worst recession in living memory you must be nuts – you say.

I say – no, its your conditioning that says that. I can in all honesty say that in almost every company I work with; one of the first things I do is to get them to increase their prices and having done so they are surprised that they don't lose any customers in the process. Yes even in the worst recession in living memory. Why? Am I a genius – I hope so – but no. Am I a magician – no. The answer is almost invariably, because companies are selling their product or service too cheaply because they've been conditioned that "Cheap is Good".

Realistically as a small business owner you should understand that whilst price a factor in purchasing its by no means the main factor, people tend to buy more on quality brand capability and service. Your price therefore, should reflect your costs and be sufficient to give you a decent profit. So in order to price correctly you should have a detailed analysis and understanding of your costs. This is something that many businesses don't have, only by understanding what and how your costs are made up in detail can you accurately set your prices over the long term. Whilst the general rule the sales price is 2.4 time manufacture costs, it's still a rule of thumb and likely to lead to a gestimation of costs which will almost always be less than the real costs.

As a general rule you should be increasing your price at a minimum annually to keep in step with inflation and also when there is a major change in the price of components. Don't worry if you are not the cheapest because it is rare that you will be as there is always likely to be a business with a lower price. Anyway you don't want to be the cheapest because at those levels there is no customer loyalty.

Finally your price should reflect your product position. Simply put you can't offer a Rolls Royce product or service for the price of a Ford, unfortunately many business owners believe that's the only way they can survive which is often the very reason they don't.

You can contact me at www.exigent-uk.com for more information on how I can help you manage your pricing more effectively.

 

The 5 Stages of a Sales Call

You might be a business owner or self employed or someone who through force of circumstance has moved into sales and has had little, if any, formal sales training. This blog article will give you a structure to work from which will help you be more successful in sales. 

First a bit of Psychology, when people meet for the first time, there is always some stress particularly for the potential buyer. Stress levels which start at a high level at the beginning fall throughout the call only to rise to a peak again during what we all know as "The Close". What this 5 stage approach does it to try to make this psychology work in your favour to improve your chances of making a sale.

Stage 1. The Ice breaker

This stage relates to the first key minutes of the meeting at this point stress levels are high and we need to bring them down. It's a conversation which takes place between the two parties but which has nothing to do with business. It helps to establish ease and rapport before the business meeting proper starts. It literally breaks the ice. Obvious isn't it, well why do we often not use it. Well it's that word stress again which pressures us to get on with it, and don't you know it - when we rush straight into the business content we're less successful. What do you talk about? Well look for clues, people tend to publicise what they're interested in, even if they do so unconsciously. So if you see lots of golf pictures on the wall, guess what; he likes golf, there's your starter for ten.

Stage 2. The Opening

As it suggests, this is the start of the business portion of the meeting, it's a series of opening statements which should outline the agenda for the meeting, make sure you always have one. At this point you won't know what specific issues your prospect faces so you have outline the list is issues that a typical prospect for your product or services might face and relate that to the specific benefits that your company's product or service provides. This is the most talking you should do at the meeting.

Stage 3. Qualification or Questioning

By now and in a few short minutes by following these simple steps you'll have managed to reduce much of the stress levels, both you and your prospect will feel more comfortable and they will be ready to discuss the issues surrounding their business. There an old saying in sales which goes "you have two ears and one mouth use them in that proportion", basically and especially during this stage only ask questions and let your prospect do the talking. Qualification is a much undervalued part of the sales call, but if you don't qualify properly and understand your prospects issues and rationale you've dramatically reduced your chances of a successful close. This section is by far the longest and should represent at least 75% of the time you spend with your prospect. Don't at any point during the qualification stage offer any solutions; just make note of the issues and problems raised and how your solution can solution can help. Start with easy questions like "how did you start your business?" and "who do you sell to?"or "why did you buy this machine?" Then ask more searching questions once you've uncovered some issues like "why is that a problem for you?" or "what are the implications of not addressing this problem?" Having gathered your information and understood his problems we go to...

Stage 4. The Close

It's the term that strikes fear into the hearts of many sales people, just the mention of the word has probably increased your heart rate and you're not even at a meeting! So as we enter the close our stress levels really start to spike. One of the side effects of high stress is that we have a tendency to talk too much and frankly just babble. 

This is a real danger because by talking too much we let our prospect off the hook and leave without a sale. So as we move into the close keep calm, try to deliberately talk a little slower, then sum up the qualification session by identifying each issue and how you can help. You then ask for the order and stay quiet and you stay quiet until your prospect answers. Don't worry if it takes what seems like an eternity for him to respond it's only likely to be 5-10 seconds, and remember your prospect will be feeling just as much stress as you. If you start speaking first you'll have lost; the conversation will avoid directly the issue of purchase because you'll have given your prospect a chance to talk anything other than the most important - will he buy.

Stage 5. The Consolidation

Congratulations you've held your nerve, you've asked for the order and you've answered a couple of objections and he's said yes. So what do you do next? Well you could run around waving your arms in the air saying Yes! Yes! - but that's probably not the right thing to do. 

Let's look at the stress levels, they've collapsed you've both taken a huge sigh of relief and there's a great tendency to get out of there just as fast as you can. Don't. Stick around the consolidation stage is there for you to allow the prospect to be comfortable in his own mind that he's made the right decision. There is something called "buyers blues" which relates to circumstances where after a purchase the buyer becomes disillusioned with what he's bought. It often manifested by the unexpected cancellation of an order. The Consolidation is designed to minimise this, you need to find a reason to stick around for 10-15 minutes, if you can, get him to fill in some documentation relating to the sale, alternatively if you haven't already suggest a look around the factory or site, your intention here is to get them back into their comfort zone, I've even suggested a celebratory cup of tea.

So there you have it, a simple five step model for being more successful sales, happy selling!

Find us also at www.exigent-uk.com

A recession provides opportunities as well as challenges

Many small business owners are experiencing a downturn for the first time; and what a downturn to start! Nevertheless there are a few simple rules that they can follow which will help them survive and even thrive in this most difficult of business environments.

In describing what can be done I've employed the analogy of a football team which simultaneously has to employ both good defensive and offensive strategies to win.

Let's look at those activities that are defensive in nature. These will protect their client base against other competitors and will assess the fitness of their organisation. Secondly, there are those activities that can be considered offensive, in an attempt to win more business or win more customers.

Defensive actions can be split into external facing and internal activities. Externally they need to be looking to strengthening and at the very least maintaining their relationship with their best customers. Obviously this can be initiated by phone calls, but must include more face to face visits, and more overt proactive activity which can be in the form of newsletters, emails or calls. Also its worth considering particularly in the service industry whether you can get you clients on some sort of regular payment plan. Inevitably this will mean that they start paying for service in advance, making it much more difficult for them to be poached by competitors. Moving out to the next level of customers they need to be undertaking similar activity. Clearly less important customers warrant a lower level of investment but once you've categorised your customer base all those you want to retain should benefit from increased sales and marketing activity. The priority is clearly best customers first, the least important customers, last. Customer importance should be related to the opportunity of income growth as well as the amount of business you currently get.

Internally business owners should be reviewing all their business and management processes. My experience is that for most businesses their internal processes are at best passable, but very often for SME's they're hand crafted and reliant upon the knowledge of the current personnel to make them happen making them clunky and often counter intuitive and hence very inefficient. If we treat the recession as a get fit regime, then we need to be removing the inefficiency from all our internal processes to get to the cost of production down and increase gross profits. So review all internal processes from sales and marketing to credit control and it will be possible to quickly discover where the business is inefficient and free those improvements across the board to extract additional profit for the firm. This is not an easy process as people are resistant to change. It requires conviction and dedication to implement these new processes but the results can be staggering.

Let's turn now to offensive actions. Most of these activities relate to business development. The business needs to organise, systematise and implement regular sales and marketing campaigns in its chosen areas. Initially it will meet increased competition as all savvy business in their market will be doing the same. In addition struggling firms will be attempting to stay afloat by "buying" business. This classically leads to a situation when revenues come under pressure and marketing costs rise. Successful businesses resist the temptation to slash sales & marketing budgets as that creates a vicious circle of decline. However, as the recession bites, those firms who can't manage the fitness regime will fall by the wayside reducing competition and opening up more new business opportunities for those left.

For those businesses with a strong constitution, there is also the opportunity to grow by acquisition. There are bound to be a significant number of businesses that would be only too pleased to run into the arms of a competitor rather than face extinction. As an alternative build up a relationship with some local insolvency practitioners who may provide opportunities for cheap acquisitions post failure.

http://www.exigent-uk.com/
Exigent consulting has been providing specialist advice to small and medium businesses since 2002. Its founder Laurence Ainsworth has successfully managed businesses through the recessions of the early 90's and 2001-2.

Grumpy Old Man on Behalf of Sissies!

I was looking through the multitude of information and articles that stream across my desk - mainly because I have this butterfly mind and its much easier than concentrating on one thing; when I came accross this article

Downsizing is for Sisses: Putting My Money Where My Mouth Is! by Jim Gilbert

It was to me like putting a red rag to a bull and I just couldn't help myself here's my reply I think I'm right well I would wouldn't I


"Hi Jim,

Sorry, I have to say what a load of old twaddle!

Layoffs aren’t for sisses, making redundancies is a very unpleasant thing to have to do. Neither is it done through lack of imagination, its done through lack of other alternatives. Most business turnarounds require an element of crisis management, where the company, and this is where I agree with you, has through poor management allowed their position to deteriorate to the extent that they need external help to keep it from going under.

Under these circumstances in 9 times out of 10, the company has insufficient cash resources to maintain and support its current debt burden. Whether that be salaries or payment to creditors or bank loans. In simple terms in this situation no self respecting creditor is going to wait for payment on the chance that you might be able to increase sales at some indeterminate point in the future such that they can get paid. In most cases a creditor will demand some concessions from you for its continued support. These concessions are typically proof that you have cut down your expenditure. In most businesses the largest single variable cost is labour. Therefore that is where you have to go to find the savings to allow the business a chance to succeed.

In any turnaround two things typically have to happen; firstly the need to reduce your cost base and secondly you need to try to increase sales. This in turn is crucially dependent on two things; firstly the relative competitiveness of your product or service and; secondly the state of your marketplace. At the risk of stating the obvious if you are in banking you are unlikely to want to substantially increase your loan book in these highly volatile times.

Having said all that, I had to agree that too many businesses do not explore the sales and marketing opportunities available to them. This is particularly true in the smaller business sector where owner-managers have built up a business based on the fact that they are good at what they do, rather than because they are good at running businesses.

Rgds Laurence Ainsworth
Exigent Consulting
Business Turnaround Specialists since 2002 "