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Developing Strategic Objectives

What are Strategic Objectives? Why are they important? How do you create and communicate them? Strategic objectives are what you want to happen, but they are often not the most pressing or urgent priorities. They are leaders’ ideas of what they would like to happen in various functional areas over the following months and years. These can address Business Development, People, Operations, or Financials. What would you like the organization to accomplish? Where do you see the organization? Where do you see yourself? When clarified, these are all types of objectives that form the basis for current-day activities and priorities. By defining and keeping our strategic objectives visible, we are reminding ourselves why we are up to our necks in alligators in the first place!

The development of strategic objectives starts with the leadership’s mission. Why are we in business? What value do we bring to the market, or are we creating a new market?

How do we measure up to the status quo and the competition? What makes our offerings superior or unique? This idea is typically a founding premise that drives the organization forward.

Our mission must be clear and concise to be useful. Because the organization must understand and embrace it as it grows. However, it is important to note that an organization may pivot along the way. If it does, it needs to redefine its new mission and communicate the reasons and strategies for the pivot. Imagine you are traveling to a destination in several vehicles when, suddenly, the ‘leader’ decides to veer off the path. What is she doing? Where is he going? Why has our route or destination changed? You have been there and know what that is like. There is usually a good reason, but it can be stressful until you hear the explanation. The same goes for your company mission; we must communicate, reiterate, and let everyone know if we are changing something as core as our mission.

Like our mission, our vision is where we see the organization’s future. Taking the caravan example above, what if the leader just said, ‘Follow me!’ and took off? How would the organization react? How efficient would it be to get everyone going in the same direction?

Who might stay behind due to the uncertainty of the outcome? A vision explains the destination, reasons, and measures of success so we know, ‘Are we there yet?’

Measures are another component of our strategic objectives. If our stated objective is to ‘grow our sales revenue,’ how will we know how we are progressing or if it is realistic? Knowing when we reach our objectives is critical to our success.

By identifying a target measure, we can judge our progress and assess our methods towards achieving it.

This practice leads to continually improving our methods and tactics to reach the objective.

Defining our Mission, Vision, and Measures is critical to defining our Strategic Objectives.

Some organizations would also add ‘Values’ to these foundational ideas. What are we willing to do to achieve our objectives? How do we want to operate our enterprise? Who do we want to attract as clients and customers?

Spending some focused effort to identify these pieces will ensure that our resulting objectives are consistent with what we are trying to accomplish, where we are going, how we measure our success, and how we conduct ourselves along the way.

Now, the work of identifying our Strategic Objectives can begin. The importance of identifying, clarifying, and communicating these strategic objectives allows an organization to get beyond its day-to-day activities and results by defining a destination. We have all been busy with the seemingly urgent activities of operating an enterprise. Strategic objectives add important activities and actions to our to-do list.

Establishing visible strategic objectives takes our eyes off the ‘now’ and allows leaders to focus on ‘tomorrow.’ We must communicate these objectives to the organization to have a voice in what is in front of us today. Strategic, by its very nature, means ‘long term.’ Today’s activity can obscure the long-term view of where we are trying to go.

Periodic review and discussion keep these strategic objectives part of our daily focus and activities.

Breaking down these long-term strategic objectives into bite-sized activities helps us take steps toward the future. Typically, strategic objectives are in several action steps toward a result. We can see progress toward our objectives by defining the activities necessary to work toward the end objective. As we define a destination or vision of what we are working to achieve, we also need to identify the route. What can we do or start doing to achieve an objective now to work towards the desired outcome? What do we need to accomplish to achieve a target objective before we get there? Are there interim steps we can take that move in the direction we are going? Think of it as a cross-country road trip. We map our routes, plan our stops, and prepare our vehicles. Do we take a side trip to see the world’s largest ball of string, Wall Drug, or the Corn Palace? We need to make planned progress to arrive at our destination in time.

Assigning these objectives to a ‘Champion’ becomes part of our accountability framework.

During holiday feasts hosted at our house, the Chef often says, ‘Somebody, please get the ‘blank’ out of the refrigerator.’ If I am around and not working on the last task assigned, I will often look at one of our grown children standing around and say, “Please get ‘blank’ out of the refrigerator.” The lesson in this is that if we don’t assign ‘someone’ to be responsible and accountable for achieving an objective or completing an action, we will stand around and look at each other, wondering why we did not get our objectives completed months down the road.

Every action or activity step should have an achievement or completion time frame. Studies have repeatedly shown that many of our ‘goals’ or ‘resolutions’ are seldom achieved. The ones with some common characteristics: Written down and communicated to someone to keep them accountable, contain a measurable progress or result and a ‘when’ they’ll achieve it.

SMART objectives are Specific, Measurable, Attainable, Relevant, and Time-bound goals. Using the SMART acronym for strategic objectives is critical to making them happen.

It is also valid for assigning accountability for seeing that they are progressing and taking necessary steps to achieve these overarching strategies.

In summary, Strategic Objectives drive us toward the future we define. It must be consistent with our mission, vision, values, and measures of success. An excellent strategic objective is a stretch goal. It is complex and challenging. It takes commitment, accountability, and clear evidence of accomplishment. Good strategic objectives help us pick our heads up and look into our future during everyday busyness. While we must handle urgent matters, we don’t have to have strategic objectives. That is unless we want to get somewhere other than where we are today.

How to scale your company

First, let’s start with the question, “What does it mean to you to scale your company?”

Scaling could take on different meanings depending on whom you ask and their goals, among other factors. You may hear responses like, “I think scaling is growing the company’s revenue faster.”

As you can imagine, this could mean taking a yearly revenue from $1.4 million to $1.8 million.

To some, that is not truly “scaling your company.”

This critical question clarifies what “scaling the company” truly means. Scaling your company is about growing revenue by at least 2X YOY. For example, your company could generate $1.4 million in annual revenue. Scaling is now going to $2.8 million the following year. This shows why defining what scaling means to you is critical!

Scaling your company takes on a life of its own.

Let’s look at how to scale your company. Think of your business as having two sides. One is predictability; the other is scalability. Let’s start with one who thinks scalability is the right way to go. In most cases, owners have put their life’s savings into starting the company of their dreams. It puts instant pressure on scaling the company. Many owners put so much time, energy, and money into scaling the company from day one. As you can imagine, the challenge is the company not generating revenue and running out of funds within the first two to three years. Without sufficient revenue coming in, the company is now at risk for survival. It may be wise to put about 10% of your mind into scaling the company and the remainder into predictability. Predictability offers the opportunity to scale the company in the future.

Predictability is generating revenue by working in the business short term by making sales and building a support system as the company matures.

One challenge of scaling a company is thinking your product or service will scale by itself. In many cases, the best product or service doesn’t always win. If you research the numerous products or services introduced to the market, many of them have never hit the ground running. Their platform wasn’t practical for scaling or marketing the product or service.

You could have a great product or service idea that flops because it doesn’t have the scalability and marketing support behind it. The product alone won’t take your company to scalability.

A second challenge to scalability is personality.

Personality alone won’t scale your company, either. You can have an extraordinary personality and have the respect of many in the industry and community you serve and never scale your company. The challenge with personality driving scalability is that everything depends on you. What happens when you are no longer involved in the company? What happens when the company gets to a size where you can’t be involved in all the business decisions and customer inquiries to the point that you feel like you are losing control and stress takes over? It is the monster of having a personality that drives your company. The more your company grows, the more it sucks all your energy. I would say that’s not conducive to a good quality of life!

It is why having a great system is one key component to scaling your company. This system should produce results with your great product or service.

However, a great system alone won’t scale your company without a driver. Someone on the leadership team must understand how to drive the system you have in place.

I’m a sports fan and relate a lot of growing companies to sports teams. Greg Popovich, the coach of the San Antonio Spurs NBA team, is a driver and big thinker.

His product is his players and all his support staff. The Spurs haven’t always had the #1 draft picks coming out of college. Indeed, they had good players who just happened to be great game students. What made the Spurs a dynasty in the 80s- early 90s was the system Popovich built and drove day in and day out. Let’s look at the Chicago Bulls. You know the story there. Yes, Phil Jackson is a driver who had arguably coached the best player of all time, but the triangle offense drove the Bulls to be recognized as one of the most successful and recognizable sports dynasties of all time.

Bill Belichick of the New England Patriots NFL football team is another great example of a driver who works within a system. Unless you are a Patriot fan or live in the part of the country, you would be hard-pressed to name 10 of the starting 22-man roster.

Now, ask yourself the following question.

Does Popovich, Jackson, or Belichick have the best personalities within the ranks of professional coaches? I would say not. So, this proves that neither personality nor product alone will scale your company. On the contrary, this proves the system these teams operated with and having the correct driver far outweighs having the best product or service and personality.

Another challenge with scaling a company is celebrating too long. Guard against one huge sale or gain a new vendor that makes your financial goals that year. Drivers expect these things to happen. Therefore, they don’t stay in the “celebration world” too long. They are constantly thinking about how to win another championship the following season.

Drivers never settle. They think multiple titles and legacy, i.e., SCALING THE COMPANY!

Earlier, I referenced “working in the business” in the early stages of a company. Once you get your system in place and have a driver mentality or a driver in the leadership ranks for company support, it’s time to “work on the business.” Often having both simultaneously, this is a timing issue, but scaling is at your fingertips when you do. “Working on the business” is now where you should live!

Finally, let’s discuss leverage and its impact on scaling your company. This is the final piece. #1, don’t try to be a CEO if you’re a good CFO or fantastic COO. You don’t have all the answers! Build a team around you to complement your skill set. Ask yourself how to leverage the right partnerships, vendors, executive team around you, and time. Without understanding how to use leverage, scaling your company becomes more difficult.

Key questions:

Are you spending more time on scalability or predictability?

Are you more product, personality, or system minded?

How do you now scale your company based on where your company is?

What are you going to change knowing what you know now?

Knowing your organization’s hiring and recruiting strategy is just as important as the organization’s KPIs, etc.

Twenty-five years of experience leading business teams has taught me many aspects of producing desired KPIs, operational improvements, and P&L performance. Above all is the realization that nothing happens without the “RIGHT PEOPLE ON THE RIGHT SEAT ON THE BUS.” It begins with hiring and recruiting the necessary talent (lead measure) to produce the desired results (lag measure).

Let’s start with a few critical questions all businesses must effectively understand to recruit, hire, and build your #1 asset: your TEAM!

Organizational Culture

Do you have an established culture built and exercised by current leadership? Culture must exist through all generations: past, present, and future. For various reasons, Organizations often become misguided when leadership changes occur. An organization’s culture should not be impacted simply by a leadership change. Now, for clarity, a change in leadership often comes with a different direction or vision for the organization. However, does that mean the core culture must also change? Leadership often follows suit as business environments change and place different demands on organizations to change. Does that mean the organization must change its culture and how it acts and beliefs? Culture is a “living way of life” that must be woven throughout the fabric of your organization. Yes, I’m saying that from the CEO to the janitor, culture doesn’t change!
When you hear the term “brand ambassador,” what do you think of? I think of a “Culture Ambassador.” The individual doesn’t have to “rehearse” what and who the organization is about. Do you have a go-to Culture Ambassador? Who would that person be if you had to name one right now? Why did you choose this individual? Where are “the gaps” between that individual and others? What process or plan is in place to close the gap?

Marketing your Culture

How do you market your culture to prospective team members?
Do you have your “Culture Ambassador” involved in the recruiting and hiring decision process? It’s not enough to know the job descriptions of the organization. Most people memorize the roles and responsibilities of jobs. Fewer to talk about the job from an ambassador’s perspective and identify what a resume doesn’t tell you.
If you had to produce a video showing your culture, how many edits would be necessary before you are comfortable marketing it to the world of potential team members?
Where have you sourced talent, and why did you use that method? If you are in a specialized field, like doctors and lawyers, it requires specific talents, skills, education, and specialized training. Therefore, where you source talent must be specific to your talent.

The Interview 472

Now that you have prospective candidates in front of you, what do you do? How do you identify the RIGHT PEOPLE to fit the culture of your organization? I must share what I know and what doesn’t work very well. That is doing most of the talking! You should do 25-30% of the talking in an interview. If you are out of balance and must show you are the authority, I challenge that thought process. It’s critical to understand that you are not there to sell the candidate on your organization at this point. It is critical to understand that your only information is what the candidate shared with you on paper. Do you trust that information? How do you know if it is accurate? This is why it’s critical to ask behavioral-based questions, i.e., tell me about a time when… This question encourages you to listen, lends itself to the candidate walking you through their thought process, and gives insight into how the candidate convincingly verbalizes their thoughts. You will also see how the candidate shows emotions and confidence in themselves or their professional experiences based on the line of questioning. I always recommend studying the resume beforehand and considering your takeaways BEFORE the interview. In other words, what do you need to know to feel comfortable that the candidate is an excellent cultural fit for your organization?
What not to do…simply put, is ask closed-ended questions. These are questions that only solicit a yes or no response! These questions will likely lead to a bad hire and increased chances of a separation of employment because you will not see the candidate’s true personality. Years of conducting interviews have taught me that candidates will try their best to tell you what you want to hear. As the person conducting the interview, it is critical to uncover candidates’ truths and personality types. After all, you are potentially hiring someone you are counting on to do well with others who can communicate their thoughts and ideas to add to your organization. Please understand that this is likely the best you will ever see this candidate! In other words, their appearance, behavior, and confidence will never be better. As I always say, the interview is the honeymoon. Once the honeymoon is over and you see whom you will spend considerable time with, it will become apparent whether the relationship will continue. So, it’s worth the investment to get to know the person, how they behave, and how they act during the engagement phase of the relationship. Finding out after the hire means more work, which slows productivity and can be costly to your organization in many ways, not just financially.

So, you made a hire. What’s next?

Congratulations! You have now hired a superstar in your organization. What do you do now? Welcome your newest team member and give a warm introduction to your organization. Having the new team members introduce themselves and share a bit about themselves goes a long way. This practice also allows you to see how they see themselves! The words they use and how they communicate who they are to strangers will show a lot. You will learn more about the team members during their introduction that you should have uncovered during the interview and selection process. Not only will you learn more about your new team member, but in some cases, you will see dynamics change in your current team depending on personality types. So don’t just focus on the outstanding new team member; pay attention to how others respond to them. As a leader, once you hire a new team member, nothing is worse than having a “no call, no show” shortly after the hire. What makes it painful is NOT KNOWING THE WHY!

Strategic Planning

What is the definition of strategic planning?

The short answer is to monetize your vision statement. You may agree or disagree, but increasing the bottom line motivates the private and public sectors. Additional undertones are associated with safety, environment, culture, and history. But in the end, strategic planning provides a path to achieve a mission.

The process is well known. The strategic goal begins by defining your vision statement, assessing where you are, and determining your priorities and objectives. Define responsibilities, measure, and evaluate the key performance indicator results. For Cogent’s clients, a small to medium size target organization has strategic planning directly associated with short and medium time frames. Let’s define short: as one to three years and medium: as three to five years. This business strategy, addressed by many at Cogent Analytics, is considered one of the critical core knowledge areas to be preserved.

Understanding the strategic initiative.

I will address strategic planning at different levels: governments and large corporations. My experience with governmental entities: MEM-PDVSA, ANH-Ecopetrol, and GUMS-Pemex, and large corporations: British Petroleum, ExxonMobil, and Chevron have left a footprint in my understanding of the differences, especially in the timeline, and depth and reach of their planning process. I will describe their approach with examples in the following paragraphs.

As you can derive from the client base, my consulting expertise is in the Oil and Gas industry: exploration, development, processing, transportation, refining, marketing, and distribution of hydrocarbons. Let me share a few brief case studies from each entity I have worked for to illustrate the main differences between short to medium and long term goals.

A long-range strategic plan – time and scale.

The oil reserves of a country or a public oil entity are subject to careful evaluation; they are the fundamental equity that sustains their balance sheet. As part of the strategic objective, they address quantity, risk classification, and valuation. This planning methodology determines the reach of the economic horizon of their corporate level strategy.

MEM-PDVSA has the largest known hydrocarbon reserves in the world, and their strategic objective horizon is 30 years. British Petroleum’s tactical planning horizon is 25 years. In both cases, they review the trending issues and develop scenarios making a strategic plan that identifies the problem. For example, they include a plan and forecast for 100 and 150 years in their strategic thinking. In the late 1900s, both entities predicted the introduction of the electric car within 20 to 50 years. Today, electric cars are an everyday occurrence.

Another example is the PDVSA action plan to strategically associate with ExxonMobil, Chevron, and British Petroleum, among others, to jointly develop the extra-heavy oil reserves of the Faja del Orinoco. In late 1990 and early 2005, they invested US $25B in developing and upgrading the extra-heavy oil from the Faja del Orinoco. The average time elapsed from LOI to the completion of the project took +/- than ten years, and the time horizon of execution of the project is 35 years. An example of this is how MEM-PDVSA’s mission was to monetize Venezuela’s extra-heavy oil reserves.

Strategic thinking – economic modeling.

The monetization of the hydrocarbon reserves is the main subject of project economics strategic priority. Long-term planning gives direction, and midterm project management provides the basis for budgeting capital investment projects.

Long Term Goals: ANH and Colombia’s “Apertura” are excellent examples of the long-term planning process and visualization. I was part of the multicultural team that provided strategic direction and executed the opening of the Colombia hydrocarbon reserves to local and international investors. The planning process started with an inventory of Colombia’s hydrocarbon reserves and a technical evaluation to assess exploration risk. Applying what we learned during the Venezuelan opening, we propose and aid in the execution of public hydrocarbon exploration. The business strategy involves economic evaluation and prioritization of the exploration blocks. A risk economic model was prepared, and we assigned priorities to plan and sequence the offering.

Mid-Term Goals: Ecopetrol strategic planning gives the guiding principles to select the capital expenditure projects that are more profitable for the organization and key stakeholders. During the Ecopetrol process, the Castilla field was defined as an internal target for development. Chevron was turning over an operating agreement, and Ecopetrol wanted to evaluate and plan the exploitation of the remaining reserves. Further, we contracted to aid in the evolution of the Castilla field. As a result of effective strategic planning and execution efforts, production increased from +/- 20,000 BPD to +/- 150,000 BPD. Application of new up-to-date technology contributes to the ROI achievement.

Operational planning – process optimizations.

The supply and services are always critical to the strategic planning process. A SWOT assessment typically defines the strategic objective and responsibilities within the organization. Critical issues like food and fuel supply are vital for the region’s stability. Therefore, emphasis is made on meeting the ever-growing demand for goods and services.

Hydrocarbon industry optimization, GUMS-Pemex, is an excellent sample of operational planning and process optimization. Let’s review the supply of transportation fuels: gasoline & diesel, to Mexico, which became one of the most critical issues to be resolved by the Mexican central government and their state oil company. Mexico absolves the expenditures associated with the exploration risk, and as a result, large hydrocarbon reserves were discovered and developed. The production from said fields was exported and refined at the USA Gulf Cost. Only to be sold back, to Mexico, as refined products: gasoline, diesel, etc. During the strategic planning process, it became evident that developing the Mexican refining capacity would eliminate the evident “Molecular Tourism.” Therefore, five refining projects were conceptualized and executed. Furthermore, the vision statement included 3rd (Petrochemicals) and 4th (Plastics, Fibers, etc.) levels of hydrocarbon transformation. GUMS-Pemex generated direct and indirect capital investments +/- $US25B, creating new and futuristic economic development centers.

Market assessment strategy – price scenarios.

Price scenarios are another challenge to be addressed as part of the strategy execution efforts. Anyone who has done economic modeling evaluation knows the four elements required to determine the fundamental economic indicators, like the return on investment. The first two are capital and operating expense estimates, best known as CPEX and OPEX. These are directly supplied by the project definition and, as such straightforward to calculate. The third key performance indicator is the legal and applicable taxes: federal, state, and municipal. This one requires special attention and should be addressed by a qualified tax expert willing to certify the adequate treatment of all federal, state, and municipal tax requirements. The fourth indicator is price, which is the most difficult to assess and determines the project’s economic feasibility.

Price Scenarios by recognized institutions are expensive. Purvin & Gertz are well known in the hydrocarbon industries and accepted and sanctioned by the Security and Exchange Commission. Purvin & Gertz provides price forecasts for hydrocarbon production through the horizon year of 2030. Another method of estimating hydrocarbon prices is to evaluate the West Texas Intermediate (“WTI”) price and use correlations to all other products and byproducts. The best way to calculate the cost of the WTI, without expending money, is to get the forecast from the consumer’s point of view (IEA: International Energy Agency) and the forecast from the producer’s point of view (OPEC+) and take the midpoint between the two projections.

British Petroleum (BP) is well known for its forecast. In the long run, their price scenario forecast WTI at a constant value of 70 $/B, +/-10%, and this forecast, on average, has over time held. Plotting the WTI for the past fifty (50) years will verify this assessment. Also, BP’s estimate of trends is well-known and respected. BP is one of the major oil companies that consistently has paid a 6% dividend. A test of endurance and excellent long-term strategy development.

Define organizational goals – measure and evaluate results.

The best method to measure and evaluate is to set up regular follow-up meetings and compare what you’ve forecast versus what has happened. The best practice utilizes the CMS (once a week) and the Wealth Budget and Profit Plan (once a month) to review the actual result versus periodically. You report progress evaluations, adjustments, and updated forecasts to maintain an updated strategic management business plan. This process is a generally accepted practice typically used by most organizations. For successful strategic planning, the best approach is to review mid-year and compare previous trends and analysis as a function of the new economic realities. Businesses use the new strategic goals and an updated strategic plan to prepare the wealth budget and profit plan for the following year.

The MEM-PDVSA evaluation. I was responsible for presenting our oil and gas market evaluation to leadership and the Board of Directors once a month. Most of the time, the presentation began by explaining why we got the forecasted oil price wrong. The lesson learned is that it is difficult to predict the direction of the market. Therefore, most major oil companies’ organizational goals hedge on buying and selling futures paper barrels.

The purpose of strategic planning.

In conclusion, the purpose of strategic planning is to share the consensus’s vision and give direction. Specifically, it breaks down the company’s vision into tangible goals for your organization. The deliverables provide the time frame and assignment of responsibilities for meeting the objectives of an institution or an organization. For small to medium companies, tactical planning should be an exercise for growth and survival. Today’s ever-changing economic environment requires the business owner to take action to find his strategic position. The strategic planner identifies threats, treats them as opportunities, and embraces change as he builds its strengths and cures its weaknesses.

3 Topics For Transportation and Logistics

The transportation and logistics industry is currently going through some major transformations. These changes are creating opportunities and challenges. Successful shippers are looking for ways to adjust to the challenges and take advantage of the opportunities. Here are 3 key areas they are focusing on.

Economic Outlook

Online retail spending is estimated to increase up to 20-30% over the next 3-4 years. This impacts future freight distributions and patterns by creating additional density for retailer’s networks. Capacity is already expected to tighten by the end of the year. In addition, the economy still shows signs of growth, meaning manufacturing will continue to need and produce more freight.

Amazon has announced its plan to enter and dominate the grocery business by combining its technological know-how with brick and mortar stores. Walmart has countered with its own plans and vows to go head to head with the e-commerce giant. It’s a clash of the Titans and the transportation industry stands to gain.

Need for Labor

There is an industry wide problem finding skilled labor, with some local markets having more difficulty than others. There are many reasons why it is a problem, but 2 stand out. First, trucking often pays less than other business’s competing for the same potential employee. Second, many unfilled positions require being away from home.
As freight volume continues to grow labor will become an even bigger issue. To attract more recruits, some experts have proposed establishing 2 industry standards – a higher base pay and a flex time policy. But, neither idea has gone anywhere. The current “solution” of poaching each other’s employees is not a good long term answer for anyone. So, what are successful owners doing to find good people?

Most owners have a gap between their hiring requirements and their knowledge about how to effectively find people. They think they have “tried everything,” but have only tried a few, old methods. There is too much competition to leave hiring to chance, or a half-hearted try. Successful owners are getting outside help to learn new ways to attract, train and retain good employees.

Technology and Data

It is well known that many transportation and logistics companies are late adapters to technology. Some are starting to be shut out of contracts if they cannot provide the data and technology required by customers, especially cyber security. Larger customers are adding minimum levels of cyber security to their contracts; this requirement will eventually become SOP.

Many trucking businesses are even more behind in using analytics to make smart operational decisions. They do not understand the competitive edge analytics can give them (i.e. which trucks, routes, drivers, customers, and loads are the most profitable). Every year companies go out of business because the owner has no way of knowing if he is making a profit or not.

(Sidebar – Over the next couple of years pay attention to and learn about “blockchain technology”. It will transform the way the logistics and transportation industry operates.)

Successful shippers are thriving by looking for ways to benefit from opportunities and limit risk to their supply chain. They do it by keeping up on, learning about and applying new strategies. We are in the middle of a shift in the way transportation and logistics is done, do not be left behind.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Protecting and Retaining Your Business Assets

The Significance of Human Capital

Human capital is the engine that drives our business. Just like a car engine when it is not firing on all cylinders, our business does not run smooth when we have personnel gaps, issues, unplanned departures, or retirements. In each case the answer is to make it a priority to always be looking to acquire top talent whether you think you need it or not. Especially if your business needs minimally skilled or entry level talent, the hiring landscape has changed drastically in the past 18 months. Traditional methods of posting positions based on tasking and wage, having an approval process that is too long, or waiting until you have an opening to look for candidates, will not work any longer.

In today’s post-pandemic employment environment, it is not enough to ‘find’ the right talent. They need to believe that your business is the one they want to invest themselves into. You need to be able to cast your vision for the ‘why’ you are in business and ‘why’ they want to be a part of it. Simply competing on wage or salary alone is no longer good enough to attract and retain top talent. Employees have re-thought their entire reasons for working over the past 18 months. There are more intangibles than ever before. They want significance, purpose, and a mission they can believe in. The fierce competition for top talent has given job seekers the ‘choice’ of what they want to do, where they want to do it, who they want to do it with, and why they want to invest 40-50 hours per week into it. What is the culture? How do people advance? Are my opinions and ideas valued? Am I comfortable working with these ‘other people?’ Do I feel my work here will be rewarding? Does the environment fit my working style? Do they offer ‘hybrid’ workplace policies and technologies?

Who Do You Need?

For professional services businesses, the value is in its’ people and human resources with the talent to provide the service consistently using the tools and expertise provided by the company. This includes everyone from the individuals providing the service, the sales staff that communicates the service differentiation, to the administrative personnel who schedule, communicate, follow up, and prepare reports. For a company that sells a product, the individuals who determine the target markets, communicate the value proposition, prepare estimates, and sell the product are often referred to as the Business Development group. Once a product is sold, it must be produced. This involves designers, engineers, supply chain specialists, quality inspectors, production personnel, material handling, and many other types of talent.

Talent Acquisition is the process of growing the business with the right resources to accomplish the mission. The first step in defining what talent is needed is to map out the functions of the business from the concept stage through sales, fulfillment, delivery, and customer service. Knowing your ‘Core Competencies,’ the functional steps your business needs to accomplish its mission, the processes by which you operate and train, and defining the roles necessary to achieve the desired results are essential steps toward finding, recruiting, hiring and retaining the right talent. In any significant business there are many different roles to be filled by different individuals with widely varying characteristics and skills.

What Organizations Want

An owner’s job is to create the infrastructure to support the business growth. This includes the organizational structure, the processes, the measurements of progress, and the roles of the individual team members. For today’s worker, knowing their role and how it supports the mission of the business

is of key importance when choosing how to spend 30-40% of their lives. The global pandemic caused us to re-think this part of our work life. In Michael E. Gerber’s book, The E-Myth Revisited, he sums up what people want in a job: “What most people need, then, is a place of community that has purpose, order, and meaning. A place in which being human is a prerequisite, but acting human is essential. A place where the generally disorganized thinking that pervades our culture becomes organized and clearly focused on a specific worthwhile result.”1 This should change the way we recruit and retain our talent. We need to understand why someone would want to work for us and be able to articulate that in our job postings.

Filling The Gaps and Dealing With The Issues

In every business there will be times when there are gaps, created by growth or departures. Unfortunately, we will also have ‘issues’ with employees that we need to perform, but they are not. We feel trapped into accepting their sub-par performance by not having someone to backfill their role so we can ask them to take their ‘excellence’ somewhere else. This not only hurts their function, but also drags down the rest of the team when they see a co-worker not pulling their load and we are seemingly doing nothing about it. We must constantly recruit talent before we need it. This does a couple of things for our business. First, when we do have a gap, we can quickly fill it with the right talent through ongoing recruitment activity. Secondly, if you know there are people waiting in the wings to take your job if you fail to perform, you are more likely to do the job to the best of your skills and ability.

Succession Planning and Cross Training

People will leave. Either through career advancement, retirements, or unplanned departures. The key in all cases is to have a plan. Having an open and transparent environment where everyone can be open about their personal goals helps us plan and prepare. We should not be surprised when someone announces they are leaving or retiring. A good practice for any significant business is to be planning for succession. This can be through formal mentoring programs, identifying replacements beforehand, or having a ‘succession plan’ for key employees. We can also foster an environment where multiple individuals are ‘cross trained’ to perform critical duties. The more senior the position, the more critical this becomes. In the perfect world, we would begin to train our successor long before we plan to retire so it could be a gradual transition. But we all know that our world is not perfect. Therefore, as owners, we need to make an effort to evaluate these key positions, discuss the options openly, and create a plan for it. This is not only for mentoring and training for the role, but often involves additional payroll dedicated to taking over a position during the transition. If you have a habit of promoting from within, this creates a ripple effect as people advance and move within the organization. This makes even more critical that we have a recruitment engine that is constantly seeking to fill in the gaps as a result of these promotions.

No matter what business we are in, if we plan to grow, we will need more talent. The better we have defined the ‘what’ we are looking for and articulated the ‘why’ they would want to work for us, the more likely we will attract and retain top talent. From the perspective of the employee, we are typically not satisfied with just ‘making the donuts.’ We must give our team a reason to work for us through clear vision, mission and culture. We must constantly be looking for top talent, and finding places to plug them in. By having options, we are able to weed out the bottom performers, fill our gaps, and plan for key employee departures. Our future growth depends on constantly recruiting this additional talent.

Small Business Succession Planning

Succession Happens

It is either planned or forced. All people move on. If you’re not planning for succession, you’re not running your business.

Succession planning is simple in theory but takes EFFORT in the application. Succession Planning is a Critical Business Practice part of your Companies Human Capital Management Program. The actions you need to take are listed below:

Build an Organization Chart
Assign Roles and Responsibilities
Ensure people are counseled annually
Identify people for higher responsibility and tell them.
Make trial runs
Make succession planning part of your human capital management plan
Check the program and make changes as necessary.

Build an Organization Chart

An Organization Chart not only defines who is responsible for who, it identifies a “Chain of Command” and gives every employee a pathway to promotion. It also allows you to identify people who can take on more responsibility. Here are some rules for an Org Chart:

It doesn’t have to be what you have now, but it does have to be an efficient model of operation.
Use the Rule of Four when building the Chart. A Department Head (including the owner) should have no more than four people reporting to them. Sometimes, you can go to five, but never above.
No “dashed lines” reporting to other Managers (including you). An employee cannot have two bosses. Avoid double headed monsters at all costs.

If the people you have in positions cannot perform at a higher level, you have two choices: train them up or get rid of them. When you build this chart, evaluate the people you have in the position.

We will discuss this topic under Counselling.

Assign Roles and Responsibilities

People will perform to the level that you expect them to. When you give a person a job, tell them what is expected of them, and give them a piece of paper, a Position Description, that outlines their roles and responsibilities, nine times out of ten, they will perform.

Position Descriptions should follow three clear rules:

Be clear, quantitative and specific to the position it is written for.
Act as a guide for the employee for their career progression
Be aligned to the Companies Org Chart.

If you cannot define what makes a good employee, then you cannot develop a good employee, and you cannot hire a good employee. If you cannot challenge your employees, they cannot grow and develop professionally.

If they do not grow professionally, you end up with no succession planning and you are working harder putting out fires that competent people should handle.

Ensure Employees are Counseled Annually

If you don’t tell people how they are doing, they just assume they are doing fine. Here are some rules for annual counseling.

Be quantitative based on the employee’s position description.
Be tied to raises and promotions.
Have a Senior Reviewer approve or disapprove the review, and comment as necessary.

The importance of the Senior Reviewer option cannot be stressed enough. Not only does it act as a buffer for favoritism, but also alerts the next level of Managers on who to be watching.

As an owner, you should ask three questions of your HR Manager (if you have one) each year:

Is everyone’s review complete?
If not, why not?
Who are our “shining stars”.

You cannot have a viable Succession planning program if you do not have an active counseling program.

If you do not believe reviews are important and identifying “shining stars” is not important, stop here. But if you think you have a responsibility to ensure your organization’s success, then ASK each quarter, semi-annual period, or annually. Show interest and let YOUR subordinates know it is crucial. Hold them accountable for holding their subordinates accountable.

A secret: Make the reviews due at the end of the employee’s birth month and give the manager the two months prior to the employee’s birth month to get it done. For example, if the employee’s birth month is in September, the Manager has July, August, and September to get it done. If the Manager can’t get it done in that time frame, then have his boss come to explain to you why it wasn’t.

Identify personnel that warrant greater responsibility and tell them.

As you identify personnel for greater responsibility, TELL THEM. Put it in writing. Each counseling period, they are being evaluated on their performance to perform at a higher level. Tell them when they are doing good and tell them where they could perform better.

Make Trial Runs

Trial Runs are an important part of professional development. Manage them at stages of professional development, and they will pay off early. Examples of trial run schedule is:

Assign tasks that the manager does, and then evaluate the employee at the task.
Assign short term duties of the manager during periods of peak performance.
Assign duties when a manager is out sick or on vacation.

Note that it is a progression of responsibility. The New Leader assumes authority while their manager is gone, but you are still close enough if there is a problem. Gradually work your way up to an automatic succession when the Manager is out. If there are problems, address them in a mentoring sense verse a kick in the gut.

If it goes well, tell them it is going well, and you appreciate their effort.

Now the inverse. If you walk into the department and monkeys are swinging from the lights, dogs are marrying cats, and chaos is abounding; don’t throw the plan out, throw the candidate out. It is ok if they are not the right person for the job. It is not ok for you to give up.

Make Succession Planning Part of your Human Capital Management Process

People move on. Every person you hire should be evaluated for their potential to move up. Personnel needs to be reviewed annually for their potential and challenged to achieve and grow. Your managers deserve to go on vacation and not be bothered with work issues as much as you do.

Employees are assets, not overhead. You invest time, benefits, pay taxes on them, train them and nurture them. They are your business family. Treat them as an asset and give them the time and respect they deserve. At the very least, you should be asking quarterly:

Status of reviews due that quarter.
Fill rate of personnel.
“Shining stars” input.
Personnel challenges managers are facing for the upcoming quarter.

There will be times when the “right person” is not in the company, that is OK. Have a plan to recruit those people, but in the meanwhile, have a plan to manage the department in the event a manager leaves unexpectedly.

Check the program and make changes as necessary.

Ask yourself the following questions regularly:

Am I developing the future leaders of the company?
Is this program working?
Are managers developing their replacements?
If not, what tools do they need to train them?
Are we (as a company) developing the future leaders of the company?

Even a locomotive makes direction changes. Implementing the Plan, Do, Check, Act (PDCA) model will make tremendous changes in your Human Capital Management Program and ensure the long-term success of your company, and help mitigate succession.

Conclusion

Succession planning is business planning. It starts with an honest evaluation of the personnel you have on hand and determining if they meet the future needs of the company. The impact of a loss of a person can be greatly minimized with planning and training. When done correctly, you remove choke points and allow the company to continue functioning at peak performance.

Critical Business Practice – a practice that, if not actively managed, can lead to short-term failure and degradation of the company’s daily operations.

Strategic Planning – Clear examples of Success

What is strategic planning?

Let’s start with the most basic. Strategic planning is the process in which a business defines and executes a long-term plan to achieve organizational objectives through analysis of present and the desired future state, the company’s environment, and its existing gaps. This planning is done to respond to internal and external changes, so that the company remains competitive in the market. It not only consists of setting specific objectives but establishing the actions and steps to accomplish those objectives. In essence, it is a fundamental tool for making internal decisions in any organization.

How to build a strategic plan?

If there is an image that illustrates the concept, it is this:

Let’s understand the illustration with a personal example:

If I want to have a large income, it is necessary to be specific on how much I want to have. Based on this number, I must carry out a strategy and activities that allow me to have that specific amount. But nothing will surely be carried out if I am not suitable and prepared to carry out this strategy. It is necessary that I have a series of principles, values and skills that allow me to DO in order to HAVE. For a business, it is exactly the same. Thus, in order to build a strategic plan, we will approach a series of stages framed within the cycle of “Be-Do-Have” of a company.

There are many examples of companies that have followed and executed strategies that were purposely and strategically designed within this cycle with tremendous success. I want to share three multinational companies as the best examples.

Toyota

Humility as a business strategy¹

In 1973, the ‘Big Three’ automakers in the US had more than 82% of the market share. By 2016 they have less than 50%. The main reason for this was the aggressive (and unexpected) entry into the US market by Japanese automakers, led by Toyota in the 1970’s.

Cars are big, heavy, and expensive to move. That’s one of the reasons the American market was so shocked when Toyota started selling Japanese-made vehicles in the United States, and at prices much lower than they could match. The auto industry was a massive contribution to the US economy, so one of the government’s first reactions was implementing protectionist taxes on all auto imports, making Japanese cars as expensive as locally made cars.

But the tactic failed. Within a few years, Toyota had managed to establish production plants on American soil, thus eliminating the need to pay any of the new import taxes. At first, American automakers weren’t so concerned. They assumed by having to move production to the US, production costs for Japanese automakers would surely rise to the level of the local auto manufacturers. But that did not happen. Toyota continued to produce cars (now made locally on American soil) at prices significantly cheaper than American companies.

Their extremely polished production process was so efficient and lean that they could beat American automakers at their own game. You’ve probably heard of the notion of “continuous improvement.” In the manufacturing world, Toyota is practically “the grandfather” of precisely this and its strategy has been managed by utilizing the Balanced Scorecard.

Toyota’s strategy consists of two aspects: studying the competition, continually improving their weaknesses, and being humble. Toyota spent years studying the production lines of American automakers like Ford. They knew that the American auto industry was more advanced and more efficient than the Japanese. So, they studied their competitors and tried to copy what the Americans did so well. They combined these processes with their own strengths and came up with something even better. They continuously thrived in the BE-DO-HAVE cycle.

Toyota proved that knowing your own weaknesses can be the key to success and one of the best business strategies you can implement.

Can you name a single famous executive at Toyota? It is very difficult, and one reason is that Toyota’s number one corporate value is humility. Not even the top floor executives have named their own car spaces. The humility that helped them break out of the United States market is deeply ingrained in the organization, from top management to their workers, and of course embodied in its strategic planning.

Tesla

The long game…

The conventional business logic is that when you start something new, you create a ‘Minimum Viable Product’ or MVP. Basically, that means that you create a version of your product that is very lightweight in terms of functionality and “gets the job done.” It also means that the first version of your product should generally be sold at a low starting price, both to make up for its lack of features and to generate interest in a new release.

Some organizations (including many tech startups) take this concept even further and release the first version of their product completely free, with a plan to “monetize” later once they have added more features and the product goes through more rigorous testing where the company feels more comfortable that the consumer to be willing to pay for the offering. Tesla, on the other hand, did things ultimately the other way around. They clearly defined their long-term goal and the path that would lead them to achieve it. Its long-term goal is to be the largest automobile company in the world. They know that to become the biggest by volume, they will have to thrive in the low-end consumer car space, meaning the cars that cost less than $30,000 to consumers.

However, instead of starting with this market, and creating a cheap, low-profile version of its electric car to reach scale quickly (and thus benefiting from economies of scale in addition to meeting its growth targets), Tesla created the absolute most luxurious and expensive, a sports car with all the features they could muster. That car was the Tesla Roadster, and the latest generation Roadster retails for more than $ 200,000 for the base model. This was the first car they ever produced, knowing that they couldn’t achieve the scale or efficiency necessary to make a profit (even at such a high price). Well, Tesla recently defeated General Motors to become the most valuable automotive company in the world.

The first thing to keep in mind is that Tesla has made incredible progress toward its goal of making mass-produced, affordable electric cars. They have even made annual profits last year for the first time in their history. The second thing to keep in mind is that much of Tesla’s business strategy was strained. There was no way they could have created a profitable electric car for the mass market without economies of scale.

At the end, Tesla’s supply chain strategy is one of the most brilliant moves they have ever made. They knew from the beginning that batteries present not only the biggest technological hurdle for their car, but also the biggest bottleneck to production. However, instead of letting this stop them, they took full control of their supply chain by investing in factories that make batteries. This has had the added benefit of allowing them to use those same batteries in parallel commercial ventures like their Powerwall.

PayPal

Dare to challenge the status quo1

There are specific industries that you just don’t want to mess with. Industries such as aeronautics, large groceries and supermarket chains, and banking. Frankly, banking is probably the most challenging industry of all because the substantial entry barriers. You need a large capital, go through a ton of regulatory approval, and it takes years to build trust with customers around their most important asset – their money. Banks’ business models haven’t significantly changed in hundreds of years, and they make huge amounts of profit, without really modifying a single thing on their strategy. They are incredibly powerful and almost impossible to displace. But for some “stubborn” reason, PayPal didn’t seem to care. Currently, it is the leader in online payments. It is likely that when deciding to enter this highly competitive industry, what they had in mind was the creation of a blue ocean. Blue Ocean strategy means creating and capturing uncontested market space by pursuing differentiation while simultaneously creating new demand, where there is no competition. PayPal strategy was based partnerships and a marketing campaign.

The first thing that PayPal did was to massify its use through an aggressive marketing campaign that consisted of offering first $ 10 and then $ 5 for registering in the system, which caused growth between 7% and 10%3. Consequently, they became the preferred payment provider for transactions on Ebay which led to Ebay acquiring them.

The second strategy was making partnerships. Banks had always been cautious about forming partnerships directly with retailers; instead, they relied on their scheme partners (Visa / MasterCard) to do it for them. They didn’t want the hassle of managing so many different relationships, and they were extremely confident in the fact that credit and debit cards would always be at the heart of the financial payments system. But the problem was that MasterCard was already working on a partnership with PayPal. Leaving banks out of the action. Before the COVID pandemic, PayPal proudly held an incredible 20%2 market share of online payments in the US, and 62.7%3 of the eWallet space. Most of that growth comes from its direct relationships with merchants large and small.

PayPal lived in the BE-DO-HAVE and even used the Growth-Share Matrix (BCG) to develop its strategy. This matrix was created in 1968 by Boston Consulting Group’s founder Bruce Henderson, it has been used by almost half of the Fortune 500 companies; this gave PayPal the ability to build their plan by defining their strategic advantages while continuously differentiating themselves from the competition:

PayPal spends less on technology than an average midsize bank; nevertheless, their platform is far superior.4Consumer trust in PayPal is equal or greater than a brick-and-mortar bank, even though they have existed for a fraction of the time.
Consumer purchases via PayPal are not shared with the banks. They simply appear on the bank/card statement as “PayPal”, this gives PayPal the ability to mine data and monetize the relationships between consumers, retailers, and service providers.
PayPal is faster, more agile, and almost always first-to-market on any new payment innovation.
PayPal refuses to associate itself directly with banks; instead, they have chosen to build partnerships and alliances with retailers and consumer service providers.

Strategic Planning is fundamental to the success of any organization. However, not only is its development important, but continuous follow up and execution of action items just as crucial, because from the results of these actions that changes can really be established, and decisions that influence behavior be made. There is no difference on the size of the company or organization, the fundamental steps to creating and executing a Strategic Plan remain the same, the commitment to its importance, execution and understanding of the cycle will define the longevity and success of a business.

Corporate Strategy – Ulrich Pidum 2019
Statista.com- 2021
Spendmenot.com – 2020 Statistics on payment platforms vs banks
The Economist: “Banks vs big tech” May 8^th, 2021

What Is Supply Chain Risk?

What do you know about critical supplies and the path travelled to your door?

Discussions of risk have been at the front of our national and international dialog for over a year now. The Covid 19 pandemic has brought the idea of risk of death and illness into our daily thoughts. If I go out to a public place, what is my risk of catching the virus? If I get the virus, what is my risk of hospitalization? If hospitalized, ….

Supply chain risks have always been present, and the sources are varied. Lately, it appears we are adding new risk “opportunities” as each month passes. We will discuss a few of these and ways to understand and react to conditions as they change. We can never eliminate risks, but with a reasoned approach and common understanding, we can minimize damage done to any disruptions. Let us look at a few significant and unique events of the past ten years:

Japan March 11, 2011

An historic earthquake caused a Tsunami that very quickly devastated parts of the east coast of Japan. The wall of water ran up to 6 miles inland and reached land over 125 feet above sea level. Walls built to shelter the coast were overrun and destroyed. The initial quake lasted nearly 6 minutes – hundreds of aftershocks followed. Sections of the northeast coast of Japan’s main island dropped by two feet. The island of Honshu shifted east by 8 feet. The length of a day shortened by a microsecond as the quake changed the rotation of the earth. In less than 24 hours, the tsunami reached south America and Antarctica.

This quake and resulting tsunami left thousands dead and many more homeless. Many businesses and homes in the path were crushed as the water moved rapidly inland. When the ocean retreated from its inland progress, all the people and buildings were carried out to open ocean and lost. One of these companies made the only approved chemical component that was required for every paint maker producing body paint for a large international Automaker. Within minutes, the entire global supply chain of approved paint was disrupted. This was just one small incident of many thousands.

The risk assessment when they built the retaining walls to protect against the tsunami was that the height was more than adequate for any conceivable earthquake. March 11, 2011 was an earthquake and resultant wave beyond any worst-case scenario comprehended.

Economic “Bubble”

Economies can change rapidly. The automotive industry was relatively stable for years prior to 2008. As economic panic set in, companies’ shutdown production as their customers called to stop all purchase order activities until further notice. The lights went out in most every tunnel. Massive drops in customer and dealer orders occurred as the economy appeared to be in a free fall state with no clear bottom in sight. The results to the supply chain were felt immediately. A prominent supplier of machined parts decided to sell off time on machining centers at deep discounts. Equipment was repurposed to serve the new business at very low or no margin. As the automotive business improved and started a significant recovery and expansion, this company ran out of capacity. Due to the nature of the work, the lead-time to obtain, set up and run effectively was estimated to be no less than 28 months. This one plant served all major manufacturers operating in North America and did not have the machine capacity to supply all automotive demand. Automotive OEMs were put on allocation and rushed Supply Management teams to the supplier to communicate supply conditions on an hourly basis. Vehicle production was slowed and, in some cases, stopped. It took only a few weeks to reduce or divert capacity. It took nearly two years to build it back.

Global Health Crisis

The global pandemic of 2020 has rearranged or eliminated demand in many industries. World political leaders are pouring cash into economies to offset unemployment. Some companies have closed while others found new markets or ways of getting product to the end user. Demand and supply have been far less predictable than in prior years. Some companies have changed their business model completely and do not serve the same customer needs as they did over a year ago. Some organizations are simply gone. Labor shortages due to restrictions, quarantines, and illness have crippled some businesses even though materials and equipment are in good shape. Many hoarded basic supplies (toilet paper concerns anyone?) Supply is beginning to return to pre-Covid conditions but will never be the same in all respects.

Accident (Operator error?)

Just recently the large cargo ship Evergreen ran aground blocked the Suez Canal. Containers, as of this writing, are still not moving even though the ship is freed from its grounded condition. 20,000 shipping containers have been stuck for weeks and there is no anticipated date when they will be able to move. Many more ships were anchored waiting for the canal to reopen. There are container ship tracking websites to see the position of any ship carrying your containers – are you using those to confirm arrival dates?

Your Business

Was your business disrupted by any of these events? What do you know about your suppliers’ sources of their raw material, information, or service? What about their sources? The destruction of a small (10,000 square foot) company making the paint component affected hundreds of manufacturers around the world in addition to potentially affecting every dealership and body/paint shop globally.

Most every business understands its direct (tier one) supply situation. Many have some knowledge of the basic components or materials going into your supplied product. Very few organizations have data on the many tiered layers of supply source and where they are located.

Do you have supplier data that clearly lets your team to find true capacity, quality performance, location, financial condition, future business projections, and an understanding of their supply risks? Do you know your suppliers’ suppliers (tier 2) or theirs (tier 3), etc. To the automotive manufacturer in the example above, the component supplier was a tier 4 or 5 supplier. As they developed and approved the source, key team members in the OEM were aware of the company and its importance in the supply chain. Most of the intermediate users of this material were not aware of the risk of this single sourced situation.

Potential areas of supply risk:

Supplier financial failure or difficulty
Political – import tariffs, blockades, war
Currency – exchange rate fluctuation
Environmental – restrictions on chemicals and hazardous materials
Natural disasters – hurricane, earthquake, flood
Labor disputes
Labor shortages
Capacity constraints – competing demand, temporary or longer-term reductions in capacity
Transportation – The container ship Evergreen is one, equipment and driver/operator shortages, strikes
Raw material shortages
Climate – potential for more extreme weather conditions
Single sourcing
Please add any industry specific risks as you are able to identify them….

Evaluating and Mitigating the Risks:

Analyze your supply chain. Gather as much data as to the location, size, condition of as many tiers of the chain (including customers) as possible. Understand real capacity of your suppliers – not the quoted or stated capacity. Visit key supply sources and take actual measurements. Keep this information up to date.

Evaluate each element for risk and assign a numeric value (weighted for risk type, probability of occurrence and effect if occurred). Utilize a FMEA format for ratings to keep things objective and data driven. Add a factor for “sense” – there is often value in stating something that can be intangible. That “can’t quite put my finger on it or express it exactly”, but nevertheless gives you concern. Don’t discount the value of a “hunch”. A risk calculation matrix could look like this:

For the Risk Calculation section, use 1 as low probability of potential to occur (a), severity if occurred (b), and ability to detect ( c ). Beginning with the highest rated items, make a specific plan to reduce the risk. In the “Risks” section, you can indicate with a check mark or elaborate with descriptions of the specific nature of that section. Supplier location data can be used to quickly sort for any tiered supplier location in the event of an event in a specific geographical location. Indicate the tier relationship to your business with the tier 2, 3, and on under your direct supplier so that you maintain the relationship to the direct supply source.

This could be adding sources, requesting changes in production location or methods. Evaluating alternative materials. Establishing better and faster communication regarding incidents and conditions. Changes in inventory policy – this can be short term to “weather” a short-term situation or long term to address systemic risk. Whatever it is, communicate this throughout your organization. When an issue arises anywhere in the world, you will be better equipped to identify any potential problems as early as possible and have a greater chance of avoiding problems. Take action based on your measure of risk. Execute the plan. Reevaluate the risk after implementation. Plan Do Check Act (repeat). Establish set goals to reduce the overall risk rankings (how much, by when, who is responsible). Communicate this throughout your organization.

How to Design Incentive Programs that Work

To use incentives or not to use incentives, that is the question often being asked by managers in today’s competitive marketplace. Combating high turnover and looking for ways to increase productivity to reduce the cost of processing are the driving forces behind the increasing interest in incentive programs

Experience suggests that the primary reason most incentive programs fail to deliver the desired results is that they are put together and implemented too quickly without adequate thought. To be effective, an incentive program must be tailored specifically to your organization, its people, its jobs, and the company’s culture. A cookie-cutter approach, simply trying to use a program that has worked for someone else, is likely to fail.

The good news is that a well-constructed incentive plan can improve morale, reduce turnover, increase productivity, and have a positive impact on the bottom line.

Pitfalls of a Poorly Designed Incentive Program

Most operations are organized as conventional hierarchical systems with a senior manager, middle managers, supervisors, and staff/operators making up the “org” chart.

Following the appropriate lines of communication and the outlined chain of command are essential in this type of organizational structure. Job descriptions are well-defined. Traditional compensation systems are in place, which includes the appropriated grade levels and associated pay scales. Can incentives work in this environment?

The answer to that question is “Yes.” But before we go any further, let’s take a look at the potential consequences of poorly planned incentive systems.

The same people get rewarded all the time, so the “also-rans” quit trying.
With too much emphasis on individual performance, unhealthy competition develops meaning that people are more concerned about their interests than what is good for the company. There is no incentive for the good performers to help those who are struggling.
It takes so long for people to see the benefit of the program that they give up on it. Weekly incentive programs are based on meeting quality and/or productivity goals every day.

If a goal is missed early in the week, employees see no benefit in struggling to meet the goals the rest of the week.
Unrealistic goals can cause employees to feel defeated before the program gets off the ground.
Complicated formulas for rewarding incentives can give employees the impression the company is cheating them.
Many incentive programs are viewed by employees as simply another management ploy to get them to work harder.
Some managers communicate the workings of their incentive program in such a way that employees see an implied threat of negative consequences if they fail to achieve incentive goals regularly.

Here is an example of how a well-intentioned incentive plan can go awry. On a recent engagement, the manager proudly explained that their incentive program places importance on both productivity and quality and that quality was given the heaviest weight. The manager went on to say that individual employees could receive an additional two dollars per hour for their week’s work if they met the quality and productivity goals set by the company. However, since quality is too important, employees receive no incentive pay if their quality performance is subpar for any one day they worked during the week. So, what is the problem with the program?

After talking with the staff, it became clear that employees have two major issues with this program.

First, if they miss quality goals before their last day of work for the week, a key motivational element is gone.

The focus on quality and productivity fades slightly until the beginning of the following week. The second issue revolves around the method in which the quality of each individual’s work is determined. Some employees feel the quality sampling techniques are questionable, that sample sizes are too small to adequately determine the quality of their work.

How to Design a Successful Incentive Program

How do we avoid the pitfalls that seem to accompany most incentive programs? There are ten keys to developing and implementing a successful incentive program.

A successful incentive program must have as its foundation a solid metrics system that provides reliable quality and productivity data.
Base the incentive on achieving specific cost goals. (Meeting cost goals is, in turn, dependent on meeting quality and productivity goals.)
Find a way to reward both the superstars and those that are showing improvement.
Use a combination of individual and workgroup incentives.
Distribute incentives frequently enough to maintain employee interest.
Don’t keep “raising the bar” to make it more difficult for employees to receive an incentive. If change is required out of economic necessity, explain this to employees before changing performance requirements.
Make the performance requirements clear.
Clearly and simply explain the formula for determining who gets what incentive.
The “reward’ must be meaningful to your employees. Seek employee input regarding your plan before implementation.
Communicate the plan to employees well before the implementation date and answer any questions they may have.

Assume you are spending $56,000 per month on labor expenses. How can we structure an incentive program for this operation?

Designing Group and Individual Incentives

One of the major complaint’s employees have with most incentive and recognition programs is that they focus only on the “superstars” and the tendency is for the same people to win over and over again leaving little or no incentive for others to work on improvement. This approach helps to avoid that issue.

The goal of any company is to make money. Operations contribute to that goal by managing costs effectively. In this case, we have decided to set a goal of reducing our labor expense to $48,000. First, we need to create a pool of money to use as an incentive for reaching the goal. We set aside one-third of the monthly savings, in this case, $2,667, if the goal is achieved with 80% to be allocated for group incentives and 20% for individual incentives.

Using historical data, we can calculate the productivity rate and quality percentage that will yield labor savings. If the group achieves these goals for the month, $2,346 (80% of the $2,667) will be divided among the employees. The percentage of the pool, each individual receives is based upon a simple formula: The number of hours worked by the employee divided by the total paid hours for the month. For example, assume an employee works 120 hours for the month and the total paid hours are 1900. This employee’s share of the incentive pool would be 120/1900 times $2,346 or $148.

To combat the concern that if employees can cut the hours required for the task/project they will be cutting their pay, management must ensure enough work/additional projects are available to keep staff fully employed. If staff is not allowed to work their full 120 hours per month, their support for the incentive program will quickly wane. The goal of the incentive program is to encourage the staff to complete projects with fewer labor costs while meeting productivity and quality goals.

The heavier emphasis on group performance encourages experienced people and top performers to help bring new employees and poorer performers up the curve more rapidly. The sooner they are contributing at an acceptable level, the sooner the lion’s share of the incentive pool becomes available.

Individual incentives are best structured with two components: top performers – those who exceed performance expectations for the month – should be rewarded and incentives for those showing the most improvement over past performance. Adding the “most improved” component gives virtually everyone a chance at the individual incentive pool, too.

To continue with our example, twenty percent of the total incentive pool – $522 – is available for distribution to individuals. One way to allocate this pool is to provide 60% of it to the “top performers” with the remaining 40% going to the “most improved” staff. To performers can best be defined by calculating quality or “error-free” productivity rates for all operators and identifying those whose error-free rate is above the calculated standard.

Error-free or low-rework productivity gives us a simple way to use both quality and productivity performance in calculating incentive eligibility and gives both factors equal weight. If three staff members demonstrate the same error-free performance, 60% of the $533 – $320 is evenly split between them.

To determine who shares in the “most improved” pool, a minimum acceptable level of improvement in error-free performance must be specified. Ten percent for example. The remaining $213 in the incentive pool is divided among those who have shown improvement of ten percent or more.

Momentum, Metrics, and Money

If monthly incentive rewards are received often enough and are large enough to maintain interest and focus; the program will continue to reap benefits for all. However, this approach will fail if a good system is not in place for tracking quality, productivity, and work hours. The incentive program should be reviewed annually for possible changes and tweaks.

The accurate metrics that a good incentive program can deliver reinforces the importance of these types of programs. Improved performance and quality metrics will then enhance the bid and proposal process with more accurate costing. Greater costing accuracy aids the bidding process with more accurate margin determination. Collectively, the combination of all the elements ensures job profitability. Therefore, a well-designed and implemented incentive program that shares operational cost savings with employees is a win-win situation for the company and for the employees.

A solid incentive program that maintains its momentum is a strong contributing component in the execution of the profit program cycle. It provides rewards for staff for delivering productivity and quality, while incentivizing them to continually deliver results while at the same time promoting an increased net profit.

How to Assess Revenue vs Profits for Business Health

Why to Learn How to Assess Revenue

Wall Street judges you on it. Shareholders demand it. Management scrambles to make it happen. Revenue growth is the mantra of modern-day business. Quarter by quarter, the pressure is on for sales numbers to increase. But the question at hand should be: “Is your bank account increasing?” Are you profitable? You may be surprised to learn after assessing your revenue that increases don’t necessarily translate to profitability. There is a very distinct difference between the two.

The difference between profit and revenue.

As is true with most businesses, the common thought within the industry is that profitability is tied to volume. Au contraire! Let’s get out the calculators and do some business math.

For the sake of this exercise, we’ll assume an operation has two customers for whom internal manufacturing costs are $20.00 per widget. A manufacturing reserve fee (much like a retainer) is $500 per month. Customer A has an order volume of 500 widgets per month and will pay $25.00 per widget for a total revenue of $13,000 or $26.00/widget (500*$25=$12,500 + $500=$13,000 $13,000/500=$26.00).

Customer B has an order volume of only 100 widgets per month and will also pay a manufacturing reserve fee of $500 per month plus $25.00 per widget for total revenue of $3,000 or $50 per widget (100*$25=$2,500 + $500=$3,000 $3,000/100=$30.00.)

Which customer account is more profitable to the processor?

At first glance, it may seem like a no-brainer. Go after the big volume customer that is paying more per widget. It’s the smaller customer; however, that will bring greater per widget profit.

The manufacturing profit for Customer A is $6.00 per widget ($26.00 – $20.00 = $6.00). The profit for Customer B is $10 per widget. $30 – $20 – $10). The bottom line is that Customer A has greater revenue, but Customer B has greater profitability. Revenue numbers may look good on paper, but profitability is what you have in the bank.

To make this simplified illustration one step further, we’ll consider the labor costs involved based on the assumption that the time required to process a widget for Customer A is the same as it is for Customer B. If the manufacturing operation had four more customers like Customer B – each with 100 widgets per month – the amount of labor and accompanying expense required to process these 500 widgets would be the same as that required to process for Customer A. Yet Customer B and the four other small customers would bring in a profit of $5,000. Compare that to the $3,000 profit made from processing Customer A’s 500 items. It takes the same amount of work to process the five small accounts as it does the one large one. But you get a bigger return (67% greater) with the smaller customers. The contributing factor is the manufacturing reserve fee. This accepted fee by both parties increases the per widget profitability of the smaller volume customer over that of the large volume account. The fact is that while a large volume account may generate more revenue for an organization, it may not be the most profitable course of action.

Still, it’s big numbers that get the attention of management.

Wall Street rewards revenue growth. However, a company could have a decrease in sales from one quarter to the next but see profitability climb. The irony is that unless revenue rises, stock prices fall. The truth of the matter is: profitability is the real indicator of a company’s health. An investor gets a dividend when profits are up – not just sales.

shifting-profit-to-profitability-is-challenging-but-can-be-accomplished-with-accountability-motivation-and-teamwork

Nevertheless, many manufactures continue to turn down small accounts because they don’t understand the concept of profitability. Given the choice between a single account that will bring 500 widgets and 5 customers that generate 100 widgets each, a production manager will invariably choose one large customer. It’s easier to manage. And it’s easier for a sales associate to sell one high-volume account than to sell 5 smaller ones. When the numbers are calculated, though, it becomes clear that these are not sound business decisions.

Because incentives are based on revenue, salespeople will go to any lengths to win big-name, big-volume, and significant revenue accounts.

Seldom is the priority given to profit over revenue. Take any major industry and think of it as a pyramid. A limited number of companies usually occupy the top tier. Common practice is for most of the manufacturers vying for the business of those few top-tier accounts. Often, to win the business, a price discount is offered, further eroding the profitability. The “lucky” winner of these high-volume accounts may not be so lucky after all.

Not only has the price been driven down, but the manufacturer has more than likely spent quite a bit of time and money to compete for these deals.

A smart alternative strategy is to go after the companies in the lower two-thirds of the business pyramid. They are typically willing to pay full price than to bid down the price that manufacturers do with larger customers.

Another benefit of having several smaller customers than one large one is a risk. It is less likely that you will lose all your small customers at one time. The loss of one high-volume account has a much greater impact on your business than the loss of a single small volume customer.

Refocus on profit by understanding how to assess revenue effectively.

Understanding your business and working smarter are critical factors to achieving success. It is therefore essential that profitability considerations play a major role in business decisions. All decisions must therefore be based on profitability. That means shifting strategies and expanding the myopic view of revenue alone to include a focus on profits. Revenue on its own does not represent the vibrancy of an organization. Many of the past dot-coms serve as prime examples of companies that had millions of dollars on paper but incurred greater expenses than revenue earned. Lack of profit sent them to the annals of failed business ventures.

Perhaps it’s time to look at and approach business differently. Learn to effectively assess revenue, then you’ll make a new kind of history for the record books. One that will be emulated by others for years to come.

Leadership and Succession Planning

Typically, when starting a business, it is very uncommon for the entrepreneurial mind to see itself not being part of that business in the future. As companies endure through time, it becomes essential to the sustainability of the firm and/or its stakeholders to effectively plan for a change in leadership. Most successful businesses understand the importance of succession planning; however, research shows that even in large corporations and their boards, about 46% of them are not grooming a specific successor, and 39% had no immediate candidate if they needed to replace their CEO, therefore, recognizing its importance is not enough.

If large Corporation’s struggle to effectively plan for succession, what can we expect for Medium and Small Business?

The challenge of succession planning when it comes to medium and small businesses it is even more daunting. Some small business owners struggle to know when and where to start. The involvement in the everyday operation of the business or simply not accounting for costs associated with not planning for succession prevents owners/stakeholders to actively and timely prepare for the inevitable, stepping down. This could easily be the best-case scenario; taken into consideration any type of misfortune that can hinder the ability to lead; health issues, family situation, or simply new opportunities that arouse, preparing for their absence is crucial not only for owners and stakeholders but also for key roles and positions in the business.

Changing Times?

The generational change that companies are facing today is revolutionizing leadership lines and succession plans between senior management and the second and third management levels. The entry into the labor market of Millennials and the rise of start-ups has resulted in a change of mentality on the traditional leadership models and begins to establish new rules of the game, establishing the need to adapt quickly to the generational change in top management.

In this new business environment, companies must establish a succession plan that allows them to prepare the best talent so that in the future, they can occupy positions that are fundamental for the permanence, development, and profitability of the organization. Additionally, succession planning is a central axis to achieve the vision of organic growth within a company since it allows to develop, retain, and educate key talent so that business objectives are met.

The best approach that companies should take in facing these new challenges is to implement a strategy of succession for key roles throughout the company. This allows them to recognize the vital or critical positions throughout their different leadership levels and thus prepare for changes in the structures as a result of attrition, resignations or dismissals.

Creating an effective succession plan in 7 steps:

1. Define the context:

For the succession plan to have a positive impact on the company, it is vitally important to evaluate the potential and performance of each of the employees, considering their personal and professional context. On one hand, knowing what motivates them will give the company insight to encourage growth that benefits both. On the other hand, collaborators must be defined in terms of the type of industry, the economy, level of experience, and autonomy, among other things.

2. Definition of concepts and potential:

Establishing who within the company has the potential to assume leadership positions is a job that must be done in conjunction with Human Resources and the first line of command, because not only will the level of experience be evaluated but the soft skills that are fundamental to occupying, for example, a C-Level position. Potential is what determines a professional’s ability to do more.

3. Define performance criteria:

Performance must be measured objectively and under criteria that allow for an evolution within the organization and a positive level of performance to be established from the different performance indicators in each specific position. Having a qualitative and quantitative performance structure allows us to identify strengths and areas for improvement that will have an impact in one way or another on the decision of the ideal person to take over as a leader.

4. Have clarity in the strategy and vision of the future:

Companies must establish a clear strategy that allows them to follow a path that leads them to meet the objectives that have been proposed and, in addition, gives them the opportunity to promote the development and growth of the organization.

5. Build a talent matrix where potential vs. performance intersect (Nine Box):

This is a tool that allows evaluating the potential and performance of each of the employees in order to make decisions about the people who should be kept, those who are in the process of growth, and the actions that should be taken with the people who are underperforming.

6. Know the type of position and the associated risks for the person who occupies it:

Thoroughly investigating the position to be replaced and knowing what the risks are for those who occupy it makes the search for a candidate’s desired profile easier since it allows to have knowledge of skills that the person who is going to occupy this position must have to succeed.

7. Recognize the experience that potential candidates must have for each position:

Immersing yourself in the professional life experience of those who apply to be part of the company is especially important. Ideally, the candidate who is chosen to fill the position must have all the necessary skills and share the values of the company.

Having a succession plan in any size company allows businesses to have employees more aligned and aware of the organizational needs that exist, therefore, it is easier for them to understand and grasp the changes that are necessary to achieving continued growth of the company.

¹Harvard Business Review: Research by Heidrick & Struggles and the Rock Center for Corporate Governance

How to Manage Time Wisely for Effective Business

Defining time management.

It would be easy to think that 19th-century writer, Leo Tolstoy, was thinking of the challenges a small business faces, when he wrote, “The two most powerful warriors are patience and time.” How many times do we think about or talk about time in a day? How much more productive could you become if you were able to manage time better?

Consider time as a measurement of the progression of events, with an emphasis on “progression.” While everyone has the same amount of time–1440 minutes each day—why do some people seem to have more of it than others? Most every saying about time can be applied to a business. “Time is money”, “time flies”, “time is lost, but seldom is it found”, “time cannot be replaced or put on hold, but it can be killed or wasted”, “Time brings all things to pass”, and many more.

Time is an essential resource for a business.

Eight hours doesn’t seem to provide enough of it. There never seems to be enough of it. Is this true for every small business?

Time management is the result of proper planning and analysis. The business manager must know and apply sound management techniques, anticipate and identify the source for any possible issues, and analyze the results to maintain an efficient workplace with the outcome of raising productivity. Of all managerial resources, time is the most discussed but least understood. No one has enough, yet everyone has all the time in the world. Time is not the problem in the workplace. The way we spend and manage time in the workplace is the problem.

A successful time management process is personal, and it must match the manager’s circumstances and style. Changing old habits requires an effort, but it offers benefits beyond increasing productivity. The result is the feeling of accomplishment and satisfaction for completing work activities by the end of the day. It is the freedom made possible by a system where the “to do” list items are checked off. It is enjoying going to work because “the same old same old” is not the same anymore.

Time Management Skills

To understand the best time management skills, it is essential to realize that many of the beliefs for time management in a business setting are merely false.

An active workforce equals accomplishments. (AKA, Busyness doesn’t necessarily result in business).
Staying busy means a lot of business is being done because busy workers accomplish the most. “Busyness” and “business” are not necessarily related. Until an employee has proven a proficiency for results, it is a mistake to believe that just because an employee is busy, they are getting work done. Employees must have a plan before they start work. It is a poor use of time to get started on any work without a plan. Taking the time to create a strategy for completing the task at hand saves time and guarantees a greater chance of success.
The owner or manager always make the best decisions.
The owner, or anyone who has “been around for a while,” possess the knowledge to make the best decision. There are times when longevity and familiarity hamper open-mindedness for seeking a new or more progressive way to conduct business more effectively. Often non-management and lower-level management employees can offer insight for ideas and methods to improve the business by making it more efficient.
Practice delegation to save time and increase efficiency.
Delegation saves time because tasks are completed faster. Effective delegation saves time, but initially, it takes more time. Consideration must be given for what should be delegated. Expectations must be communicated, and time for coaching and counseling, along with analysis, must be allowed to achieve the desired performance. While not a shortcut to avoid responsibility, delegation saves time only if it is done effectively because training others to accomplish the goal can leverage valuable time. A manager who refuses to delegate or, when he does, does not ensure that employees can do it correctly, will be less efficient.
Some managers are irreplaceable.
Many managers have illusions of Concluding that the business could not survive without their continuous attention; some managers pass up vacation, work long days, and weekends and wonder why they are not appreciated more. Their refusal to let others make decisions increases their workload and paperwork has the opposite outcome of proper time management.
Managers who are successful are the most efficient.
Successful managers know how to manage their time best. Having excellent time management skills does not ensure success. Managers can be instrumental at some components of management but may be performing unnecessary work.
An open-door policy means always being available.
An open door improves a manager’s effectiveness in dealing with his or her team. Unfortunately, the open door has come to expect the door is always open. Availability does not guarantee success. On the contrary, the always available manager finds it impossible to get his or her work done. Active managers should plan for unavailability or quiet time without interruption.
A good manager can fix every problem.
Identifying problems is the easy part of problem-solving. Much effort and time are wasted solving the wrong problems. Failure to determine the real issues causes the manager to waste time.
“Shortcuts” save time every time.
Many supervisory shortcuts are time savers. People talk regularly about saving time—often in ways that compromise their effectiveness and ultimately cost more time. Cutting an important conversation short in the interest of time may leave a problem unsolved and allow it to turn into a crisis. Deciding prematurely on a project without a thorough analysis of the options can lead to a wrong decision—wasting much time, effort, and money in the end.
Most items on a “to-do” list will never be checked off.
There is never enough time. A common complaint is that a manager can’t complete all the tasks and responsibilities of the assigned work. There is a simple approach that will confirm if adding to the leadership team is necessary to sustain or increase profitability. Or, if strategies are required to increase the manager’s effectiveness, who may appear busy but is not sufficient. Consider a simple, two-week system that will yield the answer. During the first week, set aside 15-20 minutes at the end of every day for an evaluative discussion. Consistency is essential. Discuss what obstacles prevented the completion of the unfinished work. List any distractions and label them as isolated or recurring. Distractions and other circumstances that prevent a manager from finishing the desired work should be identified as essential or non-essential to goals and objectives. The second action step is to track every task for one week. At the end of each day, the manager should use the information to tally the amount of time spent on each task. For example, the amount of time speaking with staff due to an unrestricted open-door policy, or time spent fielding complaints from customers who were dissatisfied with the resolution offered by employees for their complaints, time re-working for one of the employees who wasn’t trained or doesn’t care about completing his/her work. If this two-week action plan does not reveal specific areas needed to improve efficiency or remaining on task, such as delegation of particular tasks or creating a policy that limits the amount of time spent on working to resolve staff issues, it is time to modify your expectations for this manager or add to the team.

What does this mean for the small business?

Consider all the areas of the business that are directly impacted by efficiency. Seek input from the team to identify areas for improving productivity. The result is always greater effectiveness. Effectiveness equals success. Success equals profits.

Work with the team to understand that while managers who efficiently manage their time are effective, the reverse may not be true. An inefficient manager can still be effective when they are motivated to exceed the time frame, but these managers are more likely to burn out and quit. Managers who refuse to delegate and train others to do part of their work put the entire business at risk in the event they leave or are unable to work. The adage, “time is money,” is never truer than when applied to a small business. Costs to the company to replace and retrain may include lost relationships and revenue.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Increasing Profitability In A Organization

A challenge facing owners and managers of all businesses is how to increase the profitability of the company. The focus almost always turns to increase sales revenue. The strategy is to increase sales to existing clients, finding new prospects, and/or adding new products/services.

Typically, each of these avenues of pursuit requires a lead time before the realization of the additional revenue. The identification and sale to a new prospect are conservatively less than a thirty to sixty-day effort. With more complex, larger volume, and more expensive sales, the elapsed time can easily be three to six months.

Even after the sale, there is a delay before revenue is recognized. The elapsed time required for delivery, installation, and billing can easily add another month. In the best of cases, companies recognize a 30 – 45 days sales outstanding on their receivables.

So, in a best-case world, we might be able to realize increases revenues in as little as 60 days, but more realistically, it can take more than two months before additional revenue appears on the bottom line.

What would be management’s reaction to a proposal to increase profitability in less than sixty days? Such a suggestion would excite almost anybody in the business. What if this could be accomplished without increasing sales volume? Sales volume could remain the same, and profits could improve!

How Is It Possible?

In most companies, the following operational inefficiencies represent between 10 to 20 percent of sales revenue. In less efficient companies, this “operational waste” may run as high as 30 – 50 percent.

Sources of “operational waste”:

People – Inefficient staffing and scheduling, unnecessary work, overtime, lack of training
Materials – Scrap, wrong supplies, excess inventory
Machines – idle time, excess downtime
Method – bottlenecks, inefficient process workflows
Information – lack of communication, miscommunication, delayed communication
Environment – unorganized work areas, poor or delayed staging of work

Let’s Take a Look

For illustrational purposes, let’s take a hypothetical company that has $10 million in sales. Assume the company earns $1 million in profit before taxes. Also, assume the cost of operational inefficiencies is a conservative 15 percent.

Translated, that means that the cost of “operational waste” costs the company $1.5 million per year.

With efficient operational management practices, assume that with a concerted effort, the cost of these inefficient processing practices could be driven down 5 percent to a 10 percent level.

The savings from improvements in operational efficiency are a cost avoidance or reduction in existing expenses and drop straight to the bottom line as the expenses associated with these inefficiencies have already been accounted for.

Let’s take a look at the profitability opportunity from a 5% reduction in “labor time waste.” Assume a company is realizing a 70% utilization/efficiency of paid hours. (2080 hours/year/staff * .7 efficiency = 1,456 productive hours). A five percent improvement to 75% is 1,560 productive hours or a gain of 104 hours per staff per year. With a labor force of 30 staff members and a labor burden of $25/hour, a 5% gain is $78,000 annually in eliminated “labor time waste”.

It is a rare instance when profitability improvement or elimination of “operational waste” is realized from a single source. The reality is the profitability improvement is the cumulation of waste reduction efforts across all the different lines of business.

The effort and cost to realize these improvements are already included in current expenses. The improvements are recognized by improving processes, increasing efficiency/utilization, and making changes in management culture, methodology and approach.

In a comparison of efforts, a reduction of operational inefficiency expenses from $1.5 million to $1 million per year would require 5 million dollars in additional sales, at a 10% profit margin, to generate an equivalent $500,000 in additional revenue.

In our hypothetical company eliminating 104 hours annually of wasted time per staff member appears to be a challenge. However, when broken down to a daily goal, a savings of 24 minutes per day is a lot less daunting.

To shave 24 minutes of wasted time a day does not require supervisors to implement Draconian controls on staff, but instead focus on the minimization of the small lapses in time control that have crept into the operation over time. An uptick in supervisory diligence of 24 minutes of “operational waste” over a day is feasible.

The following are possible opportunities for reduction of staff non-productive time creep:

Personal cell phone calls or use during work hours. 5 – 10 minutes
Extended or additional breaks. 10 – 15 minutes
Extended lunches. 10 – 15 minutes
Slow daily startup. Prep time before starting the day. 5 – 10 minutes
Early quitting/end-of-day wrap-up/cleanup. 5 – 10 minutes
Time spent waiting for work or changing tasks. 5 – 10 minutes

Improving labor efficiency by cutting half of the estimated 40 – 70 minutes daily non-productive time makes the 104-hour annual goal less daunting.

If the opportunity to eliminate “operational waste” in labor can be easily identified and corrected, how much additional opportunity exists in other areas of the business?

Reinforcing a change in operational mindsets and culture with an operational waste elimination-based incentive program (savings commission) can prove to be an easy and quick way to increase profitability.

10 Workflow Strategies to Improve Performance

Every business follows a certain workflow but what most businesses tend to overlook is the fact that these workflows can be improved and managed better.

A manager surely understands how certain factors such as costs, efficiency, better collaboration, etc. can change the game for them and help give better profits.

A streamlined workflow maintains a steady environment and gives out more fruitful results. That’s where Workflow Strategies come in.

Before we get onto the strategies to get better at workflows, let us understand the significance of Workflow Optimization.

Importance of Workflow Optimization

Serves as a Time-Saving Concept

It cuts down on the tasks that are often overlapped and saves time for employees that can be devoted to other important tasks.

Cuts down on the Bottlenecks in the Process

Workflow Optimization brings in a standard process that is needed to be followed and thereby cuts down on all the impediments on the way, which ultimately improves decision making powers of the business and brings in more efficiency.

Facilitates a Better Data Management System

A Good Optimized Workflow lets the manager access the history of the whole process in place and manage data in the best way possible.

Now that you are fully aware of what Workflow Optimization would do for your business, let us get down to some of the best practices that you should adopt for better efficiency and higher profits.

10 Workflow Optimization Strategies that you should know to Improve Performance

1. Analyze the Ongoing Workflow Process and Identify Areas during the Process

The only way to go about bringing in an efficient system is by analyzing the current one.

Lookout for how the current process is helping you out, what may be the bottlenecks in the way that may be delaying the task completion.

Actionable tasks for you would be:

Communicate with your employees and get feedback from them to get a better understanding of the problems they may be facing.

Sit down and have a discussion with the team to find the solutions to their problems and optimize the procedure to create a better working environment around.

2. Streamline the process by Automating Routine Tasks Automation.

Automation is an underestimated tool. Most businesses lack efficiency because they do not use automation for routine mundane tasks. Processes can run extremely smoothly if you can find workflow automation software that can work together.

Some of the key areas where you can focus on automation in the process are — Assigning the tasks to the employees, setting deadlines for task completion, automating payroll information, etc.

3. Focus on Prioritizing Projects based on their Importance and Urgency

Believe it or not, your team’s working capacity gets adversely affected when you do not know well in advance as to what project you want your team working on.

This confusion leads to complications and results in compromising with the productivity of your employees.

Actionable task for you would be:

One of the ways you can go about optimizing the workflows is by ranking your projects on their importance.

Once done, you can get down to breaking all the tasks required to be completed and then scheduling the tasks based on their importance in the process.

4. Visualize the process for your Team Members

Who likes a doc full of texts and figures?

We are guessing the answer to be ‘none’ and so should you.

Visual task sheets are more pleasing to your team members and are quite easy to understand and process. Workflows that are broken down and presented in terms of graphs and charts make an efficient way to lay it down for everyone to understand what they are required to do.

One of the ways you can go about preparing this visual mapping is by using Gantt Charts and process maps. These can be a little complicated to create on your own, but the market is full of project management software that can ease out the process for you by creating these charts on its own.

5. Master the art of linking the data to Master Data

Communication, tasks, deadlines, and every other important aspect of the workflow gets lost when there is no proper system wherein the data is managed. That is why linking all the important information as well as data to the master data proves to be effective and saves up on a lot of time that can be utilized effectively.

The master data should be such that it has all the information such as department names, budget details, task allotment, etc. and that information can be accessed by all the team members for better efficiency.

6. Always focus on Re-examining

Let your failures teach you a lesson. Any project comes with unforeseen risks and challenges associated with it, but when these challenges are not tackled well or when your workflow is not altered to take on these challenges, that’s when there is a failure.

One of the important things to do here is making an examination of your workflow every now and then – a part of your workflow. Examining from time to time lowers down the chances of unexpected problems that one may face in the process. That is how you can actually optimize your workflow.

7. Keep an eye on the Budget and Allocate Budgets Effectively

Budget Allocation is quite an essential aspect of the workflow. A project that can deliver upon the objectives of a project but cannot keep up with the budget allocation is quite a common example of project failure.

It is of utmost importance to keep all the costs in place, allocate effective budgets to different departments that probably would not need to be revised in the future. Since there are always hidden costs, there should be a plan to manage those by cutting off budgets from required areas.

8. Don’t Underestimate the power of Proper Training

Training can enhance productivity and efficiency of the team by a great amount. It is important to have adequate training processes in place to ensure that workers perform their jobs effectively. This involves streamlining training processes so that workers only receive the training they need.

To do this, you need to make sure that your team members are well aware of the task allocations and their role in the process. Once they do, inform them well in advance of the training schedule for them.

9. Make use of the Tools Available

Most companies are now using software available in the market to regulate their workflows and optimize their workflow management. No doubt, it is a great way to streamline the process if adapted by the team well, and it really multi folds operational productivity, but at the same time, it can be detrimental too if the software is not considered to cater to the required needs of the business well in advance.

Therefore, in order to choose the best tool for your organization, consider factors such as features, pricing, compatibility, etc.

10. Do not overburden Your Employees

Sometimes, while delegating tasks, one tends to overlook how much of the work is being delegated to each member, and that tends to overwork the employees. It is essential that each member is delegated an equal amount of work. If it’s not, then that adversely affects the efficiency of the team and disrupts the smooth workflow.

There are various tools available in the market that can do this task of delegating tasks efficiently based on member’s profiles. This, in turn, improves productivity and keeps the employees motivated.

Conclusion

As you can infer from the blog, a good Optimized Workflow in place has its own set of advantages such as better communication, consistency, and efficiency at the same time. Therefore, it is essential that you understand what all profits a great optimized workflow can reap for your business and get started on these techniques you just learned!

Author Bio:

Sara Williams

Sara is a content writer at PeppyBiz, a platform that helps you automate routine processes into workflows in your Slow workspace through workflow builder software.

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Cogent Analytics, LLC is a business management consulting firm, with a primary focus to help small to medium size, privately held businesses achieve success and long term profitability. Cogent provides powerful solutions with integrity and transparency to privately-held businesses throughout the United States.

Two Ways to Make Your Business More Successful

You know what is odd? Nobody expects successful experts – doctors, electricians, sports figures, lawyers, plumbers – to just wing it. We know they put a lot of time into learning about and training for their profession. In fact, we require that they don’t.

We want the surgeon performing our operation, the mechanic fixing our car, and the quarterback leading our team to have a lot of practice and be exceptional at what they do. We expect them to study and practice. We expect them to work at being the best in their profession.

So, why do people expect the “profession” of business ownership to be any different? Why do people believe that business owners can become successful just by winging it?

The reason only 30% of businesses make it into their 10th year is that the owners were unprepared to run their companies. They did not understand and were not able to meet the requirements of being a professional business owner.

What does it take to be a successful business owner? Here are two places to start.

Knowledge

The reality is, you can never know everything you need to about running your company. This doesn’t mean you’re stupid, weak or incompetent. It is just a fact that there is too much for one person to learn and understand in business, and it is always changing (i.e., laws, tax codes, best practices, tech).

All owners reach a point where they do not have the knowledge required to be successful. When they reach this point, they decide to get the help they need or to go it on their own. Experience shows that a person who is willing to learn from others increases his skill level and chances of achieving his goals.

Skills

You may be good with numbers but struggle with talking to employees and customers. You may be able to sell ice to Alaskans, but your paperwork is a mess and causes production/quality problems. You may be the best electrician around, but are unable to make a profitable bid/estimate.

Running a successful business requires a variety of skills, and no one is born with all of them. Just as we cannot know everything, we are not skilled at everything. We all have things we are good at and things we are not.

Luckily, you do not have to be good at everything. Using the information you get from others, and your own experiences ask yourself the following questions.

What am I good at and interested in becoming better? What knowledge and training do I need?
What am I okay at and interested in becoming better? What education and training do I need?
What am I bad at and not interested in becoming better? How do I cover this gap in my skill set (i.e., develop and implement self-sustaining systems, hire or delegate an employee to do tasks, outsource/outside help)?

Successful business owners understand and accept that they will always need others to help them grow, stay competitive and make a profit. Do not limit yourself through lack of knowledge or skill. Once you start saying – “I’ve tried everything. There’s nothing anyone can do to fix or solve my problems.” – you have stopped being a problem solver and started being a problem creator.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

What’s Going to be New in 2021?

2020, The Year of Innovation.

2020 has been an incredible year for innovation opportunities and possibly a wakeup-call or reset of complacency or standard thinking. Yes, it was a strain on our patience, wallets and a significant change to our daily lifestyle. But let’s not forget, with adversity comes opportunity.

So, what happened in 2020? Most of the world had our daily lives turned upside-down. Many people lost their jobs due to COVID-19’s evisceration of your company or industry. Careers, individual livelihood, and the financial impact on the economy are the most talked-about. However, consider the effect on education, medicine, social services, religious services, job hunting, and even the ever-popular happy hour with friends and co-workers. Perhaps it was not as urgent as our ability to pay the electric bill, but important, nonetheless. Unable to meet face to face, or at least discouraged from doing so, has changed us all whether we know it yet or not. Some examples: Crime has dropped in some areas and categories (PMC statistics on crime and environment changes during COVID-19). You will find plenty of interesting reading on the changes in crime, air quality, and other unexpected positives from this pandemic. Let’s look at some of the opportunities as well.

I won’t say there is a silver lining to a global pandemic. There may be, but it would be in poor taste to say so. But there are some potential positives I think we should consider. You have probably seen at least a variant of the social media jokes that may hit a little close to home, such as ordering a $2 ice cream sunday and having it delivered for $12.99. Cooking less and eating more may not be suitable for our waistline. Still, it has spurred new industries or at least bolstered existing ones—delivery of everything from food of any kind to groceries, prescriptions, and more. Some of these services were already available. But now are commonplace. How might your business benefit from the “new norm?”

Go virtual or go home. Or more accurately, “Go virtual AND go home” has become the standard. Services such as medical visits, counseling sessions, and myriad other “things” we used to do face to face went virtual to one degree or another in the second half of 2020. Many corporate networks were caught off guard and unable to handle the increased network traffic. So, new views of infrastructure emerged and were implemented faster than they would have otherwise. What innovations are brewing now that we will start to see in 2021 and beyond? What good will come from all this bad?

First, let’s agree on our understanding of a few types of innovation. One of my favorite professors at Harvard Extension School was in my “Innovation with Block Chain” class to pursue my master’s degree. During this class, I learned there are different kinds or levels of innovation. GOOGLE “innovation” and you will probably find these and other terms to describe the concepts, but, here are some of the basics.

Incremental Innovation:

Small improvements in existing products and services. Think features added to smartphones, back-up cameras on automobiles, and other new tech on new cars. Tiny steps to make an existing product or service a little better each time.

Sustaining Innovation:

Improvements on current overall systems and products, but slightly more impactful and could be classified as inventions of their own. Fuel-injected engines bring far more power and efficiency to internal combustion engines, GPS on phones for navigation, solid-state memory, and storage in computers. These are new branches to existing products and services.

Disruptive Innovation:

Innovations that change how we do things entirely. The first cell phones to smartphones, giving us computing power in the palm of our hands, personal computers, and the internet allowing for business and exchanging information in milliseconds rather than days.

And lastly,

Breakthrough Innovation:

The Steam Engine allowing locomotives to transport people and products across the country in days rather than months. Electricity sparked, no pun intended, entire industries of products, or, antibiotics that cured diseases that were previously death sentences.

In what group each of these innovations falls is a subject of some debate. Let’s agree that there are different levels of innovation and that while necessity may be the mother of invention, innovation is usually the child’s invention. So, what will 2021 and 2022 bring to your business?

My predictions:

1. A continued and growing boom in virtual living. School, shopping, business meeting, medical diagnosis, etc. In 2020, every aspect of our lives had been touched by virtual livelihood by video appointments, interviews and school for your kids. We’ve already seen huge leaps in adoption and improvements in all these areas and more. Think of the revenue and profit to be made and money and time to be saved by the consumer, the business owner and entrepreneur! But, this isn’t news to us, is it? Virtual reality has been in games for a while now.

2. Relationships will go global in a way we may not yet comprehend. Business relationships, friendships, scientific and medical collaboration, governmental negotiations and new ventures facilitated by virtual living being thrust upon us. E-mail, the internet and social media have reconnected families and friends for years now.

But we never depended on these digital “tools” as we have in 2020 and now 2021. Who will take that to the next level by establishing more virtual offices, more collaboration over borders? How much cost can you eliminate from your business structure by “visiting” clients screen-to-screen in a video conference? What new forms of security will be required and evolve from these new avenues and increased dependance of connectivity? Many telecom companies have invested heavily in 5G network infrastructure being the next big thing. I believe it’s almost outdated already. Think of how quickly the world changed from VHS to CDs to DVDs and now Streaming.

3. A stronger global communication shift. This is not just words and pictures, but invention and products created remotely by Additive Manufacturing (3-D printing on a commercial scale). Again, GOOGLE “additive manufacturing” to see what I mean.

Think about the possibilities of specifications being sent to print a new specialized tool or surgical instrument at your local UPS or FedEx location from designs minutes old from 5 different countries. Sounds a lot like science fiction. However, it is already in use, (Najmon, Raeisi, Tovar, (2019)). Additive manufacturing was described as items designed piece by piece in different countries by PhD’s, engineers, civilians, farmers, and now you, that can fit together to make something completely new, all transmitted to each other, consolidated into one product and constructed via Additive Manufacturing with new materials, computers, lasers and plasma to build it thousands miles away or in the next room.

New items are constructed in a small and completely different location from where their inventors and experts live and work. Just by transmitting the specs to the right machine anywhere on earth, a new product is formed. Talk about “Zero Inventory” or “Just In Time” logistics!

So, what has all this got to do with you the business owner? The vast majority of innovations today are in the incremental category; small steps to improve what you have, what you do and how you do it. And, they are profitable! How often do you upgrade your smartphone just because you want the latest and greatest features?

Think about it this way, with the computer on your desk; you can increase your business relationships by having a video call with a client! It’s easy and inexpensive and can be done on a phone, tablet computer or your desktop computer. Reaching out is easier than ever before out!

Share quotes on-line, discuss terms, see the face of the person you are talking to and read their emotion and body language. Let them see who they are talking to. It can be personal and effective. Incremental innovation is in your business TODAY, and can save time, expense and increase sales. They say nothing can replace person-to-person communication, a handshake or lunch together. Maybe not. But can video meetings and chats with your customers and other business locations help your business today and into the future? I’m betting, YES.

Bibliography

Review of additive manufacturing technologies and applications in the aerospace industry. Joel C. Najmon, Sajjad Raeisi, Andres Tovar. (2019, Additive Manufacturing for the Aerospace Industry, Pages 7-31)

Safety and Marketing: How it Affects Profitability

Many business owners do not realize that their Experience Modification Rate (EMR) safety rating can be a powerful marketing tool. In industries where the competition is stiff, business owners are always looking for the upper hand to increase their bid: award ratio. It is not uncommon to have a business owner try and undercut a competitor’s offer. That is not always the best plan, as it will eventually cut too much into the business’s profit. The better option is to find a place where your business has more success and market that to the prospective client.

As a small business owner or marketing manager, you are always looking for that differentiator that separates you from the competition. Whether it is an award for being one of the companies to be listed three times on the INC 5000 fastest growing companies or a certification from a safety company like U/L, it is essential to share your company’s wins. By your company having those awards and credentials, it provides you with small differentiators that can influence a client when they are comparing you to a competitor. A safe company has another internal certification that can be just as important as the external certifications, and that is the companies EMR.

What is an EMR?

Insurance companies and OSHA use a measurement called EMR or Experience Modification Rating to rate their clients based on the number and severity of an injury to an employee. These ratings are number-based, with 1.0 being the average for a company in an industry.

Ok, our company has an EMR Rating, how can that differentiate our company from our competitors.

The EMR tells the insurance company how your company is doing compared to all the other companies in your industry. If you are rated:

a 0.8 EMR rating means that your company is performing its duties in a very safe environment in your industry, and you should be paying lower rates.
A 1.0 EMR rating means that your company is performing average in safety in your industry.
A 1.2 EMR rating means you can pay an additional 20% over a standard premium and that your workplace is a less safe work environment.

The rating is part of a system that your insurance company uses to charge you for insurance coverage for on the job accidents by your employees.

The other major part of your insurance charge is the type of industry. A steel mill worker will have a different higher incident rating over a receptionist. These combine with other environmental factors determine what you pay for insurance.

So you have an excellent rating, everyone gets up and cheers, the safety manager continues to go out and change the number of days without a lost-time accident by plus one along with the company historical record of consecutive days 1,863. Then everyone gets back to work and figure out how to be better next year.

We are back to that great marketing manager and how he can include this information on the company’s brochures and train the salespeople on the EMR talking points when in conversation with the client’s buyer or senior management.

Here are some idea starters for your company’s marketing package each focusing on the strength of your companies safety record;

When you are in an industry that has few accidents and even fewer differentiators use the record of consecutive days without a lost-time accident and or your current record. Add the rating to your document with your U/L and industry credentials as a differentiator from the competition.
IF your EMR is a high number, put it on your sales literature and have your salesperson educated on what it means. A well-aware buyer will consider this, similar to a U/L listing or an award.
List your EMR position. If there are 100 companies in your industry and you and ten others have no incidents, you can list that you are in the top 10% in the industry or that your company has the highest rating awarded by Osha and the insurance industry.

Generally, a buyer or an accountant is aware of the EMR rating, as they have to shop around for the insurance and pay for it.

If they are not aware, tell them about it and tell them how they can help to improve their rating by working with their insurer. The insurers, generally, use some of their proceeds to help improve overall industry rating, which also helps their clients improve, they do this by making services and trainers available to the client, mostly at no charge. These speakers and demonstrators will come and help your company to raise their employee’s awareness and assist them in improving their safety rating.

Your company will become more profitable when both the safety and marketing teams work together. Your marketing team will be able to help your salespeople relay the information that you have the accreditation needed once the safety team helps your company earn a lower score. By marketing your rating, you will likely help your company win more of the jobs you are bidding for, increasing revenue, while also decreasing an insurance expense

In closing, safety is a great tool to communicate to the world, mainly your clients, on how well your company is performing. It is a confidence builder, that you are not passing on the cost of poor safety to them and gives the impression your product may have fewer problems because your employees are aware and care.

And if your company’s story is not great yet, tell your safety director about the insurer’s program. You will both be doing a service to your company!

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

3 Ways to Stabilize Your Business

The Architectural and Engineering (A& E) Industry’s business cycle is one of peaks and valleys. Its history is filled with boom and bust times. Its customers (i.e. manufacturing, steel, auto, construction, oil, infrastructure) have all had their day, and some may be coming around for another one. Successful and proactive A & E small business owners are constantly looking for ways to weather the cyclical nature of their industry.

Here are 3 things they do to stabilize their businesses.

Get control of bidding and estimating
Ideas concerning a business’s responsibilities are changing, and one difference is that firms are being asked to assume greater financial risk. There is more demand for lump sum, turnkey (LSTK) contracts and it is expected to continue. Also, strong governmental pushes toward creating public-private partnerships (PPPs) are looming on the horizon.
Another new change is that customers are breaking large projects down into smaller parts. They cherry pick the parts with the best cost positions and do the project management themselves on those parts. This limits the A & E company’s ability to off-set lower margin areas with higher margin ones, which decreases their profit.

The days of just tracking costs and passing them on to the client are coming to an end. Unfortunately, most A & E owners do not know how to do it differently. Successful ones have learned how to correctly estimate and bid, using a solid understanding of cash flow, margins, cost controls and profit.

Someone must manage
A & E firms are unique – unlike typical small businesses they usually have multiple partners, who are notorious for being poor managers. Most of the partners have little or no desire to supervise people or run a company. In fact, when asked about it the common response is, “I just want to be left alone to do my work”.

Unfortunately, this is not a choice if they want the business to thrive. Companies must be actively managed to achieve long term stability. This is especially true in an industry where volatility and change is a given. If no one is steering the boat, then surviving the rapids is luck, not skill. Successful people do not rely on luck. A firm will be more secure when operations, strategic planning, communication, work flow, sales and financials are monitored by someone.

Define and focus on market position
The common A & E small business has one simple sales philosophy – people, you are on your own. There is no sales strategy, and usually no sales person. If there is a sales person he does not sell, he functions as an overpaid customer service rep. Consequently, the company: does not have growth capital, has an unreliable revenue stream, is unable to provide partner by-outs and often needs an infusion of owners’ cash during lean times.

Management teams who overcome these problems commit to a comprehensive sales strategy. They solidify their current market position and look for ways to develop new ones. They do this by expanding their criteria and committing to diversification (i.e. expanding geographical and market segments, creating new and improving current service offerings, co-branding). The ability to rapidly identify and contact potential customers is vital.

The A & E industry will continue to be one of feast and famine. But, not all A & E firms have to be trapped by the cycle. Commit to doing these 3 things well and yours will be one of the companies who make it out of the trap.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Cash Management Plan: Know Where Your Money Is

A cash management plan is important in any business whether you are a contractor, wholesaler, or even a business management consulting firm, because it allows you to be better prepared for future expenses. Your cash management plan should be easily accessible, and a major part of your businesses strategic plan. Often business owners find themselves asking the following question: “Where did my cash go?” How often do you ask yourself this question when you look at your company’s finances?

Unfortunately, many small businesses don’t proactively manage their cash. They look at what they spent their money on in the past weeks, what bills need to be paid next week and how much money is in the bank. And often hope that they have enough to make payroll at least.

This malpractice often results in stress, and sometimes the owners write personal checks to the business so they can cover their expenses.

Why it is essential to manage your cash actively:

Know how much money you have on hand
How much money will be coming into the business
Know where your money is going
Ensure you have sufficient cash to make all your required payments, i.e., payroll
Plan for future purchases
Build a cash cushion and reduce stress

What does that mean to manage my money actively, and how do I do that?

cash management plan | business management consulting | Cash | Strategic Planning

The first step is to have an accounting system set up, such as Quickbooks, which records all the transactions of the company. More specifically, it shows all the company’s assets and liabilities and owner’s equity. As long as all the financial data has been recorded, we can work on putting a cash management plan in place. Ideally, the cash management plan will focus on what resources we have available weekly, over the next 12 weeks, to pay all recurring expenses as well as payables that are due, and to maintain a working capital cushion. Acceptable working capital levels (short term assets – short term liabilities) vary by industry and type of company. Typically, a working capital ratio called the quick ratio (short term assets/short liabilities) of 2 is viewed as representing a good level.

The second step is to have an adequate cash management plan is to know what the weekly/monthly recurring expenses are. The following are examples of recurring costs, rent, mortgage, utility payments (gas/oil and electric and waste management services), internet, telephone, cable, copier lease payments, insurance expenses (medical, dental, auto, liability, etc.), payroll-related expenses (Gross and Net payroll, Employer taxes, workers comp. etc.), IT, etc. Once we have listed all these expenses and the corresponding amounts that need to be paid each week/month, we know what the “minimum” amount of cash is that we need to have available to pay all those expenses during a given month. All of these expenses typically have to be paid on time in order not to incur additional fees or the possibility of service disruption and are essential to keeping the business going. In most cases, these expenses will correspond to the fixed costs of the company to operate.

Next, we need to know how much cash we have available in the bank, and any petty cash the company may have, minus any checks or other forms of payments that have been made but have not yet cleared our bank accounts. It is better to use the amounts shown in your accounting software, as those balances will reflect any checks issued or wire transfers made, etc. that may not have cleared your bank yet. Also, we need to take a close look at our accounts receivable to see which payments we are expecting to receive during the next 12 weeks. It is important to note that we should only take those amounts into account, that have a high certainty of being collected, rather than expect that money will be received based on the due date. Therefore, it is essential to have an effective policy for Accounts Receivables collections in place, as it is an integral part of any cash management policy. The company needs to review existing bank or credit lines to see how much has been drawn on them and how much is available as any undrawn amount will provide a possible source of cash if there is a shortage in operating capital.

Once we have established our cash position and anticipated cash flows that the company will receive, we need to gather information on all the cash payments the company needs to make over the next 12 weeks. This entails going through the accounts payable to see when vendor payments, service provider fees, consultant fees, credit card payments, etc. are due over the next 12 weeks. All of those payments, which can easily be determined by running an accounts payable report from Quick Books, will be recorded in the cash management plan. This piece of the cash management plan is crucial, as it is these payments that we have to go through to determine which ones we might be able to push out if needed. As part of the cash management plan, a compelling accounts payable policy needs to be in place that addresses how and when the company communicates with its vendors and service providers to make sure they understand when they will get paid. It is strongly recommended to be proactive in managing those relationships so as not to be charged late fees or even be dropped as customers.

Now that we have determined what our sources and uses of cash will be over the next 12 weeks, we gain a clearer picture of what our cash position looks like at the end of each week. This, in turn, allows us to manage our cash position over the next weeks actively.

If we have an excess of cash over the next 12 weeks, our aim should be to review how we can make that “extra” cash work for us. Such as, placing it into a securities account or interest-bearing account, or it will allow us to make necessary asset purchases or pay down outstanding debt. On the other hand, if we have enough cash to meet all of our obligations, then we should work on improving our cash position in the future through increased sales efforts and a reduction in expenses. Alternatively, if we have cash deficits during any of the weeks, we need to review our collections efforts and determine which accounts we need to place a greater emphasis on collections. If this effort turns out to be insufficient and we expect to have a negative cash position during any of the weekly periods, we need to go through our payables and see which ones we can push out. By doing this, we can make sure we have enough liquidity to pay recurring charges and other payments. To address such instances, we also need to review our available bank/credit line and be ready to draw on them. In that eventuality, we need to include in our cash management plan a repayment schedule.

The cash management plan needs to be reviewed and updated weekly to be a useful management tool!

Summary

Actively managing cash is an effective means to plan the sources and uses of money in the future, and to address working capital issues before they become a problem. Furthermore, it provides insights into a company’s payment and collection practices and sales, thus allowing management to see where changes need to be made.

It needs to be noted that the difference between a cash management plan and sources and uses of cash or cash flow analysis is that a cash management plan is a tool to manage our cash position in the future actively. In contrast, sources and uses or cashflow are typically only for one point in time.

A cash management plan lets us determine which payments need to be made and which fees we want to and can afford to make over the next 12 weeks without impairing the ability of the company as a going concern.

Every successful company needs to have a cash management plan in place, whether this is done through commercially available software or an excel spreadsheet.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Business Plans Provide Small Business with Direction

Are you a small business owner who has not taken the time to develop or update a formal plan for the business? Do you understand why business plans are essential? What could it mean for your business? What if you were told that there was a possibility for a $1 million return for spending only two workdays—16 total hours—developing a business plan? Would it be worth your time? This article simplifies the steps for writing a first-rate business plan and shares the benefits of having one.

It is not uncommon for a business to skip over having or updating a business plan. It’s one of those things that is easy to put off until it is needed. Sometimes understanding why or when it would be found to be valuable is unknown to the owner. As an owner, have you ever daydreamed about the fun for jumping right into starting a new business—bypassing all the planning, financials, paperwork, possible doubts, concerns and oppositions? Wake up because jumping into any business investment without the clarity of a well-thought-out plan is more challenging to navigate than staying off the interstate during a coast to coast drive without a map. Solid business plans function as a road map that specifies strategic stops that help steer the business to discover insights for the initial and long-term sustainability of any new venture investment. A well-written plan is structured beyond providing a determination for the probability of success. It is a comprehensive written document communicating the goals for the investment. It includes any required resources and provides the details for how they will be reached. Without it, the small business owner will find themselves lost at some point on the journey. The plan should incorporate information for the industry and provide specific details for how the business stands out in the field of competitors.

What happens when the time comes to expand or reinvest in a small business to replace worn-out equipment or make other capital improvements? It is not possible to get outside funding from banks or investors without sharing the business plan. The plan must share the business’ story—from where it started, where it has been, and where it hopes to travel. Having a business plan is critical for financial assistance from banks, investors, and bidding on state and federal government contracts. Financials are important, but they don’t always tell the entire story. If a bank or investor knew the small business retained 300 customers each year, they might be viewed in a different light, depending on the industry.

Approach it “one hour at a time”:

Business Plans for Companies from Small Business Consultants, Cogent Analytics

Description of the business. Provide a description of the company, including what it does, objectives and accomplishments, and what makes it unique, competitive, and successful. Describe special features that make the business attractive to potential customers considered the keys to success. Be a definite but concise as possible.
Executive summary. Identify the names and positions for crucial leadership.
Company Ownership/Legal Entity. Indicate what type of business the business is. Is the market a sole proprietorship, corporation (type), or partnership? You should also define the industry the business serves when possible; for example, does the company function in the manufacturing, merchandising, or service industries? If the industry requires licenses or permits, describe the requirements for acquiring them and where you are in the process. Identify whether this is a new independent business, a takeover, a franchise, or an expansion of formal business.
Highlights. Feature critical highlights such as charts that reflect sales, expenses, and net profit for the last four years.
Objectives for the business. Provide a specific definition of the objective and include a timeline for the identified goals.
Mission Statement. Enlist the help of key team members to develop one.
Location. Location is essential for some types of businesses, less for others. The following is a guide:
- A company that does not require specific location considerations could be an advantage and should be noted.
- If the location is chosen, describe the highlights for that setting. If the area is unknown, specify the key criteria for determining a suitable place for the business.
- Describe any particular area that would be especially desirable from a marketing viewpoint?
- Consider traffic access and flow, parking, street lighting, proximity to other businesses that may provide foot traffic, and probability for attention by the public passing by.
- Consider appropriate signage is appropriate and share any local ordinances concerning signs that might adversely affect or contribute to the business. For a start-up, include the cost of signage.
Hours of operation. List of the days and times the business will operate during a normal work week.
Products and services. Describe products or services and establish there is a demand for them. Identify the potential market, how they benefit customers, and discuss ideas for the ways a particular product(s) or service(s ) provide a competitive edge.
Suppliers. When information about suppliers, including any financial arrangements with them, is relevant information and should appear in this section.
Manufacturing. If applicable, the description of the process, including special machinery and facilities, is included.
Management. Describe how each management person contributes to the business and its impact on the overall plan. Include specialized certifications and licenses for each management person. Describe the chain of command and the company’s handbook provided to the workforce.
Financial Management. This section details how the finances are managed within the business.
Advertising, Promotion, and Marketing. Describe potential customers in as much detail as possible—who they are, what they want (and don’t want), and commonly-held expectations for the products or services offered. Describe how the business will be advertised, including social media, media (newspaper, magazine, television, radio), direct mail, telephone solicitation, seminars and other events, joint advertising with other companies, sale representatives, word of mouth, and any other avenues. Describe how the budget determined and how and how often the business tracks results.
Market segment. If the market is segmented, describe and include any details of segmentation governed by geographic area, product lines, pricing, or other criteria.
Competition. Describe others in the same industry within the demographic and physical location.
Pricing. Describe how the company developed the pricing policy referencing retail costs, competitive positioning, pricing below competition, pricing above competitions, multiple pricing, price lining, cost-plus pricing, mark-up, or other. Include and provide a comparison for the competitors’ pricing policies. Stipulate whether all prices are within industry averages.
Strategy and implementation. A strategy for implementing the business plans needs to be summarized. If the business is new, prioritize the steps necessary to open the doors. Describe the objectives and time frame.

Still unsure if business plans are worth the time to create it? Don’t go down the wrong road even when the challenge is not for a financial need. A good plan will keep the business moving in the right direction by setting S.M.A.R.T. goals and maintaining accountability.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

6 Steps to Implement and Develop Annual Goals

Organizations often struggle to successfully implement annual goals that are both useful and meaningful to everyone. Frequently, a company might attempt to create a banner that says something like “2 Million Widgets 20XX” or “Zero Defects,” which employees walk by daily. If you inquire about whether or not an organization is approaching those goals, it is rare for an employee to provide an answer. Therefore, this article strives to develop a high-level framework that can provide a starting point for any organization to establish and implement goals that everyone will understand.

There are, at minimum, four activities that all businesses are accountable for:

Cost- This includes both sales and manufacturing GP and net profit, although an organization may choose to define sales as a separate entity.
Quality- Quality refers to an organization’s “conformance to customer requirements.” In other words, the total amount of returns, reworks, refunds, etc. that an organization received (‘customer’ can also be defined as an internal next process).
Service- A company’s ‘service’ concerns whether or not an organization is meeting the customer’s expectation for delivering on time (‘customer’ can once again be defined as an internal next process as well as an external customer)
Safety- Safety can be established as the number of recordables, close calls, etc.

An organization knows how these metrics performed based on the previous year’s measurements. This comparison provides an essential guide for improvement in the upcoming year, which can be broken down into six steps:

STEP 1: Begin the new year by starting at the end. What does the company hope to accomplish by the end of the year? Moreover, it is also crucial to consider the previous year’s achievements. For example, if a company’s revenue was $3.5MM in sales last year, and they want to have a 10% increase, then the company-wide goal is $3.85MM for the upcoming year. However, an organization should also take into consideration any potential sales or large accounts that may come to fruition and adjust accordingly.

STEP 2: Identify where the sales will come from internally. How many different departments/products make up the key metrics? What was the percent of revenue derived from the previous year?

STEP 3: Each department breaks down the critical metrics that will constitute their individual goals, but in compliance with the overall company goals. Ideally, an organization will understand their performance from last year and derive an improvement metric based on its historical performance.

STEP 4: Further organize these metrics into smaller, more manageable buckets to measure on a short-interval basis (hourly, daily, weekly, monthly, etc.).

STEP 5: Once management is in agreeance and has officially taken ownership, extend to the employees in a simple, logical, and easy to understand format. By doing so, employees can then measure based on an hourly/daily basis.

STEP 6: Develop a reporting process that allows management to see, both daily and weekly, whether or not a company is meeting their goals. This process should also allow management to identify, on a short-interval basis, any variances, and implement steps to prevent a recurrence.

Here’s an example using Acme manufacturing:

Acme manufacturing secured $3.5MM in sales for 2018. They have three different products/divisions that make up the sales. Here’s the breakdown by line:

The company-wide sales (cost) goal is $3.85MM. Additionally, in returns/rework they want a 25% decrease, a 30% decrease in late deliveries, and zero recordables. If we assume that the product mix will stay the same, here are the goals for 2019:

Unfortunately, just putting out an annual number isn’t useful, especially without a plan and more short-term goals to help keep a company on track. However, now that this information is available, and assuming the work remains steady (not seasonal like a lawn chair manufacturer- they would need to breakdown month by month), here would be the monthly goals:

Break it down even further to weekly goals, as seen below:

If a company measures these on a day to week basis, then they can ensure that they hit their annual goals. However, the sales are still a dollar value and, being so, could result in a non-tangible item that employees do not understand. If a company can break that down into individual widgets, then all the key metrics begin to make sense, as identified below (assume line one sells for an average of $250 a piece, line two for $200, and line three for $100):

Thus, a vast, incongruent goal has been broken down into smaller buckets in a way that all employees are capable of understanding. Now, everyone can take part in the process. Likewise, these can be further broken down into hourly expectations for each line. This breakdown identifies, on a short-interval basis, whether a company is on track and can adjust accordingly. By assigning hourly expectations to individual employees, a company has developed a workforce that understands their specific role and contribution to the organization. They fully understand whether they had a “good day” or “bad day” at work and should now be a part of the problem identification process.

The sales process is the same: the company has a history (hopefully) of the number of calls, visits, presentations, samples, etc. that equate into a sale. If a company understands how many cold calls it takes on average (or the number of calls turned into a deal), and they wish to increase by a specific amount, then they can determine the increase in calls required to obtain its result — the same for the number of mailings, brochures, sales visits, etc.

The next step would be for management to review the metrics on a short-interval basis, to measure previously recorded numbers against these goals (plan, actual, variance), act to prevent a recurrence, and to catch up.

Remember, this is a high-level approach and does not take into consideration any change in product mix, process improvements, capital equipment purchases, etc. These changes also require further consideration. Regardless, the process itself remains the same. Once a company has taken ownership over this approach, then it will allow for clarity throughout the organization.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Creating a Business Plan 101

A business plan is a document that spells out the direction the business will take and the actions that will execute the plan.

Creating a business plan is not an arduous effort, the challenge for an SMB/SME owner is to allow the process of the formulation to work as a true creative action. That may require doing the planning in a different setting than the home office or the business office.

Creating a Business Plan for your business is vitally important

The critical work in putting together a solid business plan is to review the framework of the business model thoroughly with potential investors and other stakeholders so that there are no surprises in the middle of the process. Examples include: is the business a lead or a sub in its business model flow, are the critical roles in the business team formation substantial or do they need additional outside competence to execute the business, etc.

Some steps are relatively generic when creating a business plan: Gathering the business team should consist of the key stakeholders in the company, owner, key staff, not necessarily bankers and investors. Drafting and Outline of the business plan, creating the format of the business plan (see Appendix A below).

Creating the material for each of the segments of the business plan:

- Describe the Business Model:

- Who is the business team: What are their backgrounds and competencies? This information is most of the time required by investors.

- - - What are the ownership and the legal formations of the business? And why was it formed in that fashion?
  - - SWOT – Strength-Weaknesses-Opportunities-Threats Why is the business going to succeed – Additional analysis for proof of concept;
  - - Contingency plans for identified challenges, e.g., if growth is more significant than capacity what are the options?
  - Additional Opportunities

- Sources of Revenue and the operational costs of providing the products/services: E.g., personnel costs, contractor vs. full-time employees, how many exempt, how many hourly.

- Marketing Plan Overview: What segments will be addressed, what geography.

- Operational Plan overview: What will be produced and what will be bought, where manufactured.

- Capital investments needed and how funding will be achieved

- Personnel Resources

- Future plans for the business: E.g., scaling the facility, move to a larger facility

- Attachments: See Appendix A

- - Introduction
- Executive Summary

Reviewing the draft business plan with an outside ‘board’: This does not have to be a formal board, participants can be senior family members, trusted advisors in the community, business leaders that have an interest in the success of the company. The purpose of this review is to get other pairs of eyes and brains to test the business plan from a qualitative perspective.

The benefits of creating a stable and sound business plan are that the company has a documented way of going forward which can be adjusted as challenges and opportunities change. It is also a powerful tool to use for financial and operational targets to be measured in budgeting and project planning.

Appendix A:

Following is a structure that has the most critical parts for a business plan format:

1. Introduction
2. Executive Summary. The executive summary provides a one-page overview of the business plan.
3. What the business is – The Business Model
4. Who is the business team – What background and capabilities do they bring
5. What are the ownership and the legal formation of the business
6. Why is the business going to succeed – Additional analysis for proof of concept;
7. SWOT – Strength-Weaknesses-Opportunities-Threats
8. Contingency plans for identified challenges
9. Additional Opportunities
10. Sources of Revenue and the operational costs of providing the products/services
11. Marketing Plan Overview
12. Operational Plan overview
13. Capital investments needed and how funding will be achieved
14. Personnel Resources
15. Future plans for the business.

Attachments:

1. 1. 1. Preliminary Profit & Loss Proforma
  1. Preliminary Budget

Funding sources:
1. 1. Loans
1. 1. LOC
1. 1. Grants
1. Owner investment

While creating a business plan may seem overwhelming, it is critical for the growth and development of a small business in order to operate and obtain loans.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

For Lead Generation, Look for the 3 A’s

A company’s sales plan is only as good as the people who execute it. Sales talent acquisition is an on-going problem for business owners. Too many companies have order takers who wait for the customer to call them, rather than professional salespeople who focus on lead generation.

Many business owners are unhappy with all things “sales” – people, plans, managers, volume, outcomes, efforts, lead generation, etc. Talent acquisition is an on-going problem and frustration for them. But, it does not have to be that way. The process of finding good salespeople can be easier if owners know what to look for.

There are non-professional salespeople and professional salespeople. The non-professionals are customer service reps and order takers who have the title of a salesperson. Here is the important take-away

Sales Person Talent Acquisition

Just because an employee has the title does not mean they are selling, want to sell or knows how to sell.

The dissatisfaction that owners have with sales comes from having order takers rather than professional salespeople. This is not a matter of wordplay. There is a difference in aptitude, attitude, and approach between the two, a difference which directly affects the bottom line. It is a simple formula – talent acquisition of professional salespeople equals lead generation, which means more sales. Let’s look at the characteristics of order takers vs. professional salespeople, the three A’s: Aptitude, Attitude, Approach.

Aptitude

Order Taker – An order taker often takes a sales job because it was available, not because she wanted it. She does not see it as a career or an opportunity to better her circumstances. It is “just a job,” a way to pay the bills. There is no personal buy-in for the products/services or customers, and little pride in her work.

Professional – A professional enjoys the selling process and sees it as is a career rather than a job. He enjoys the challenge and is motivated by the rewards it can provide. He chooses to do it and takes pride in his work. He gives good client service, knows the product and understands the benefits it brings to the customer.

Attitude

Order Taker – He usually says his job is “okay.” His part in the sales process is passive – the customer gives the order, he puts it in, and they are done. He is irritated by having to deal with customer’s problems or concerns. He believes the paperwork is the job, not selling.

Professional – She likes her career and believes it is her responsibility to take an active role in the selling process. She is engaged with the customer and works with them to identify problems and find solutions.

Approach

Order Taker – He spends all day in the office waiting for orders to come in from conventional lead sources (i.e., RFP, incoming call, referral, web request), rather self-generating any. He resists ideas and suggestions for getting more sales, particularly if it requires real selling.

Professional – A salesperson enjoys talking to people, especially customers or prospects. He seeks out opportunities for lead generation (i.e., trade shows, face to face, social media, email, text, newsletters, seminars) with future and existing clients. He is interested in suggestions on how to sell better and smarter.

No wonder a lot of owners are frustrated; they have a sales department in name only. There are no actual salespeople, skilled in lead generation, in it. This is why strategic talent acquisition is so vital. Sales are too important to be in the hands of people who are unwilling or unable to make them. A sales plan is only as good as the people who are supposed to be following it.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Strategic Planning Process

Strategic planning sounds like a difficult task though it mainly is common sense. Though as a serious business owner putting structure to common sense is also common sense. This blog will review the fundamental tenants of a strong approach to strategic planning. The purpose of strategic planning is to identify the key activities that need to be executed for the business plan to come true. Strategic planning is an infrequent event and is many times enhanced by engaging an outside trusted adviser to drive the strategic planning process.

Strategic Planning Process

The main components of a Strategic Planning Process are:

Situation Assessment
SWOT Analysis
Strategy Sessions
Vision Definition
Strategy Formulation
Simulation of business model
Business Plan formulation
Business Plan Execution

When starting a strategic planning process for an SMB/SME, it is always good, to begin with, a situation assessment.

This assessment should review the following (and sometimes more):

- Resource availability and capability of

- Human Resources

- Capital Funding

- Operational Resources

- Marketing Resources

- Legal Resources

- Regulatory Competence

- Financial/Accounting Expertise

- Quality assurance

- Market Trends and Historic Data for such

- Available market and key clients for reference building

- Competitive moves and Segment Approach Issues

- Product/Service positioning

Consumer/User Surveys

A Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix using the above information is also a useful tool in strategic planning. There are many other tools to use such as mind mapping, brainstorming and bench-marking. A simulation of the business model and the strategic planning output is another tool that can show weaknesses or opportunities in the plan.

With this information and the results of the strategic planning process sessions, one can formulate the following:

Company Vision
Overall Business Strategy
Definition of what makes the company competitive
Key partners and alliances to engage and grow
Business Goals
Tactics to execute towards the goals
Mitigation of weaknesses
Ways to measure success
Contingency Plans for potential hurdles
How to scale the business for financial and market success

A company vision is a statement that can be shared with the public; it is different than a strategy formulation in that it does not give away how the company is going to execute. An example here is that a precast production company can define its vision to be the best in its state to provide on-time delivery of design to site products. The strategy as to how that is performed is not shared with the public. An example of tactic for the precast company could be to apply a modified Agile project management process for the design to site optimization.

One additional topic in strategic planning is to keep vital information safe and not shared with entities that may have different agendas than the company. For this, it is essential to keep the strategic planning process secret, and that information that is shared with outsiders is protected by Non-Disclosure Agreements (NDA). A strategic plan should be reviewed at least once a year.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

3 Steps to Effective Time Management

“Time Management” is one of those phrases that a lot of people throw around, but very few know what it means, and even less practice effective time management.

The concept of time management is not hard to understand. It is merely the ability to complete tasks and achieve goals by effectively planning and controlling how you spend the hours in your day.

The doing of effective time management is very hard to accomplish. Most business owners do not have the required skills. Some of the consequences of having poor time management skills include bankruptcy, employee difficulties, supervisor under-performance, poor cash flow, quality issues, low profit/margins and not enough sales.

This is why the majority of business problems are self-generated, and well within the control of the owner to fix. According to the Association of Insolvency and Restructuring Advisors, only 8% of business failures were caused by circumstances entirely out of the owner’s control.

The #1 reason owners give for not dealing effectively with problems is, “I don’t have enough time.” But, what they should be saying is, “I don’t have effective time management skills.”

Let’s look at how you can turn your company and life into the one you have always wanted.

Step 1 – Commit to change.

There is a time in every owner’s life when he has to decide to accept all the duties of ownership. Most do not step, they only go half-way and do the ones they feel comfortable with. It is the very few who commit to doing what it takes to have a long term, successful company.

Are you finally sick and tired of being sick and tired? Are you ready to go to the level?

If so, the first step towards effective time management requires you to understand what you are committing to. You are going to have to change your behaviors, and that takes time, education, a willingness to take other’s advice and effort. You will be learning new ways of acting which will be uncomfortable and not come quickly.

Make no mistake – if it were easy everybody would be good at controlling their time, and they are not, which is why most businesses fail or limp along.

Step 2 – Find a strategy that works for you.

There is no quick fix, special formula, sure-fire plan or a magic wand for effective time management success. Successful time management requires basic common sense coupled with discipline and persistence. This is why in Step 1 you committed to getting out of your comfort zone and learning new techniques.

Millions of words are written and spoken about the best strategies for managing your time. Do not get overwhelmed; you only need a small amount of them. Different things motivate people and learn in different ways. So, develop your time management strategy by using a method that works best for you – read books and/or online articles, watch TED Talks, consult one-on-one with an expert, go to seminars or get a mentor/coach.

Beware – owners often get stuck in Step 2. Too often they mistake planning for action. Do not confuse being busy with being productive. There are a lot of excellent, never used time management plans sitting in drawers. Thinking and strategizing are important, but never a substitute for action.

Step 3 – Take action, walk the walk.

In Step 3 you will work on replacing old, ineffective time management habits with new, effective ones. Old habits are hard to break, and nobody gets it right the first time, let alone the first ten times. The key to this step is fortitude, patience, and persistence. It will take action, time and discipline to achieve the results you want.

At first, you will be experimenting with and adapting your strategy; even the best plan requires tweaking. Once you are living it, you will see what changes to make. A flexible approach and mindset allow you to stay open to meeting new challenges and take advantage of unforeseen opportunities.

Doing the work and making the changes effective time management requires is tough for business owners. Too many talk the talk but do not walk the walk.

good time management for small business owners

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

What Banks Want You To Know About Money

When it comes to working and growth capital, business owners get frustrated with banks and banks get frustrated with business owners.

Banks get frustrated with owners who expect to get a loan or line of credit, even though they cannot prove the financial health of their company. Owners get frustrated with banks who will not take a chance on their ideas and hard work eventually paying off.

Owners can increase the odds of getting money if they learn to speak the bank’s language. You have to do things their way – their money, their rules. A part of doing things their way is knowing what they want to hear. They want you to talk knowledgeably about the difference between your working and growth capital, and how they relate to the loan request.

An understanding of working and growth capital will help you more effectively manage your short and long term finances, as well as significantly increase your chances of getting a loan when you want one.

Working capital

Working capital is the money you need to operate your business on a daily basis, the fixed expenses. Money for: payroll, materials, inventory, overhead, supplies, insurances, taxes, etc. It should also cover the cost of carrying the accounts receivables.

It is the money that comes in from customers and goes out to pay creditors. Banks want your total current assets to be higher than your total current liabilities. This will give you positive working capital and cash flow.

If you want a line of credit for working capital, you have to be able to show it can be covered by cash flow (liquidity). Cash flow which is usually tied to a company’s operating cycle.

Growth capital

Growth capital is money you do not need for your day to day operations. It is not used for fixed expenses. It is what is “leftover” from working capital and builds up over time. As the business gets more profitable, the growth capital can increase faster, because the working capital expenses are mostly consistent.

You save until there is enough to fund growth by having good faith money to apply for an expansion loan or spending it outright. Expansion through: new product lines, equipment, machines, an increased workforce, a new building, added locations, buying another business, merging, etc.

Keep working and growth capital separate

Most small businesses’ financials are a mess. Owners do not keep their working and growth capital separate. The two pots of money should not be used interchangeably. Typically owners use working capital for growth expenses. It does not work in the long term and usually creates serious problems for the average company. They use the money for growth that they need for daily operations and run out of cash for day to day expenses. Then they stop making a profit because the growing debt is too big to service, or they are making a profit, but the hole created by the under-financed growth is too deep to get out of.

All this could be avoided if owners understood the difference between working capital and growth capital.

working and growth capital blog image

In addition, you and your banker will get along just fine. Contrary to what you might think banks do want to lend owners money. But, they want to lend to someone who can pay them back, which is fair. You would not expend large amounts of credit to a customer who you know cannot pay their bill; only an impractical, naïve, soon to be bankrupt business owner does that.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Train Your Mind for Business Success (Part 2)

You know the old saying, “If all you have is a hammer then everything looks like a nail.” It reminds us that we need several tools in our “successful business toolbox” to get the job done right. We know that resilience is one of the most essential tools a business owner needs if he wants long term business success. Unfortunately, most owners – and people in general – are not naturally resilient. It is not a character trait or mindset that we are commonly born with. Fortunately, you are not stuck with whatever amount of resilience you currently have. Just like your body, there are many ways to train your mind to get in shape.

Here are three places to start your training and work towards having a successful business. If you focus on mastering these techniques, they may be all you ever need. Remember – just like anything worthwhile in life these skills may take a long time to develop. But, resilient people understand that.

Skill 1 – Doing your best today

This idea has been warped all out of proportion over the years. Let’s bring it back to the real world.

Many motivational quotes, speeches, and articles suggest that “best” means giving 100% + each day. These ideas ignore fundamental human nature, are impossible to do and set people up for failure. This failure mindset then creates frustration, anger and a lack of confidence, but no insight into how to grow or change. If you cannot see how to get out of the cycle, it keeps repeating.

You can have a less than 100% day and still perform well. When you are flexible and adaptable, you can always find opportunities each day to make some progress. Most times “good enough” is all you need to do, perfect is a sucker’s game, even successful businesses have slow days.

Skill 2 – Learning to separate the corn from the husk

Corn is multi-functional and tasty. The husk is mono-functional (tamales) and inedible.

It is a no-brainer when you peel the husk off of corn you throw it away. In successful businesses, the same rule applies – prioritize, prioritize, prioritize. They focus on getting the most out of the good and limiting the bad. But, a lot of business owners, for a variety of reasons, have a hard time figuring out what is essential and what is not.

Their managing styles – too much or too little control – are at the wrong ends of the “effective management scale” because they never learned how to prioritize. They do not know which parts of the financials are important, or how metrics can be used to increase productivity, or that an accountability framework can decrease employee problems, or what best practices are right for their product.

Skill 3 – Knowing the difference between cause and effect

Top performers use failure as a tool to move forward. They figure out the root cause(s) of a problem, rather than focusing on the effect(s) of the problem. You cannot fix a cause if all you do is pay attention to the effects. It usually just leads to more failure.

Here is an example of focusing on the effects only. Productivity was low in Tom’s machine shop (the effect). He bought an ERP system (not the cause) to fix what he thought was the problem. Productivity continued to decline, and he was out of a lot of money for the system. Here is an example of separating the effects from the root cause. Productivity was low in Tom’s machine shop (the effects). He determined the root cause of his problem was that his three supervisors were not managing the employees. He got training for himself and two supervisors while firing the third one. Productivity, employee satisfaction, and profits increased.

(Sidebar – tech and paperwork never fix a people problem.)

train your mind for business success

They understand that stuff always happens despite their best efforts, but do not let it derail them. Written on the top of their toolbox – do your best, get rid of the rest and keep moving on.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Train Your Mind for Business Success (Part 1)

Are you looking for the secrets to long term business success?

If so, you are not alone, many business owners are. You know that success can be hard to find, and is even harder to keep once you have found it. Businesses who have failed are in the millions and can range from 6-month startups to 100+ year old companies. A great deal of research has been done on elite performers in many professions, and it turns out the secrets are not very hard to find. The top achievers in a variety of different occupations have very similar character traits and mindsets. Qualities and ways of thinking anyone can develop if they are willing to put in the time and effort.

One of the main traits owners know about and think they need is “mental toughness” for business success. It is the rare owner who has not said some version of, “When the going gets tough, the tough get going.” Usually, it is the more popular “just suck it up.”

But, what if mental toughness is overrated? What if it is only one of the secrets and not even the most important?

Like most things in life, there is no “one right answer” to getting what you want, and the same is true with business success. We need several tools in our success toolbox, and it turns out that a healthy mindset is not as important to have as a resilient one. Do not get the wrong idea: Developing a strong character and way of thinking is needed for success, but it is not as vital as developing resilience.

A resilient mindset will create a strong, confident person. One who is capable of handling setbacks, curve balls and difficulties without breaking. Top performers can learn, adjust, fix, recover and benefit from their misfortunes. They know they will always make mistakes, but they try not to make the same ones over and over again.

But, a strong mindset does not usually lead to a resilient one. It is more inflexible, less adaptable and more likely to give up when faced with repeated failure.

business success mindset

We all know a business owner who is so sure he is right that he frustrates key people, managers, employees, vendors, and customers. It is this owner whose company limps along or closes because he refuses to adapt to new ideas, product advances, improved standards of practice, technology innovations and a changing customer base. Think – Blockbuster.

So, now that you know how important resilience is, how do you avoid being that guy? It is possible to reprogram your brain and train your mind to have a more successful way of thinking. Go to “Train Your Mind for Business Success (Part 2)” to see how it is done.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Understanding the Concept of Business Development

Business development is one of those strange business concepts. When you ask someone to define it, depending on their occupation, you will get different answers. People usually describe it based on their specialty.

They will say it is sales, marketing, healthier revenue, strategic partnerships, customer service, growth/expansion, increased profit, more market share, metrics, networking, social media, R&D, quality control, improved productivity, better employee relationships, strategic planning, etc. It seems like the definitions are too many, varied and contradictory to be useful.

business development definition

How can a busy business owner consistently hit several different targets, which appear to be always moving? Fortunately, there is a more natural way to understand and use the concept of business development.

It may seem like there are many different targets, but there is only one. The business development target you are shooting at is – To create long-term value, stability, and success for the company. That is all there is, just one big stationary target that you are always trying to hit. The goal never changes, but the arrows you need to hit the target do.

The equipment you need to hit your target may change over time, because what your business needs changes over time. The types of arrows – ideas, strategies, and actions – you keep in your quiver depend on the unique circumstances of your company.

Let’s use the list above and look at some examples of how the concept of business development works.

Company A has all the sales it wants, but it cannot get a consistent product out the door on time. Possible arrows – customer service, quality control, improved productivity, better employee relationships.

Company B is profitable but static. It cannot get to the next level. Possible arrows – sales, healthier revenue, strategic partnerships, metrics, growth/expansion, increased profit, more market share, improved productivity.

Company C was doing well but has been losing money over the last few years. Possible arrows – sales, healthier revenue, metrics, customer service, growth/expansion, increased profit, improved productivity, better employee relationships.

Identifying the number and type of arrows you need to hit your business development target is very difficult at first. Pick only a few priorities to focus on; you do not want to do all of them at the same time. Once you consistently hit the bulls-eye, concerning your chosen goals, then you can move on to others.

Creating long-term value, stability and success for your company requires an on-going, honest assessment of goals, actions, key people, operations, financials and yourself. Managing a business development plan takes commitment and leadership, which is why most owners do not do it. It is also why most businesses fail.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Plan for a Successful Capital Investment

There are many “things” a business owner needs to grow a company successfully. Some of them include equipment/machinery, warehouse/office/shop floor space, trucks, a new product line, land, etc. In a profitable business, the money for buying these things should come from capital investments.

A successful owner knows his financial position

He understands the financial health of his company is dependent on creating and following a plan which will generate the capital investment money he needs.

Here are three things to help you make a practical capital expenditure plan.

Understand Operational vs. Capital Expenses

Remember – You want to operate and grow from a position of strength. To do that you need to understand your financials, especially the difference between operational and capital expenditures.

Operational money is used to pay the monthly costs – i.e., the things you need to keep the business up and running. Such things include: electric, insurance, payroll, maintenance, office supplies, materials, taxes, rent/mortgage, etc. These are mostly assets which are bought and used up, typically within the same tax year.

Capital investment money is used to buy a different type of asset (see list above). It buys things that are supposed to provide financial benefits over a longer time frame and are usually depreciated over the years. For example, A back-hoe is a capital expense, while the gas, driver, and tune-ups are operational ones.

Budget Separately

Since operational and capital money is used for different purposes, it should be kept separate. They are not interchangeable pools of money. Short term money (operational) should not be used to finance long term projects/items (capital). Long term projects/items (capital) should not be financed if there is no short term money (operational) to support them.

Capital investments are commonly expensive, and their ROI is measured by years, which is why it is crucial for companies to budget for them carefully. It is a balancing act that smart owners learn how to control. They do not sacrifice short term stability for possible future gain.

You would be surprised by the number of owners who are ham-strung by profit-draining buildings, land, and equipment. After all, what good is a new CNC machine if you cannot afford the labor to run and maintain it? Or have enough sales/customers to pay for it.

Protect Cash Flow

Healthy businesses must have good cash flow; it is their life’s blood. Poor capital investments can limit or stop positive cash flow. Capital expenditures impact operational expenses as the purchased item needs operational money to support it. Knowledgeable owners understand how to dovetail their operational and capital requirements, making sure each one supports the other.

Protect your cash flow, and start your plan, by thoroughly answering each question. Your goal is to factually prove (no guesses, hopes or feelings) that the item to be purchased is worth the risk and cost. Confirm with at least one other knowledgeable, unbiased person that your risk assessment is accurate.

- How much of a profit can I expect on my investment and when will I start to see it? Depending on the item figure it out for each year of the next 5-10 years.

- What are the tax advantages and liabilities?

What is my break-even? Have I added in all operational costs?

- Is leasing a better option than buying?

- Can the funds come from the company budget or will I need financing? What facts do I have that the debt can be served?

- How is my cash flow safe-guarded? What specific steps have I taken?

Do the numbers, economy, my competition and customer demand support investing now or waiting for a future time?

There is a line where capital investment crosses from being a calculated risk to being a rash decision, where profit turns into a loss. This is also the line which separates you from achieving your dreams or not.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Talent Acquisition – Why is it Hard to Find Good People?

Talent acquisition is an on-going problem for most business owners. One of their biggest complaints is – I can’t find good people to work for me. What if they could change that? They can do so by asking and honestly answering a fundamental question, “Why should good people work for me – am I offering them a talent attracting culture or a toxic work environment?”

What is your answer to this question? Is your company’s culture able to attract and keep valuable employees?

Successful talent acquisition requires a strategic approach designed to find the best people to meet your and the business’s goals. It starts with getting rid of a toxic work environment and developing a talent attracting culture.

All employees are not created equal. Most are average, some are very bad, and others are exceptional at what they do. The better than average ones have many opportunities and options. Their skills are mobile, and in today’s job market they are voting with their feet. If your company cannot offer a functional workplace, they will go elsewhere.

Here are three ways to start creating a functional workplace, which will make your talent acquisition easier.

Provide consistent, fair management

Everyone wants to be treated well and fairly. They want consistent, no drama, fair treatment, no favorites management. The number one reason employees leave a company is that they do not like the way they are treated by managers. Yes, the reason is not about money.

No owner is good at everything, like most people they are only really good at a few things. Business owners are notorious for having poor people management skills. The biggest reason most businesses fail is that the owners overestimated their ability to run it.

Develop a positive vision and values

A business’s vision and values promote a certain way of thinking and behaving. Some are toxic and destructive – “This company doesn’t care about work quality, it doesn’t matter what I do, so I’m going to do nothing.” While others are positive and constructive – “Our company does good work, it matters what I do, I don’t want to let my co-workers and customers down.”

Talent acquisition is a matter of finding the kind of employee who needs to work for a company with a clear, positive mission. A person who wants to be part of a workplace which has such a vision and values is more involved, motivated and responsible. Here is what is odd – owners do not think it is important to provide the employees they want to work for them the environment that those employees need to work in.

Promote transparency and trust

Toxic work environments discourage feedback and openness. The owners do not encourage employee’s legitimate complaints or suggestions. They often take feedback as personal criticism, and respond in a justifying, rationalizing defensive manner. When their ideas are ignored employees become distrustful, guarded and give up.

Here is another owner quirk – they say they want workers who are responsible, proactive and self-motivating but do not understand that these types of people require transparency and trust. They want to be involved and know what is going on. They want to work for an owner with the same character traits, one who will welcome and act on feedback to make the company better.

talent acquisition and toxic workplace

Which brings us back to the original question, “Why should good people work for you? Are you offering them a talent attracting culture or a toxic work environment?” Remember – Leader is a way of behaving, not a title, you have to earn it.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Why Your “Laid-back” Management Style Isn’t Working

One of the first decisions – consciously or unconsciously – people make when they become the boss is what their management style is going to be. Some decide theirs is going to be “laid-back.” Unfortunately, a laid-back style rarely, if ever, works. It is frustrating to the employees, customers, and the owner.

So, how did you become a business owner?

➢ Did you start your company?

➢ Or maybe you bought an existing business?

➢ Was the management of the family business finally turned over to you?

➢ Were you an employee who rose through the ranks?

No matter how you got there, it is an exciting time when you first become an owner. You get the chance to put your mark on the business with nobody telling you what to do. You can do things the way you think they should be done – “better and different.”

There are many reasons why having a laid-back management style does not work; here are two of the most common.

Complacent vs. laid-back

Commonly, owners who identify themselves as laid-back are not, what they are is complacent. Complacency, at best, is an ineffective management style. At its worst, it is harmful and has been the cause of many business failures. Complacent people have strong denial about the health of their company. They deliberately ignore problems, complaints, danger signs and instabilities with their financials, employees, products, and customers. Owners who are complacent say things like, “We’ve always done it this way.” “I don’t want to rock the boat.” “Let’s wait and see.” “Maybe next year.”

Complacent management results in: decreased productivity, declining quality, employee dissatisfaction, poor cost controls, theft of materials/money/product/time, not enough cash flow, poor bidding/estimating processes and customer complaints. All of which directly affect the bottom line and the long term success of the company.

Inefficient vs. efficient

Laid-back owners commonly have feelings of – unjustified – pride and satisfaction in their management style. They think that being a “nice guy” is enough to be an effective manager. It is not. For a company to survive long-term nice guys also need to provide accountability, metrics, leadership (not friendship), structure, communication, incentives, and vision. You can be laid back, but you also must be active.

By far, the most significant problem employees have with laid-back owners is, “he’s a nice guy, but a lousy boss.” Here are some of their complaints:

He doesn’t hold anyone accountable. People get away with stuff all the time.
He doesn’t keep his word. He says he’s going to do something but doesn’t do it.
I gave up trying to make things better. He seems to listen but never does anything about problems.
The good workers get overloaded; while he lets the bad workers get by.

I never know what is going on, neither does anyone else.
I would like to know how I’m doing; there is never any feedback.
The good people are ignored, even though we do all the work. I want to move up in the company, but no one notices the job I’m doing.

Everybody knows he’s a soft touch. If someone doesn’t want to do something they go to him and they don’t have to do it. He undermines other bosses all the time.

Every business owner wants to know how to attract and keep good employees. Overwhelmingly, good employees say they want to work in an environment where they can be efficient and productive. They want communication and structure. Finally, they want a workplace that has fair, evenly applied rules, incentives, and expectations.

Why your laid back management style isn't working

Their laid-back management ‘style’ is the reason they give for avoiding the responsibilities of good leadership. However, good leadership is not a matter of intensity; it is a matter of integrity.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Four Strategies for Managing Cash Flow

Did you know that profitable, growing businesses regularly go bankrupt? One main reason is cash flow mismanagement. The typical business owner is not trained for, nor understands cash flow management. Most are missing this vital skill they need to achieve long term success and stability. There are many ways to get good cash flow. Here are four strategies to consider for your business.

Balance real cash with possible cash

The only money you have to spend is real cash, which is in your bank account. It is not future sales, accounts receivables, signed contracts or handshake agreements. Those are just possible revenue – they will show up with various degrees of certainty and in different time frames. This is a hard, on-going balancing act that most owners do not learn how to do, which is one of the primary reasons for the high rate of business failures.

Understand the financials

It cannot be stressed enough that having a working knowledge of your financials and keeping track of your cash flow is fundamental, paramount, essential and critical. Is the point made? Your business can be profitable and strapped for cash at the same time – an extremely stressful and usually avoidable situation.

Set up credit before you need it

There are times when you need increased cash flow. It can be for a positive reason – growth, new product line, higher demand for services, etc. It can be for challenging reasons – equipment breakdown, customer default on the substantial balance due, embezzlement (more common than you think), etc. It takes time and energy to get a loan. It is generally confusing and frustrating. The more lead time you have to work the system the better chance you have of being successful.

Learn to say “No.”

Not every sale is worth making. Sales do not always equal profit, sometimes a client or contract will cost the company money and decrease cash flow, rather than add to it. Before you take or turn down business be sure to do the math and answer these questions.

What is your break-even point and ROI?
Can your cash flow support the project until you get paid or will you need to borrow?
Are the margins good enough to pay back a loan or debt?
How can you negotiate a better payment schedule or terms?

You can make your balance sheet and income statement say anything you want them to. They can be, and often are, pure fiction. But, cash flow is the reality of your business, it is the facts. No matter what the numbers say, at the end of the day you either have the money to keep the doors open tomorrow, or you do not.

Four Strategies to Cash Flow Management

Diversification – Stack the Deck in Your Favor

Too many businesses stagnate, decline or fail because they are not adequately diversified. Diversification is one of the most challenging decisions a company can make, which is why most business owners do not do it.

It is called an unpredictable, high-stakes game for good reason. The risks are high, but so are the rewards. There is always the gamble that you could significantly increase the value of your company or severely damage it.

But, like any risk you take in life, there are things you can do to limit the downside and increase the upside. You can start by thoughtfully, wholly and honestly answering the following questions. This process will work only if you respond with facts – not feelings or guesses. If you do that you will make the risk in diversification, much less risky.

Diversification - Stack the Deck in Your Favor

Figure out where you currently stand. Every company has assets and liabilities, including yours. The decision to branch out should be based on an analysis of what you can capitalize on and what needs to be fixed before you move forward.

If your business struggles with being competitive now, you are not in a position to make a good run at future competitors. Using diversification to fix a failing company seldom works; it requires a robust and stable company to be successful. An outside pair of eyes is helpful at this point. Owners are usually too close to the situation to evaluate it accurately.

What assets do I need to compete with future competitors successfully?

Determine what assets (i.e., money, time, people, skill, training, knowledge) you will need to compete in future markets. Success in one market does not mean you will be successful in another, especially since you will probably be competing with companies who are already established and have experience with diversification.

Develop a plan to match or beat them at their own game – merger/partnership, acquire/buy out, undercut pricing, aggressive sales/marketing plan, etc. You should not enter a high stakes game unless you have the resources required to win. You still may not win, but your chances are a lot better.

What do I want to accomplish and how do I do it?

It is vital to identify your objectives and make sure you have enough assets to achieve them. A common mistake owners make is not being clear about what they hope to achieve. You want to identify how much of a sustainable market share you can reasonably go after. There is no point in diversifying if you do not know exactly want you want and have a plan for getting it. Here is an example of how not to expand. While it is about a machine shop, every industry has it’s equivalent. A plasma cutter is an expensive machine that cuts plate steel. There is a market for its products, and it can be a reliable profit center. And yet many (yes, many) of these machines are gathering dust on shop floors because the owners did not identify their objectives, nor make sure they had enough resources to achieve them. These owners did not do the basics: have an employee available to program it, hire or train existing salesmen to sell to the capabilities/strengths of the machine, figure out the break-even and profit margins, identify a need for the product in the area by contacting possible customers, or line up potential contracts before purchase. Answering these questions is the place to start if you are thinking of diversifying, not the place to finish. In addition, you will need to do a detailed financial analysis; again, an outside pair of eyes is beneficial at this stage. Diversification is a great way to grow your company and meet all your goals. But, like any game of chance and skill, it is essential to know the ins and outs if you want to be a good player. The smart player knows when to leave with cab fare in his pocket and money to get in the game another day. The dumb one stays until he has to hitchhike home and borrow money to eat next week.

“Are You Ready to Sell Your Business?” Checklist

Are you an owner who is thinking of selling your business? If so, do you know how to sell your business?

If you are like a lot of owners the answer to the first question is, “Yes, I’m ready to go right now.” and the answer to the second questions is, “Nope, don’t have a clue.” If those are your answers, then you are in the same situation as thousands of other business owners.

That is not good news for them, and it is not good news for you. We are in the middle of the largest selloff of privately owned businesses in our country’s history. Baby boomer owners have started to retire, and they are having an unprecedented impact on the business real estate market. There are too many businesses and not nearly enough buyers. This has created a buyer’s market, which is expected to last 15-20 more years.

So, how can you successfully sell your business? Foremost, use logical thinking and understand that your business is merely a product. Most owners listen to their feelings and significantly overvalue their companies.

They feel,

are you ready to sell your business checklist image

They are stunned when buyers offer much less than the asking price or more commonly nothing at all. If you are serious about selling your company, you must spend time, money and effort positioning it to look attractive to buyers. As the seller, it is up to you to convince them that your product is better than all the others. You may even have to push back the sale a few years, which will allow you to develop and follow a comprehensive exit strategy.

Use this checklist to figure out if you are ready to sell your business.

Business

What is your company offering the buyer that is better than the guy down the road? Do you have something of value to sell? What value – facts, not guesses – can you show for your products/services?

What tangible assets (building, equipment, vehicles, machinery, furniture, contracts, books of business, customer database, etc.) are being sold? Can you show factual, current market values?

How much of what you are selling are intangible assets and unwritten knowledge (business ideas, strategies, policies, and procedures, customer information, goodwill, handshake agreements, etc.)? Is there a way to make them a tangible asset, with market value?

Personnel

Are you able to show the buyer the value of your workforce? Do you have metrics for your employee’s productivity, including managers and supervisors? Can you match current performance reviews with up-to-date job descriptions?

Have you adjusted the workforce to comply with industry standards for personnel? Are there too many employees for the volume? How about nonproductive family members?

Are you ready to showcase the unique knowledge and skills your staff can offer the buyer?

Financials

Can you talk intelligently (i.e., profit, cash flow, margins, labor burden, overhead, accounts receivables) about the company’s financial condition and what ROI the buyer can expect? How will you demonstrate he can service the debt in a reasonable time frame – that your company is a “good deal”?

Do you have clean taxes and books, or should they be fixed? Do they show an accurate, legal value of the company and the income you are claiming?

Most buyers are looking for a turnkey operation. Do the books show that you have kept up on facilities/equipment management, technological advances, and capital improvements.

It is a difficult time to sell your business, and it is going to be hard for many more years. But, if you develop and implement a good exit strategy, you will be ahead of most of the other owners who are selling their companies, because they will not do the work. Let the other guy go out with a whimper, while you go out with a bang.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Pricing Methodologies and Strategies

Establish Price based on Gross Margin
One effective means of establishing selling price is based on gross margin. Using this approach, it is imperative that you have a good understanding of all the costs – direct labor, material, and overhead (burden). Overhead rates are determined as a percent of labor. Therefore, your labor cost must be accurate to avoid errors in pricing. The gross margin goal should be the percentage sum of all other operating costs and desired operating income. That is, if your G&A, engineering and other operating expenses are 20% of sales and your goal for operating income is 15%, the gross margin should be set at 35%. To establish the selling price, divide the total cost by the reciprocal of the targeted gross margin (1 – 0.35)/1. For example, a cost of $65 with a 35% gross margin equals a $100 selling price ($65/0.65=$100).
The advantage to using this approach is that it allows you to maximize profitability. The risk is you can price yourself out of the market, especially if it’s a competitive industry or your costs are inaccurate. Generally, this method should be used as a check and balance to your costs and pricing unless you have little or no competition.

Price at Market
The other, more common approach is to price the product or service at market. In this situation, the market has already established acceptable price point(s), so you must meet them to compete. Premium price points can be achieved by offering value added services, unique features and benefits, better or improved technology or offering a new design.
Contribution margin is the best gauge for evaluating the acceptability of market pricing for a specific product or service. Contribution margin differs from gross margin in that it only includes the variable overhead and not the fixed overhead with the labor and material costs. Using contribution margin enables you to measure profitability based on actual out of pocket costs or the cash required to build the product or provide the service. The logic being that fixed overhead remains the same whether you accept the business or not. Separating out fixed and variable overhead costs can often be difficult because there is so much gray area between the two. To simplify the exercise, you can assume variable overhead is equal to labor cost and the remaining overhead is fixed. This is a relatively safe approach to establishing price points as it should keep you competitive and cover all out of pocket costs. The risk in this approach lies in not understanding exactly how your product or service stacks up to the competition. You could be leaving profits on the table!

Parts and Accessories Pricing
Pricing for aftermarket parts and accessories is very different. Depending on the complexity and uniqueness of the part and its ease or difficulty to obtain elsewhere, often dictates the margin ranges that should be applied to the part. The matrix below (Fig.1) is representative of how it works. For example, block 1 represents a part that is commonly available from multiple sources and is a pass-through item with no value add provided. In this situation, gross margins could be as low as 10-15%. However, on the extreme side, block 9 represents a highly engineered component that is a custom design and not available anywhere else. In this case, margins should be much higher, up to 80%.

	Commodity	Technical Design	Highly Engineered
Pass Through	1	2	3
Added Value	4	5	6
Unique Design	7	8	9

The Road to Bankruptcy Is Paved with Bad Budgets

Business owners who do not like to talk about, put together or follow a budget are more common than one may think. If left too long, the situation degrades into a position where owners are on the brink of bankruptcy because they did not develop or follow a budget.

One major reason that businesses fail is that their owners were simply not prepared or equipped to run them. They did not have the necessary skills or have acquired the knowledge to successfully manage all the intricacies of running a business. This lack of skills was not a function of intelligence or ability – it was merely a lack of training.
(Sidebar – No one has ever achieved success by himself. It is not a character flaw to need help. It becomes a character flaw to know you need help and not ask for it.)

Budgeting is one of the places where this lack of training is seen the most often, which is unfortunate. A budget is vital to the operation of your company, and its long-term sustainability. It will help you manage: cash flow, capital investments, ROI, cost of goods sold, break-even points, overhead costs and profit margins. It can make the difference between staying open or closing the doors.

Here are three ways a budget can help you meet and exceed all your business goals:

You know how to go forward
A budgeting system is a map that shows where you have been, where you are and where you are going. A business is not static; it is very easy to get side-tracked or lose your way entirely. A budget will help keep you on the right track and give you directions on how to get where you want to go.

You have an excellent operational tool

When used correctly a budget is a great management tool, which uses real-time facts and figures. If you review, update and revise it on a monthly basis with your management team you can:

Control performance, productivity, costs, profit, projects, and revenue; rather than them controlling you.
Follow your sales to meet current and future demand. What is in the pipeline? Do you need more or less resources (i.e., materials, staff, inventory, money)?
Keep costs down. Where are the expense over-runs (i.e., crews, products, machine output, projects)? Is your profit margin within the expected range? How are your collections/receivables?
Minimize taxes by planning for: capital expenditures, allocation of bonuses/incentives and funding retirement programs.
Tie incentives/bonuses to budget performance. This is a good way to get employees serious about budgeting, and invested in the business’s profitability.

You can positively respond to problems

Have you ever tried to fix something and made it worse? Of course you have – who hasn’t?

When stuff happens, and unexpected events occur, you can choose to react in a strong, practical manner or suffer consequences of inaction or a weak reaction. A budget can help you avoid making mistakes when things do not go as planned. It decreases or eliminates panic and uncertainty, and helps guide you to making good decisions because you know exactly what is going on in your company. You and your team can make good decisions with the in-depth knowledge collected from your monthly budget reviews. You can make changes – and immediately monitor their impact – based on facts, not feelings or guesses.

It is true – a budget is hard to start and maintain, but then so is your business. Remember, the reason many businesses fail is that their owners are not prepared to do the required work.
Let’s give Lou Holts the last word: “Winners embrace hard work. They love the discipline of it, the trade-off they’re making to win. Losers, on the other hand, see it as punishment. And that’s the difference.”

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. Check out these some more posts that you may find helpful:

What is a Business Plan Outline?

A business plan outline is an initial overview of what goes into the business plan.

An outline is created as the first draft and is likely a result of a “napkin” discussion or some other non-formal gathering of ideas. There are several methods to do this initial draft; one practical approach is to do a whiteboard capture of the business team’s ideas and thoughts and to write these down in an electronic format so the business plan outline can be formalized into an actual business plan formatted structure.

Other methods include mind mapping, brainstorming, benchmarking, key stakeholder survey, roundtable/round robin dialogue and such.

Before creating a business plan outline, gather information on the following points:

Business Plan Outline

Focus of the business
The business team
Business goals
Financials
Why the business should exist
Analysis of potential success
Key competitive threats
Industry trends
Risk avoidance and challenge management

After gathering your information, organize it into a business plan outline like the one below:

Introduction
Summary
What the business is
Who is the business team
What is the ownership and the legal formation of the business
Why is the business going to succeed – Additional thoughts for proof of concept;
1. Strength-Weaknesses-Opportunities-Threats
2. Contingency plans
3. Additional Opportunities
Sources of Revenue and the operational costs of providing the products/services
Marketing Plan Overview
Operational Plan overview
Capital investments needed and how to achieve funding
Personnel Resources
Future plans for the business.

This list is fairly comprehensive and can be shortened for the first draft. It is essential to make the exercise of business planning a fun and productive activity and not another chore for the management team or the owner.
When working on your business plan format, do not expect to follow the above step sequentially. Business planning is not a linear process meaning it is necessary to initiate many thought processes simultaneously.
Although gathering and organizing the information for your business plan outline may seem daunting, once you get started it can be a fun and enlightening process. Not to mention the benefits that it will bring to your business.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

WHAT IS A BUSINESS PLAN FORMAT?

A business plan format is a structured description of what goes into the business plan.

The business plan should present what the business will focus on, who will be on the business team, business goals, financials, reasons why the business should exist, some analysis why the business will be successful and also plans as to how to avoid risks and manage challenges that the business will face.

There are a multitude of variations on how to format a business plan; the challenge is making it easy to read and find information. Especially for banks and potential investors.
If a bank analyst can’t find specific financial information, then the business plan will likely end up the bottom of the work stack.

Following is a structure that has the most critical parts of a business plan format:

Introduction
Work with your business team on your business plan format and execution.
Executive Summary
The executive summary provides a one-page overview of the business plan
What the business is – The Business Model
Who is the business team – What background and capabilities do they bring
What is the ownership and the legal formation of the business
Why will the business succeed – Additional analysis for proof of concept:
- SWOT – Strength-Weaknesses-Opportunities-Threats
- Contingency plans for identified challenges
- Additional Opportunities
Sources of Revenue and the operational costs of providing the products/services
Marketing Plan Overview
Operational Plan Overview
Capital investments needed and plan for achieving it
Personnel Resources
Future plans for the business
Attachments:
- Preliminary Profit & Loss Pro Forma
- Preliminary Budget
- Funding sources:
  - Loans
- Regular Bank loans
- Regulatory by state agencies
  - LOC
  - Grants
- Public
- Private
  - Owner investment

This list is fairly comprehensive, so the first drafts may not require all of the above to be considered complete. What is most important is to make the exercise of formatting a business plan fun and productive and not another chore for the management team or the owner.
When creating your business plan, you do not need to follow this format sequentially. Business planning is not a linear process. Meaning many thought processes need to be initiated in parallel. Putting together a business plan format may seem daunting, but the benefits are worth the effort.

Cogent Analytics has experience in creating business plan formats for a multitude of various types of SMB/SME’s.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Regaining Business Vision

When first meeting my clients, I always work with them on visualizing the future they want to achieve. I’ve had some interesting responses ranging from being able to spend more time pursuing personal endeavors to “I’d like my husband to treat my employees and children better.” Another client had a vision to reduce the stress of negotiating a few large contracts every year. I have yet to meet the client that said I want to grow revenue by 10% a year while maintaining 20% net profit margins.

I had a client about two years ago that got herself into a pretty deep hole. Her spending habits far exceeded the businesses ability to generate profits. When I first met her, it was the opinion of my associate that the firm should file for bankruptcy. Accounts payable exceeded last year’s net profits, she had expensive loans requiring weekly payments and a large customer of hers had declared bankruptcy. At first glance, it did appear hopeless, and that bankruptcy was the best option.

Her vision was to be relieved of the constant anxiety of managing to pay the bills. She wanted to retire, have the company provide a good living for her family and herself. She had worked hard for over ten years and was devastated when considering losing it all. So, we put a plan together to achieve her dream.

Vision Leads to Business Growth

I worked with this client for about six months. We established a cash management program and began catching up on accounts payables. We substantially shortened the order-to-paid cycle-time and generated approximately $600,000 in cash, instituted a sales program that resulted in obtaining a huge contract, and doubled the revenue per employee by reducing employees and establishing a bonus program.

The point I’m making here is you need a plan to achieve your dreams. You had one when you started your company, and you have probably achieved your original dream. You have run your original plan to fruition. What you most likely haven’t done is refine your vision or establish new goals along with a plan to achieve them.

It’s going to be harder this time around. There are more people involved, more employees, more clients and skills required that you didn’t need when starting out. You probably provide an exceptional product or service and built your business on this foundation. To get to the next level, you need to implement processes and lead employees to continue to provide the exceptional services you provided. Leading and motivating people is not the skill set that got your business off the ground. It’s likely not a skill set you planned to acquire when you started your company. It needs to be in your plan to going forward.

Here’s the catch 22, you’re under stress because what you were doing that worked well and created the successes you have enjoyed is not working as well now. You need to acquire new skills and to develop new habits to reach your new goals, and while it’s your stress levels that are encouraging you to change, they are also making change more difficult.

According to Shana Lebowitz:
“In one experiment, scientists found that stress hormones inhibit activity in the areas of the brain involving goal-directed behavior — but not in areas of the brain involved in habitual behavior. In other words, when you’re under stress, you’re likely to fall back into old patterns instead of changing your behavior to achieve specific goals.”

You need a vision, a plan, and the discipline to stick with the plan to achieve your vision.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Are You and Your Employees Sick of Each Other?

“Yup, you better believe it! How’d you know?”

A business goes through phases, just like personal relationships. When a business, or a couple, get through the “will we or won’t we make it” startup stage they start to settle in. When it looks like they are going to have a future, they feel more secure, and the “new and exciting” phase is over.

In this next stage owners, managers and employees – like couples – establish a working environment. They create long-term habits, working relationships, formal/informal policies and procedures – some good, some bad, some ugly. Eventually, a standard way of doing business is reached, and the company continues along in this way, sometimes forever.

After the working environment is established it becomes business as usual and that is when the “sick of you” cycle crops up. People develop and hold on to gripes, hurt feelings, irritations, misunderstandings, and grievances. Eventually, the employees are sick of each other, the owner and managers. The owner and managers become sick of each other and the employees.

It is real, and people can become stuck in this cycle. It can be very damaging to a company if not dealt with. Let’s look at how it might be playing out in your business, and what to do about it.

It is normal.
The sick of you cycle happens all the time, in all types of businesses. It is human nature and no one has developed a cure for it, nor will they. People get tired, discouraged, overwhelmed, and self-absorbed at work. All people – especially and including owners.

What to Do: When you have a functioning, stable company, it will take care of itself, just wait it out. Remember, it is normal and something will come along (i.e., new product or customer, a resolution to a problem, new perks/benefits, completed project, a holiday, change in weather/season, local sports team does well) to nudge the cycle into an upswing.

But, what if it does not?
Be aware the cycle is happening and make sure it does not go on too long. If it goes on too long, your company may not be as stable or functional as you think it is. This can be a warning sign that you have problems. Find out what the issues are and fix them.

It is too chaotic.
Often, when a company gets stuck in a “sick of you” cycle, it is because the culture is too chaotic, disorganized and unpredictable. The owner, supervisors, and employees are unproductive, irresponsible, inconsistent, distracted and not successful in their jobs.

They become resistant, worn out, apathetic, tired of the drama and resigned to “nothing ever gets better” mentality. Each distrusts the others and become emotionally, mentally and spiritually exhausted – every day becomes a never-ending episode of the blame game.

What to Do: Stop, take a breath, assess and be willing to listen to others. This particular problem can always benefit from an outside pair of eyes. Owners are too close to the situation to evaluate it accurately. You should be able to answer all the following questions factually.

Why is your company chaotic? Why do you not have control over it? As the owner, how are you part of the problem? How many ideas, plans, and strategies do you have and never follow through with? Can your employees count on you keeping your word or do you have a lot of excuses for not being trustworthy.

It is too boring.
Are you and your employees sick of each other because the work day is same old, same old? Familiarity can breed contempt, dissatisfaction, and boredom.

A solid, stable business is what owners want – consistent income, reliable employees, and good selling products/services. However, solid and stable can quickly turn into mundane and rote. Everyone gets bored, but when they get too bored they call off, produce less, stir things up and create problems.

What to Do: Create something new you and your employees can get excited about. It is dangerous to let complacency go on too long, do not allow it to become stagnation.

Here are some ideas owners have implemented to keep things interesting: new product development, go after a different customer base, increase customer satisfaction, sponsor an internal/external sports team, hold a charity event, internal employee/team/crew competitions, annual company party, apprentice/mentoring program, etc.

Even in the best of relationships, people get sick of each other, but the feelings are short-lived and quickly pass. If you and your employees are feeling this way frequently and for extended periods of time it is a sign that your company is having difficulty. Commit to doing something about it – you have put too much time, energy and money into your business to be miserable.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

3 Steps to Small Business Strategic Planning

Having a definitive strategy in place is critical for small businesses. This will define the plans you, as a small business owner, have in mind for moving from where you are currently to where you would like to be in the near future and beyond. From a more strategic standpoint, you should articulate your business strategies. This articulation is vital to having the ability to make decisions, assess your business’ progress and prioritize.

It’s unfortunate that the classic approach to strategizing and planning generally fails to work well for small businesses. Traditional textbook methods that are always designed for larger corporate business settings are not appropriate for small business plans and forecasting. Therefore, the use of the wrong strategic planning methods will only create confusion and frustration for small business owners, leaving them with wasted effort, resources and time.

We would like to offer some experienced advice with regard to what may be the correct amount of strategic planning for your small business. Almost every company begins as a small business. The owners of this company have had their share of struggles, making mistakes in the planning phases and have witnessed the results with many small business owners, who have made poor decisions, used poor planning methods and experienced confusion when things just don’t go as expected.

Hence, this post, in hopes we will be able to provide small business owners simple, effective process ideas so that they may perform a higher quality of strategic planning. We would like to assist business owners in avoiding common mistakes allowing them to set their sights on concrete planning in ways that will provide effective strategic planning results.

Where and How Strategic Planning Can Take a Wrong Turn for Small Businesses

It’s very important to understand that avoiding strategic planning altogether is your number one mistake. You don’t need a 50-page plan as would a large corporation, but you do need a plan.

On the other hand, another mistake that small business owners make is over-planning. If you over-plan your strategy, it’s likely that you will place far more time and energy into your planning process than you’ll ever receive in results. This generally occurs when the small business owner attempts to follow processes that are not designed for small businesses but for larger corporate organizations. These plans are far more complex to address and are not needed in the small business planning processes. This will only lead to the development of a small business plan that is far more than what is required for success.

You’re Over-Planning If:

You’re Working to Create a Marketing Document – Now is not the time to attempt to impress others. You are not going to publish to a large group of shareholders. Opportunities to mark your brand will come later. The time now should focus on an internal strategy that will guide your business’ leadership team.
You’re “Long Term” Planning – Your small business is just that, small. These long-term plans are generally developed by large corporations who are strategically planning for 3 to 5 years in business. You will not have adequate information to advance that far into the future of your small business. There will be frequent changes and therefore you will require frequent adjustments. Small businesses should consider a more realistic 3 to 6-month plan as this is far more manageable in the small business world.
You’re seeking perfection – Avoid this trap at all costs. You’ll only find yourself caught on the endless carousel of revisions and wasted time consumption.

What Is Actually Needed in a Small Business Strategic Plan

The strategy plans for a small business environment only require addressing a few things in order to be meaningful as well as effective.

A few things will be needed to build the bridge between now and your future business:

A clear understanding of where your business is currently – You need to have a good idea of where the business is on its current journey so that you may establish a baseline. This will assist you in planning what will happen next.
A description of vision, intention, and purpose for the future of your business – The purpose and intention is critical as it will serve as the foundation of your business plan. This is where you and your team will draw from while planning marketing and solutions.
Take a few steps that will help you in building that bridge between now and the future of your business – Think about short-term commitment. Consider specifically designed actions that will move the business in the direction of its purpose. This will help you remain aligned and focused. This will also help minimize any unnecessary distractions.

Three Step Small Business Development Strategy –

If you’re only beginning this process you’ll require several hours of planning with the members of your leadership team. Should you already have a solid statement in place, you’ll have the ability to do some collaborating with your team within a few hours. If you’re just too busy for a sit down of any kind, work incrementally with your team leaders a few hours at a time.

Here are the steps needed:

Begin With a SWOT and/or TOWS Assessment – Along with your leadership team, evaluate your Strengths, Weaknesses, Opportunities, Threats. Once all team leaders have completed the analysis, attempt to bring forward 3 to 5 strategic situations that may seem to stand above the rest and address them. Save your results, you may have a need to revisit them later.
State Your Mission – It doesn’t have to be fancy, once sentence will do, but make it a good sentence.
Plan Your Journey Using S.M.A.R.T Goals – This acronym stands for Specific, Measurable, Attainable, Realistic, Timely. Create your goals to ensure that each goal is created with all of these aspects in mind.

It’s Time to Begin Your Action Plan

You and your leadership team are now in a position to develop a plan for your small business that will be an effective strategy that can fit on a couple of pages. You will have created the foundation of parts needed that will provide consensus, alignment and focus on your small business and its leaders.

Be certain when it’s possible to hand responsibilities of all of the goals to your leaders to encourage ownership and commitment. Make adjustments as you need them by revisiting your plan frequently. This will allow you to make a clear assessment of the progress being made. You may wish to continue to repeat the planning process annually, semi-annually, quarterly or monthly.

Keep in mind that business situations will change. Be prepared to adjust accordingly as you’re going forward.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Energy Leaks Are the Most Prominent Financial Leaks

In our attempt to uncover financial leaks in small businesses that will help save them money, our research has found that U.S. small businesses spend, collectively, approximately 60 Billion dollars annually on various forms of energy according to the U.S. Department of Energy.

Energy usage is a huge expense for small businesses. A recent survey that was conducted by NFIB has discovered that energy costs are one of the top three expenses that small businesses experience and this is holding true for more than one out of three small businesses nationwide.

With this in mind, small business owners have the potential to experience significant savings about their energy consumption. They have the potential to reduce their cost by 10% to 30%; according to Energy Star, if they are willing to make appropriate changes by exploring competitive rates, adjust behaviors and implement efficiency upgrades.

Listed here are some categories for energy saving tips that, if implemented by your small business, will surely bring savings through reduction of energy use:

When Purchasing Your Energy for Your Business:

Consider locking in your natural gas and electricity rates
Change your service to a retail energy provider if your business resides in a deregulated state
Think about changing to solar power – (Make use of the ITC tax credit by implementing solar power)
Take advantage of all tax breaks available to small businesses that use energy efficient equipment as well as appliances
Consider participation in a Demand Response Program – (this is what is known as a “load management system that will pay small businesses to reduce their electricity use during peak demand times)

Monitor Your Energy Usage:

Set appropriate benchmark goals and stick to them
Work to get your employees invested in the energy saving changes you wish to implement
Have an energy audit conducted to assist in the determination of what changes would best benefit your business
Implement the ability to track your business’ energy usage online
Consider the use of data analytics to determine where your energy leaks are located and most prominent

Update or Upgrade and/or Regularly Service (HVAC) Equipment:

Change and/or clean your filters regularly
Install blinds in your building’s windows to help control direct sunlight in the summer
Repair or replace declining HVAC units
Consider planting trees that will provide shade on the outside of your business
Implement the use of fans inside of your building to improve airflow and maintain temperatures that are comfortable, also reducing electrical usage
Set your thermostats higher during the months you will be cooling your building and lower when you’re heating in the winter months
Locate leaks in your building and apply caulking or weather stripping to assist in the prevention of energy losses
Implement a dress code that is casual for your employees that will help provide comfort while saving money

Make Positive Use of Light Resources:

You and your employees should be encouraged to turn off lights and equipment when not in use to save significantly on energy costs
Switch from incandescent to compact fluorescent lamps also known as CFLs, LEDs and/or halogen bulbs as these are known to use up to approximately 80% less energy and are longer lasting
Use natural light where possible
Install energy efficient exit signs
Consider installing occupancy and dimmers that will turn lights off automatically

With Regard to Office Equipment:

Use power strips in so that you and your employees will be able to easily turn off appliances when not in use
Turn off office equipment when not in use
Consider the use of power management software
Be certain to put your computers to “sleep” by adjusting settings to shut down after a specific amount of time
If you have devices that require batteries, consider the use of rechargeable batteries
The reduction of the use of paper in your office can save energy especially when it comes to printing
Consider the installation of air hand dryers

Conserve Your Business’ Energy Consumption by Practicing Water Conservation:

When a water heater fails, consider upgrading to something more energy efficient
If the age of your water heater is seven years or more, you should wrap the heater in insulation so that it will maintain water heat.
Whether older or newer, insulate the first three feet of the pipe where the heated water is sent out
Locate and address any water leaks as immediately as possible and have repairs made to save gallons of water monthly
Adjust the temperature of your water between 110 and 120 degrees to save energy
Consider installing sensor faucets specifically designed to conserve water.
If you have landscaping performed, try to adhere to sustainable water practices

Energy Savings Pertaining to Company Transportation:

Consider telecommuting your employees if possible or at least on days you would consider designating
Consider holding meetings in virtual locations as opposed to wasting fuel to appear in person
Encourage employee carpooling, ride sharing, splitting costs on rental cars especially during required business trips
Take advantage of the many tax incentive, leases, loans, grants and even available rebates that are provided to small businesses willing to improve their vehicle fuel economy
Make use of this fueleconomy.gov calculator to evaluate how your business can save on the high cost of fuel

Although no business will implement all of these strategies, making some of these changes will either be free or they will rapidly pay for themselves and continue to save money for years to come. If you have other money/energy saving suggestions, we would love to hear from you.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

List of Tax Deductions and Credits

Previously we had provided an extensive list of tax deductions that you should be aware of as you prepare receipts and records for filing 2018 deductions in 2019. Tax minimization is always going to be a top priority for small to middle-size businesses. As promised, we’re providing an updated list of deductions and credits of which you should be aware. Some of these deductions are not well-known. For tax planning purposes, if you estimate that you may be eligible, either prepare for these deductions and credits within your accounting software program or consult with your tax person to ensure that you’re receiving these deductions and credits. All of these deductions and credits apply to small businesses.

Accounting Fee Deductions– Small businesses may deduct the costs for services rendered by an accountant, CPA or any other financial advisor as long as it is for business only and if the business operates as a for profit.

Advertising/Marketing – Deductible when it provides the ability to manage brand image, reach clients/customers. No anonymous donations or sponsorships will be deductible as they will fail to represent the business.

Amortization (Depreciation)– According to the IRS ” You may be able to depreciate property you own that is used in a business with a determinable useful life beyond one year, and that is not categorized as excepted property.”

Bad/Uncollectable Debts – IRS – ” To deduct a bad debt, you must show that there was an intention at the time of the transaction to make a loan and not a gift; AND you have no reasonable expectation that the non-business bad debt will be repaid.”

Banking Fees for Small Business – Any banking fees paid by the business are deductible.

Board Meeting Expenses – These meetings are meant for company directors and will depend on the company or organization. Since the meetings are related to the business, they are deductible.

Building Maintenance/Repairs – A small business may deduct maintenance and repairs to tangible property as long as the amounts that are paid are not going to be required to be capitalized upon. (See Section 7 about maintenance and repair costs).

Business Association Membership Fees/Dues – A portion of these fees/dues are deductible depending upon how the fees paid will be used by the association. These are classified as miscellaneous deductions by the IRS.

Business/Travel Expense Deductions – IRS – ” You can deduct travel expenses paid or incurred in connection with a temporary work assignment away from home. However, you can’t deduct travel expenses paid in connection with an indefinite work assignment.”

Cafeteria/Health Insurance Plan Deductions – Partial deductions are allowable by employers who assist in payment of health plans.

Car Expense Deductions – If your vehicle is used for work or even driving to assist in a charitable act, there are some deductions available.

Charitable Small Business Deductions (Business) – Be confident that your contribution is going to a reputable charity to be eligible for small business deductions.

Cleaning or Janitorial Services – Partially deductible as long as payment for cleaning or janitorial services is reasonable.

Collection Costs – See IRS publication 535 by clicking the link to the left.

Commissions to Non-Employees – IRS – ” A fee paid to a nonemployee, including an independent contractor, or travel reimbursement for which the nonemployee did not account to the payer, if the fee and reimbursement total at least $600. To best determine whether someone is an independent contractor or an employee, see Pub. 15-A”

Computers and Technological Peripherals and Supplies – If you’re using a computer to assist in conducting your business more than 50% of the time it’s in use, you may deduct the entire cost of the machine (new or used) under an IRS provision called Section 179.

Consulting Expenses and Fees Paid – Consulting fees are considered a deductible expense.

Continuing Ed (Work Related) – IRS – ” To be deductible, your expenses must be for education that (1) maintains or improves your job skills or (2) that your employer or a law requires to keep your salary, status, or job.” Not for acquiring skills for a new job
Conventions/Trade Show Expenses – IRS – ” You may be able to deduct the ordinary and necessary business-related expenses you have” – ” An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your business. “

Costs of Goods You’ve Sold (Valuing Inventory) – IRS – ” You must value your inventory at the beginning and end of each tax year to determine your cost of goods sold (Schedule C, line 42.”

Credit Card Convenience Charges – IRS – ” Credit card companies charge a fee to businesses who accept their cards. This fee when paid or incurred by the business can be deducted as a business expense.”

Depreciation – IRS – ” If property you acquire to use in your business is expected to last more than 1 year, you generally cannot deduct the entire cost as a business expense in the year you acquire it. You must spread the cost over more than 1 tax year and deduct part of it each year on Schedule C. This method of deducting the cost of business property is called depreciation.” Also, see IRS Publication 946.
Dining During Travel for Business (Meals) – IRS – ” It is necessary for you to stop for substantial sleep or rest to properly perform your duties while traveling away from home on business. The meal is business-related entertainment.”

Discounts to Your Customers – These discounts are deductible for businesses.

Education/Training for Employees – IRS – ” If you pay or reimburse education expenses for an employee, you can deduct the payments if they are part of a qualified educational assistance program.”

Employee Provided Cell Phones for Business Use – See IRS Notice 2011-72

Employee Wages – The IRS Revenue Code considers the amount you pay in employee wages and salaries as normal business expenses. Be advised that the relationship (employee) must satisfy all IRS requirements before deductions are considered.

Entertaining Clients/Customers – IRS – “You may be able to deduct the ordinary and necessary business-related expenses you have for entertainment.”

Equipment Deductions for Business – According to Section179.org “Essentially, Section 179 of the IRS tax code permits companies to deduct the full purchase price of qualifying equipment and software purchased or financed during the tax year.”
Equipment Repairs (Business Equipment) – IRS – “Election to capitalize repair and maintenance costs are deductible.”

Exhibits For Publicity (Advertising) – This is considered an advertising business expense.

Franchise Fees – When you’re purchasing rights to operate under a franchisor, these would be considered “start-up costs.” These costs are deductible. Once you’ve established your franchise, the regular payments made to the franchisor will continue to be deductible under “regular business expenses.”

Freight/Shipping Costs – As long as your shipping costs are used for business related purposes, these costs are deductible from stamps to large UPS and FedEx shipments.

Furniture/Fixtures for Business – IRS – “You generally can’t deduct in one year the entire cost of property you acquired, produced, or improved and placed in service for use either in your trade or business or to produce income if the property is a capital expenditure. Instead, you generally must depreciate such property.”

Gifts For Clients/Customers (Limited to $25.00 per deduction) – IRS – ” If you give gifts in the course of your trade or business, you can deduct all or part of the cost.”

Group/Health Insurance Premiums (Must Qualify) – IRS – “You generally can deduct premiums you pay for the following kinds of insurance related to your trade or business.”

Guard Dog for Business Protection – According to Nolo “If you use a guard dog to guard your business premises, you can deduct the cost as a business expense.” You will have the ability to deduct dog food, veterinarian bills as well as other costs related to the guard dog. There are qualifying factors.

Hiring a Veteran (And other targeted groups) – IRS – ” The Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) retroactively allows eligible employers to claim the Work Opportunity Tax Credit (WOTC) for all targeted group employee categories that were in effect prior to the enactment of the PATH Act, if the individual began or begins work for the employer after December 31, 2014 and before January 1, 2020.”

Home Office Deductions – IRS – ” You can have more than one business location, including your home, for a single trade or business. To qualify to deduct the expenses for the business use of your home under the principal place of business test, your home must be your principal place of business for that business.”

Interest on Business – On April 2, 2018, The IRS issued an article addressing business interest expense limitations. See Notice 2018-28

Internet and Hosting Service Fees – IRS – ” Generally, you can deduct Internet-related expenses including domain registration fees and webmaster consulting costs.”

Investment Advisory Services – IRS – ” You can deduct fees you pay for counsel and advice about investments that produce taxable income. This includes amounts you pay for investment advisory services.”

Legal and Professional Fees (Business Related) – IRS – ” Legal and professional fees, such as fees charged by accountants, that are ordinary and necessary expenses directly related to operating your business are deductible on Schedule C or C-EZ.”

Licensing Fees – These fees are deductible for required industry licensing related to the business only.

Losses (Business) Due to Theft – If there has been theft that has affected the business, these losses are deductible according to the IRS.

Management Fees (Business Related) – IRS – ” Generally, you can deduct the full amount of a business expense if it meets the criteria of ordinary and necessary and it is not a capital expense.”

Materials for Business Use (Non-Incidental) – IRS – ” If you account for inventorial items as materials and supplies that are not incidental, you will deduct the cost of the items you would otherwise include in inventory in the year you sell the items, or the year you pay for them, whichever is later.”
Medical and Dental Expenses (With Plan) – IRS – “Beginning January 1, 2017, you can deduct only the part of your medical and dental expenses that exceed 10% of your adjusted is deductible as income (AGI). The 7.5% rate available for certain taxpayers has expired…”

Mortgage Interest (Business Property) – Is deductible as a business expense.

Office Supplies – IRS – ” Your office supplies may qualify as a recurring expense.” Deductibles for supplies will also be recurring.

Payroll Taxes for Employees (To Include Medicare, Social Security, Unemployment) – IRS – ” The credit is part of the general business credit.”

Parking and Toll Deductions – IRS – “Fees you pay to park your car at your place of business are nondeductible commuting expenses. You can, however, deduct business-related parking fees when visiting a customer or client.”

Prizes for Contests – IRS – “File Form 1099-MISC, Miscellaneous Income, for each person to whom you have paid during the year in the course of your trade or business at least $600.00 in prizes and awards.”

Real Estate Related Expenses – See the extensive list of deductions provided by nsbar.org

Rental Deductions – IRS – ” Rent is any amount you pay for the use of property you do not own. In general, you can deduct rent as a business expense only if the rent is for property you use in your business. If you have or will receive equity in or title to the property, you cannot deduct the rent.”

Research and Development – IRS – ” The costs of research and experimentation are generally capital expenses. However, you can elect to deduct these costs as a current business expense. Your election to deduct these costs is binding for the year it is made and for all later years unless you get IRS approval to make a change.”

Retirement Plan Deductions – IRS – ” This credit applies to pension plan startup costs of a new qualified defined benefit or defined contribution plan (including a 401(k) plan), SIMPLE plan, or simplified employee pension. For more information, see Pub. 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans).”

Safe-Deposit Box Rental Deductions – IRS – ” You can deduct safe deposit box rent if you use the box to store taxable income-producing stocks, bonds, or investment-related papers and documents. You can’t deduct the rent if you use the box only for jewelry, other personal items, or tax-exempt securities.”

Software and Online Services (For Business ) – This should be filed as a miscellaneous deduction since the IRS has no specific category for this deduction.

Storage Rental – IRS – ” To be deductible, a business expense must be both ordinary and necessary.”

Previous Year’s Taxes – According to Turbotax state tax returns that were paid the previous year may be included in the itemized deductions for the next tax season.

Tax Credits and Deductions for Businesses Who Have (or Hire) Employees with Disabilities – IRS – ” Businesses accommodating people with disabilities may qualify for some of the following tax credits and deductions. More detailed information may be found in the IRS publications referenced.”
Domestic Production Activities Deduction – This deduction became active in 2005. The intention is to encourage American businesses large and small to produce goods within the U.S. The deduction applies to all types of businesses to include any business that grows, produces, extracts, manufactures, improves or develops goods within the United States. Examples of these businesses would be architecture and engineering, construction video game development, farming and agricultural services, film making and more. Although there are some limitations, this can be a great deduction for any domestic business that would qualify. For more information, click the link above.

For more information on updated Tax Breaks for Small Business Owners check out 15 Must See Tax Breaks for Small Business Owners on the Quickbooks by Intuit website!

As you implement these tax minimization strategies in your business, don’t forget to explore other ways of increasing profitability in your business:

Make Risk Less Risky

It is imperative that business owners take risks. That is how owners reach their goals, grow companies and make money. But, not all risks are good risks. They are more likely to succeed if planned and deliberate, rather than unplanned and chaotic. We all know someone – including ourselves – who took a badly thought out risk and had it go horribly wrong. Poor decision making and failure is a universal human experience.

So, what can we do to make risk somewhat less risky?

While we cannot completely eliminate failure – nor do we want to, that is how we learn to improve – we can take steps to make it less destructive. The place to start is to commit to being honest with yourself. Honesty about your strengths and weaknesses will go a long way toward reducing bad choices.

No one is good at everything. In fact, people are really good at a very small number of things, and you are no exception. The number 1 reason businesses fail – the owner overestimated his ability to run it and made poor, uneducated decisions.

Don’t want to be that guy? Ask yourself and others the following 2 sets of questions. If you approach this exercise with an open mind and a willingness to learn, the answers will help you achieve future success based on educated decisions.

What do others think you are really good at? What do they think you are not good at? What skills do you have which create positive change? What abilities or knowledge do you lack which create problems? What do others consistently praise you for? What are the most regular complaints about you? Do you accept feedback and help or do you blow it off?
Once you have the answers tie them to a past situation where you took a risk and it did not pay off. Use your new knowledge and answer these 4 questions. Remember – honest answers will make the next chances you take more likely to work out.

What 3 weaknesses or negatives did I bring to the situation? What must I do to make sure they do not happen again?
What 3 positives did I bring to the situation? What existing strengths, knowledge, and skills do I need to build on to ensure success next time?
What are the 5 reasons others think the risk failed?
What 5 things did I learn about myself, as a leader and manager, from the circumstances?

If you have no answers for these questions, or if they are self-serving, go back and answer the first set of questions again.

Do not be too afraid, clueless, egotistical or complacent to seek out reality checks. Taking risks makes life interesting and is vital to success, but they must be realistic. Exceptional people do whatever is needed to stack the deck in their favor, average people do not.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

The Importance of Your Business in Your Community

The SBA defines a small business as one that employs 500 persons or less and according to the Bureau of Labor Statistics; small businesses are representative of 99.7 percent of all employing firms and have created 64 percent of all new jobs since 1995. Small businesses also pay approximately 44 percent of the entire U.S. payroll paid privately. It should be no surprise then how vital they are to their communities.

Although small businesses aren’t likely to generate as much monetarily as most large corporate entities; they are vitally important, significant contributors to the very foundation of local communities by providing employment opportunities locally (Chron.com). They are the very stepping stones to larger American corporations.

If you don’t realize the positive impact that your small business has in your local community, consider the following:

Local Governmental Offices and Schools

When local businesses are thriving, they are generating higher degrees of revenue. If they are profitable, they are also paying higher local taxes that go to improve various aspects of the communities they serve. This revenue is then redistributed back into their neighborhoods for police, fire protection, shelters and schools among other services.
When local consumers make purchases for tangible goods or services from these local small businesses, they too are giving the money back to their communities.

Contribution to Local Economic Growth:

Small businesses contribute economically to their local communities by attracting innovation and therefore, community growth. These businesses lend options to those who are often not considered as employable by many of the larger corporations.
They often attract new talent to their communities who in turn may provide new solutions and inventions that will allow room for implementation of new solutions for existing industry challenges.
Because corporations depend on smaller businesses as an avenue of outsourcing, providing a way for them to complete projects with the much-needed expert services required to complete projects in a timely and impressive manner.

Ability to Adapt Within Changing Economic Environments:

Small businesses seem to possess an uncanny ability to adapt and respond to economic environments that often change very quickly. The fact is that these small businesses are well known for their genuine desire to keep their customers/clients satisfied and are always willing to go the extra mile to make it happen. As a result, customers/clients are often far more willing to remain loyal to their preferred local small business, especially amid an economic crisis. Smaller companies have less to lose than a large corporation, so a smaller business combined with strong customer/client loyalty has more of an opportunity to help a local community weather an economic crisis.

Future Growth Potential:

Not all small businesses stay small. There is a myriad of large corporations that began as small businesses only to grow into major players in their industries, some on global levels. Microsoft is a perfect example of a small business that started in a garage in middle America and eventually changed the world as we knew it.

Small businesses that eventually transform themselves into large corporations will often remain headquartered in the small communities where they had established themselves. In doing so, they continue to offer a growing number of employment opportunities which will extend the monetary stimulation of the local community and its economy.

Never underestimate the power of your small business in your community. Every positive step that you take in good economic climates will make a difference in your community regardless of what happens in the long run. Work now to ensure that you create a strong and loyal customer/client base. The rest is very likely to take care of itself in hard times, and you will remain a thriving and robust part of your community.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Positioning Your Business to Sell

Do you have a business to sell in the next few years? If so, then you are joining the ranks of a significant number of owners who also wish to sell.

Baby boomer business owners (born from 1946 to 1964) have started to retire, and it is having a significant impact on the business real estate market. We are in the midst of the most substantial turnover of privately owned companies in the history of our country.

By the time their owners retire, estimates say that 65% to 75% of businesses will have passed to the next generation, closed or sold. Fewer than 20% will pass to family, 18% – 35% (depending on size) will sell and about 50% will close. The majority of the past and future companies which close had/have owners who wanted to sell, but they could not find a buyer.

The state of the market is good news for buyers and bad news for sellers.

If you have spent the required time, money and energy positioning your company to look attractive to buyers, you will probably survive the glut. If you have not – and you are serious about selling your company – then you will need to push back your retirement and develop a comprehensive exit strategy.

Here are some of the things for which savvy buyers look.

Fair asking price – Many owners find the task of realistically estimating the worth of their businesses challenging. You should be able to prove, not guess, that your company will provide a reasonable return on the buyer’s investment.

Reasonable Market Salary – Buyers will want proof of your salary and bonuses for the previous 3 – 5 years. They also want to know if they can reasonably expect the same income, and that it is within industry standards.

Many owners have to delay selling to clean up their taxes and financials to show accurate, legal information – no more skimming, cash deals not put on the books or running personal expenses through the business.

Ability to maintain historical revenues ” The majority of buyers are looking for a turn-key operation, not a fixer-upper. You will want to show that you have kept up with capital improvements, technological innovations and facilities/equipment management. Younger buyers are interested in a well-established, well-maintained brand with a strong social media presence.

Take a good look at your products/services, customers and your position in the market. Are you selling products that are comparable to your competitors’, or are they outdated? Do you have a diverse, sustainable customer base? Who are your competitors and what is your market share?

Serviceable debt in 3 – 7 years ” Serious buyers will want to be out from under their debt in a reasonable time frame. You should be able to show them how they can do that. If you do not, the owner who can demonstrate to them his or her company is a “good deal” will make the sale.
Strong Financials ” Your financials must be in good order, and you should be able to talk about them intelligently. Qualified buyers will want to talk about cash flow, debt, profit, costs, labor burden, margins, accounts receivables, overhead and expenses.
Personnel – Buyers expect a functioning workforce. Take a good, impartial look at your management team and labor force – do they enhance or detract from the worth of the company? You have a much better chance of making the sale if you have documented productivity numbers showcasing your employee’s effectiveness.

An organizational chart that is too top heavy, full of nonproductive family members, low functioning shareholders, or an unbalanced supervisor to employee ratio can often reduce or end a buyer’s interest.

The baby-boomer business owner retirement wave is here, and it is going to be around for some time. Industry experts worry it may end up being a tsunami, but you do not have to get swept away by it. It is essential that you look well ahead, and develop an exit strategy which effectively positions your company to sell in a buyer’s market.

Millennials — What are They Doing Right?

Traditional small business owners often tend to give millennials far less credit than they deserve. Although old school thought leaders have a lot to bring to the table, to increase profit, it’s time to open your mind to change and a more diverse thought process. The business world presents frequent changes. Older business owners often resist change and sometimes fail to realize the vital importance that millennial workers will bring to a small business.

Let’s face it; there’s a lot that the millennials are doing right from which older business owners could learn. Letting go and allowing younger minds the opportunity to educate previous generations about what will attract younger generation employees, will also attract younger clients/customers.

While millennials may operate with a different mindset, the methods they use often provide significant advantages to businesses not only in areas of profitability but through thought leadership and advocacy.

This generation of workers is currently representing more workers and customers/clients than any other generation. It’s time to offer them the respect they deserve and here are some reasons why:

Not All Members of Generation X are Remotely Close to Retirement

With rapid technological changes that occur each year, Gen X business owners could use some millennial education. Don’t look now, but these young people are often the very people who are writing the technical educational materials you’re learning from especially about technology. Millennials come to savvy on day one technologically. By placing more millennials within your business environment, you’re opening yourself to a world of advancement that you may require.

Millennials Possess a Much Needed Social Consciousness

Millennials tend to offer an excellent degree of public relations through their strong desire to contribute to community and environment. They want to know that their employers will be supportive of these ideas.
They are always looking for ways to improve the world on any level possible. If you consider the fact that this could well be a generation of volunteers and earth ambassadors, you could find that when you integrate millennial workers into your workforce, they will help you understand the importance of how you affect your community. Should you allow it, they could bring profitability and recognition to your business through their earthy thought leadership and desire to make a difference.

The Millennial Generation Works Smart, Not Hard (This is not a bad thing)

Everyone today is using technology in the advancement of their business. Regardless of age, we’ve come to understand that technology is necessary if we want to be a part of today’s business world. Long grueling hours are no longer required to generate more business. Would it make sense to call an approach lazy, if that behavior brings more productivity?
Millennials are masters of the philosophy that the use of technology to provide a job well done is the best way to make a business thrive. Wise business owners embrace this aspect of the younger worker’s propensity toward efficiency and their ability to complete their jobs in less time. Clients/customers will appreciate the quality of service you’ll offer.

Millennials Know the Value of Smartphone Use for Their Jobs

According to PEW Research Center who specializes in Internet and Technology statistic studies, as of February of 2018 “The vast majority of Americans – 95% – now own a cell phone of some kind. The share of Americans that own smartphones are now 77%, up from just 35% in Pew Research Center’s first survey of smartphone ownership conducted in 2011.” Moreover, according to Nielsen “When looking at smartphone owners by age, penetration is highest among Millennials aged 18-24, 98% of whom own smartphones. Millennials aged 25-34 are right on their heels, with a 97% ownership rate, followed by Gen Xers aged 35-44 at 96%, making Smartphone nearly ubiquitous among these generational segments.”
Inc. reports “What the Qualtrics and Accel survey reveals is that tech has, at least in the minds of Millennials, fostered better relationships both in daily life and at work. Seventy-three percent of Millennials say tech has given them a better work-life balance, contributing to a better understanding of projects, for example…” Millennials fully understand the vital importance of smartphone use to complete work tasks quickly and efficiently.

These People Want Engagement In Their Work

Past generations had always perceived receiving a paycheck and benefits as a reward for the hard work they had provided. Millennials have a desire to care about the work in which they engage themselves. While they are interviewing for jobs, they will often turn down work that lacks conscious environment and community awareness.

Millennials are generally extremely creative. If you’re a wise small business owner, you’re likely aware that a small workforce will demand that you and your employees can cross job description lines. Avoid the over-definition of the positions you’re offering. Allow your employees to spread their proverbial wings and explore areas of interests that mean the most to them. They will integrate what they learn into your business, therefore creating exemplary business/client/customer loyalty.

Small business owners want engaged workers; this engagement may be acquired from learning and through the expansion of responsibilities. When you allow your employees to “feel” and understand your vision, then your business is likely to thrive.

This generation tends to proliferate in these business environments. The longer you employ them, the more positive the attitudes and creative thought leadership you are bound to experience. Business owners, employees and clients/customers all stand to benefit.

Business owners should consider refraining from continued attempts at assimilating millennials into the traditional business models. Instead, they should consider integrating Millennials’ creative abilities into their workplaces. It’s just good business sense.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

3 Ways to Maintain Long-Term Business Success

Human nature is inescapable, and we all experience its challenges from time to time. We do not mind doing a task that has to be done when it is easy, when we are interested in it, or when it does not get in the way of what we really want to be doing. But, when a task is difficult, out of our comfort zone or not interesting to us, our likelihood of doing it well decreases dramatically. Entrepreneurs are no exception, but in order to attain long-term business success, we must learn how to do the difficult, tedious tasks.

If we are not diligent, we may find ourselves making excuses, denials, and rationalizations instead of doing what we know we should. This can run counter to our own best interests. To quote a famous cartoon, “We have met the enemy, and he is us.” (Pogo, Walt Kelly).

We all know about the high failure rate of start-ups. There is also a high rate of businesses that have had initial success then closing. The owners were unprepared for and unwilling to do the things that a profitable, well-run company requires. They did not understand that early achievement does not guarantee on-going success.

Wins do not always lead to more wins – they can instead, sometimes lead to complacency. Building and maintaining long-term success takes on-going effort and skill. If you want to be better, you have to do better. Here are 3 places to start.

For the following three questions, the answers should all emphatically be “YES,” but you should also be able to back up your assertion with facts.

Do you act like your money matters?
- This one seems like a no-brainer, but the truth is many owners do not fully know how to read or understand their financials. This means many do not know how to manage, plan or implement change based on numbers rather than guesses and feelings.
- What are your margins? What is your break even? What does it cost to run your business daily? What is your loaded labor rate? What is your bid to award ratio? What is your cash flow cycle?
Do you act like your employees matter?
- Most employees need active management. Telling them what to do, walking away and expecting them to do it without training, oversight, and follow-up is not management. Sitting in your office and saying, “They know what to do, why won’t they do it?” is really saying, “I don’t want to do my job. Why won’t they just manage themselves?”
- What is your utilization rate? What are your turn and churn ratios? What does it cost you to hire and train a new employee? Are your managers managing or are you a fireman, babysitter, and policeman? What is your productivity rate? Again, knowing your numbers is an important aspect to long term business success.
Do you act like your product and customers matter?
- You are in business to sell something to someone. Owners can lose sight of that truth, especially when they have met some of their goals. Product and customers become secondary considerations, rather than primary. It is a rare company who can survive a decline in product quality and customer service.
- What are your rates for waste, scrap, and rework? What are your warranty costs? What is your market absorption? Can you define your demographic? How diversified are you? What do your customers want that you do not sell? Do you know your inventory turns by product line? What are your costs to carry inventory?

If you want to achieve long-term business success, you have to do the work; there are no shortcuts. A business must be built on the firm foundation of good leadership, discipline, and execution. Success is not final; there is always something else just over the next hill. It is there, but you will only see it if you are looking for it.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Utility

Knowledge CenterStrategic Planning Blogs

What is the definition of strategic planning?

Understanding the strategic initiative.

A long-range strategic plan – time and scale.

Strategic thinking – economic modeling.

Operational planning – process optimizations.

Market assessment strategy – price scenarios.

Define organizational goals – measure and evaluate results.

The purpose of strategic planning.

Economic Outlook

Need for Labor

Technology and Data

The Significance of Human Capital

Who Do You Need?

What Organizations Want

Filling The Gaps and Dealing With The Issues

Succession Planning and Cross Training

Succession Happens

Build an Organization Chart

Assign Roles and Responsibilities

Ensure Employees are Counseled Annually

Identify personnel that warrant greater responsibility and tell them.

Make Trial Runs

Make Succession Planning Part of your Human Capital Management Process

Check the program and make changes as necessary.

Conclusion

What is strategic planning?

How to build a strategic plan?

Toyota

Tesla

PayPal

What do you know about critical supplies and the path travelled to your door?

Pitfalls of a Poorly Designed Incentive Program

How to Design a Successful Incentive Program

Designing Group and Individual Incentives

Momentum, Metrics, and Money

Why to Learn How to Assess Revenue

The difference between profit and revenue.

Which customer account is more profitable to the processor?

Still, it’s big numbers that get the attention of management.

Because incentives are based on revenue, salespeople will go to any lengths to win big-name, big-volume, and significant revenue accounts.

Refocus on profit by understanding how to assess revenue effectively.

If large Corporation’s struggle to effectively plan for succession, what can we expect for Medium and Small Business?

Changing Times?

Creating an effective succession plan in 7 steps:

1. Define the context:

2. Definition of concepts and potential:

3. Define performance criteria:

4. Have clarity in the strategy and vision of the future:

5. Build a talent matrix where potential vs. performance intersect (Nine Box):

6. Know the type of position and the associated risks for the person who occupies it:

7. Recognize the experience that potential candidates must have for each position:

Defining time management.

Time is an essential resource for a business.

Time Management Skills

An active workforce equals accomplishments. (AKA, Busyness doesn’t necessarily result in business).

The owner or manager always make the best decisions.

Practice delegation to save time and increase efficiency.

Some managers are irreplaceable.

Managers who are successful are the most efficient.

An open-door policy means always being available.

A good manager can fix every problem.

“Shortcuts” save time every time.

Most items on a “to-do” list will never be checked off.

What does this mean for the small business?

How Is It Possible?

Let’s Take a Look

Importance of Workflow Optimization

10 Workflow Optimization Strategies that you should know to Improve Performance

1. Analyze the Ongoing Workflow Process and Identify Areas during the Process

Actionable tasks for you would be:

2. Streamline the process by Automating Routine Tasks Automation.

3. Focus on Prioritizing Projects based on their Importance and Urgency

Actionable task for you would be:

4. Visualize the process for your Team Members

5. Master the art of linking the data to Master Data

6. Always focus on Re-examining

7. Keep an eye on the Budget and Allocate Budgets Effectively

8. Don’t Underestimate the power of Proper Training

Knowledge Center
Strategic Planning Blogs