My Financial Post column of Jan. 12, 2015:
Success in business rarely comes from building a better mousetrap, raising a million dollars on KickStarter, or landing a great-white-whale-sized account.
True success comes from getting the little things right: working your lists, managing cash, watching the competition, and never giving up. It won’t make headline news, but mastering the basics will at least keep your business off the obituary pages.
And January is the time most people look at developing better habits. “This stuff isn’t rocket science, but starting off the year properly is a good idea,” small-business consultant Andrew Patricio says. “It’s the details that make you a good business owner.”
As founder of Toronto-based BizLaunch, Patricio held an online webinar last week in which he offered numerous tips for mastering the basics and putting your business on track for a bigger and better year.
Here are a few of his key points:
— Conduct an expense audit to start managing expenses in your business. Year-end gives you an opportunity to spend more time than usual with your accountant, so Patricio suggests conducting an expense audit to find out where you’re spending too much.“Go through your P and L with your accountant and look at every single line item — advertising, office expenses, petty cash, whatever — and try and see where you can save money. I urge you, in January, to get [suppliers] to re-quote you on a lot of the expenses you’re incurring.”
— Another timely resolution is to try to understand your financial statements this year. “It’s really not that complicated,” Patricio insists. When businesses have weak balance sheets — too much debt, not enough equity or cash — it’s usually because the owners don’t understand their financials, so they don’t know how to improve them, he says. “It’s really the detail that makes you a better business owner,” Patricio says. “When you can look at the numbers and analyze them, they help you improve your business.” Once you understand your gross profit margin, for instance, you can see how you’re doing compared to industry averages, and compared with last year.
— Start setting more precise expense budgets. When it comes to many big-ticket categories, such as advertising, “we spend as we need, when we need,” Patricio says. “You need to become more strategic. You want to make sure your employees understand the effect of expenses on your bottom line, and that they don’t waste money. The only way they’ll do that is if you set specific budgets and timelines.”
— You knew this was coming: pay attention to cash-flow forecasts. “The one thing I’ve learned in 30 years in business is that you never ever want to run out of money,” Patricio says. “Understand that as a business owner, managing cash flow is the most important thing you do.”
— He advises all entrepreneurs to develop cash-flow forecasts for the next 12 months. Not only will this keep your company off the rocks, he says, it will ensure you have cash on hand in times of liquidity shortages, such as the next recession. “Once you know you have cash available to you, you can make much clearer decisions.”
— If you realize your business may need additional financial support over the next year or two, don’t wait, says Patricio – arrange your financing now. “Look for money long before you need it. Start doing your research six to 12 months ahead of time.”
— Have a business plan – and update it regularly. Sure, you’ve heard this before. You’ve probably also heard many successful entrepreneurs brag that they’ve never written a business plan. (Business moves too fast today, yadda yadda yadda.) Patricio doesn’t buy it, and neither should you. A business plan represents a vision of a business — all its inputs and outputs — at a specific point in time. Its value comes from regularly reviewing it to ensure you know which of your initial assumptions still hold true, and which need to be revisited. “A lot of business owners don’t like this part of the business,” Patricio says. “But it can be a really simple document that you use to keep yourself on track and focused.”
— Include first-hand industry research in your business planning, Patricio adds. “Go and see other businesses similar to yours, see how they’re doing and how much they’re charging. Look for the best practices in your industry and copy them.”
— Finally, Patricio addressed a common entrepreneurial pain point: How to start selling to big business. Polish up your benefits statement, he said: “I have found that big companies will let you come and meet with them only when you offer them real value.” Noting that many big enterprises are nervous about buying from small businesses, Patricio revealed BizLaunch’s strategy: convince the prospect to give you a minor project to start, and prove yourself with that.
As for getting through the gatekeepers to talk to executives, Patricio avoids the office altogether. “We tend to meet top-company people at a conference or trade show, so we’ve never had trouble with gatekeepers.”
“Be patient,” he concluded. “Getting into these companies is not hard, but it is a lot of fun. They have got the money to spend, and they want to give you the work. As long as you’re reliable and you produce the goods, they want to do business with you.”