Leadership in tough times, Part 3

How to profit when the next bubble bursts

Last week we talked about failing businesses.
Even more will fail in the next economic slump.

That’s the forecast of native South Carolinian Harry Dent, Jr..
He uses demographics to chart business trends.
He’s accurately forecast previous booms and busts.
He advises us to prepare for the next bust cycle.

Our economy moves in boom and bust cycles.
It expands and contracts . . . with greed and fear.
Some cycles are short in nature, others longer.
Washington has run up $17 trillion in debt.
That’s in only five years and at our risk.
What this means does NOT look good.
Could what’s happened to Greece happen here?
Harry Dent believes it can and will. So do I.

He identifies two groups that will profit in a bust:
1. Young entrepreneurs with ideas and capital.
3. Baby Boomers who have lots of money.
The next bust will deflate prices and slow sales.
Debt-ridden businesses will suffer.
Their money troubles will result in bankruptcy.

Have you been smart about operating lean.
About cutting costs and raising profit margins?
About protecting your cash and cash flow?
Are you focused on recession-proof markets?
This is when you can make the most of it.
As rivals go under, you can increase market share.
You can buy them for pennies on the dollar.
Always buy assets, not their liabilities.

We started our company in 1992.
Some thought we were foolish.
The economy was in a recession.
Established newspapers already served our market.
Our rivals predicted we wouldn’t last six months.
We operated a lean, focused business.
We hired the best people available.
All of us were committed to do whatever it took.
Nine years later, we owned the market.
Our closest rival sold out for pennies on the dollar.

Next: How to avoid headaches.

Leadership in tough times, Part 2

How to turn around a failing business

Last week we talked about poor client service.
I want to share this story with you.
It’s about an auto dealer and his sales people.

He bought the business from a retiring owner.
Over the years, the owner’s passion had cooled.
It took three years to position his business for sale.
His accountant helped as best he could.
Those were three hard years of hard decisions.
Nevertheless, he ignored a major problem.

The new owner assessed what he had bought.
Sales had leveled out over the last 10 years.
Net profit showed little year-to-year gain.
Sales were stagnant for two reasons:
1. Lack of marketing and advertising.
2. An unmotivated sales force.

Two sales people, he found, really worked.
They represented 75% of his sales.
They accounted for 85% of his net profit.
The other seven were unproductive.
They wasted time. They complained.
Family problems, they said, distracted them.

He made a tough decision and fired seven.
He recruited two other sales people he knew.
He worked to energize his team of four.
They held weekly sales meetings.
They discussed what worked and what didn’t.
All five of them learned from each other.

He began an aggressive marketing campaign.
He advertised online, in print and cable.
He measured his results from each medium.
He tracked offers which produced the most.
He measured his Return on Investment.
Which offers attracted the most prospects.
Which offers produced the most revenue.
He concentrated on offers than produced revenue.

In a year, his sales increased 6%.
His net profit increased 10%.
The business was making a recovery.

Next: What business forecasters predict.

Leadership in tough times

Take care of your clients

I called a fellow business owner recently.
A cheerful young woman answered the phone.
“Could you wait a minute?” she asked.
“Yes, if not too long,” I answered.
She put me on hold for four minutes.
Four minutes. That’s like four hours.

Ordinarily I would have hung up.
I stayed on the line because the owner is a friend.
I wanted to see what would happen next.
After four minutes, she came back on the line.
I asked if she had in stock what I needed.
“Hold on,” she said, “and I’ll check.
Seven minutes later she confirmed that they had it.
She kept me on hold for 11 minutes.
For a Type A like me, that’s an eternity.

Now here’s the lesson for all of us.
How are your employees handling client calls?
Are they putting them on hold?
Or do they offer to take a number and call back?
How do you know what they do?
If they do this, whose fault is it?
Yours, of course. You haven’t taught them better.

Make this a lesson at your next staff meeting. 
Talk with everyone who answers incoming calls.
Discuss how to handle calls, requests or complaints.

Why is this so important? Look at reality.
Washington has run up $17 trillion in debt.
And it was done it in only five years.
The White House wants to add another $3 trillion.
What this means for your business is NOT good.

Forecasters predict that over the next three years:
• We’ll find it extremely hard to make a profit.
Government regulations will cripple us.
• We’ll need better ways to generate leads.
We’ll also need new skills to close sales.
• Our competition will be in the same fix.
They will be willing to undercut our rates.
• We’ll work harder to keep our most loyal clients.
We must offer the best choices for them.

Next: One owner turns around a losing business.

Protect your business, Part 4

There are many ways you can be victimized.
Here are three safeguards to take.

1. Accept no postdated checks.
Believe this: Most of them will bounce.
If the check writer refuses to pay, you can go to court.
But there’s a major legal danger.
The judge may rule against you for taking the check.
You knew there were insufficient funds.
What made you think the money would be there later?
Make sure anyone else knows this is your policy.
Make sure they check dates on checked received.
By mail or at the front counter.
Any make sure they are signed.
A favorite ploy is mailing an unsigned check.

2. Watch for changes in behavior.
Is your bookkeeper acting differently?
Has there been a crisis in the bookkeeper’s family?
A sudden need for cash in an emergency?
Is she receiving emergency personal phone calls?
Has the bookkeeper just bought a new car?
Has she upgraded her wardrobe dramatically?
These are warning signs.
Keep a careful eye on anyone who handles cash.
The same goes for checks and credit card payments.

3. Make sure payroll taxes are paid.
As the owner, this is your responsibility.
Check to make sure these are paid weekly.
Both federal and state payroll taxes.
This is complex so get advice from your CPA.
State and federal tax officials are not forgiving.
They don’t want to hear your excuses.

We once walked away from a business sale.
The sellers owed five figures in back taxes.
We did not want tax people seizing our assets.
Either they paid the taxes or we weren’t interested.
A deadline for tax clearance came and went.
We cancelled the closing.
I don’t think they ever resolved it.
They closed the business months later.
Don’t let this happen to you.

Next: Leadership in tough times.

Protect your business, Part 3

Savvy business owners check their balance sheets.
Your sheets should have two-year comparisons.
How much money do you have in your account?
How much did you have this time last year?
Is your cash down from last year?
The warning bells should be ringing in your head.

Is your cash up only marginally?
That’s another warning sign.’
Businesses must have cash to keep operating.

Are you margins shrinking? That’s alarming.
It may be the fault of a poor economy.
It may mean your sales people are letting you down.
It may mean they aren’t taking care of customers.

A car dealer you know had to take drastic steps.
He took over a dealership with sagging margins.
He watched the sales staff sit around the showroom.
They drank coffee. Compared golf scores.
Waited for customers to come to them.

He compared their sales records.
Three sales people produced 80% of the sales.
The other 12 produced less than 20%.
He fired the 12 poor performers.
He worked with the sales force to produce results.
They stepped up advertising, phone calls, direct mail.
Showroom traffic increased. Revenues rose.

How often do you make bank deposits?
Daily? Weekly? Even less often.
Undeposited checks slow your cash flow.
Work it out with your bank to deposit by scanner.
You can scan checks in and send them electronically.
Our bank wanted to charge us for this service.
A rival bank waived the fee and won our business.

Here’s another safeguard tactic.
Check your bank deposit slips.
Compare them with your bank statements.
Make sure the two documents match.
Make sure the payments go to your account.
Not someone else’s account.

Next: We’ll discuss three more safeguards to take.