| Designing the system of collection, understanding, and | | | | Will never create the perception that you are a |
| utilization of business financial information is a basic | | | | business person to be reckoned with. ("Perception is |
| business strategy that is completely lost on the small | | | | reality, it doesn't matter what the truth is!") |
| business owner. | | | | This list can go on and on, but, I think you get the |
| The small business owner that does not understand | | | | point. |
| "internal financial business management" and will, | | | | And, you should realize this; because this business |
| therefore, always be at risk of failure. | | | | and the owner has moved onto the "sidewalk", the |
| The problem is, they do not know this. | | | | employees and the community suffer. |
| Here are a few of the many reasons for why | | | | "How?" The employees can't get raises because |
| this dilemma exists. 1) complexity 2) CPA | | | | the business isn't growing and if they are getting |
| dependency 3) lack of training 4) frustration | | | | raises, the risk to business longevity is in question. |
| 5) tried and failed and 6) possibly a lack of | | | | No raises, no impact on community economics. The |
| understanding as to its importance. | | | | employees aren't getting reasonable benefits as the |
| The small business owner makes the assumption that | | | | business isn't growing. The community is also |
| success is based on hard work, many hours, and a | | | | suffers because this owner doesn't understand his |
| dedication to their product and customer. While this | | | | her responsibilities. The business isn't hiring, can't pay |
| is true to some extent, why do you think 90% of | | | | taxes, isn't providing confidence in longevity and his |
| businesses fail before they can get to their 7th year? | | | | business skills are in question by outsiders. All of |
| There is much more to business ownership then just | | | | which have a direct impact on the community. |
| hard work. | | | | If, at this point, the business is not on its last leg, and |
| A small business owner must have the ability to | | | | the owner hasn't reach the point of giving up, a |
| make good critical business decision at the right | | | | consultant usually shows up. |
| time. And therein, lies the problem. | | | | Is the business now ready for a change? A |
| Generally speaking, and as someone who has been | | | | consultant will only be able to help if; |
| face to face with hundreds of small business owners, | | | | 1) Yes, if the business is still salvagable |
| failure occurs when decision are based on "seat of | | | | 2) and yes, if the owner is now ready to learn. |
| the pants" and "gut feel". | | | | At this point, it can cost a business and its owner |
| Then the following occurs: "Whoops", that was not a | | | | $40,000 to $100,000 or more. |
| good decision. Well, I try not to do that again, and | | | | If the answer is a no to either statement, pack it up |
| sure enough, another bad decision rears its ugly | | | | just get a job! Less stress and less worry. |
| head. Not just once, twice, three times, but several, | | | | Usually, step one of this type of consulting |
| one after another and then, there goes the | | | | engagement will consist of an analysis of all financial |
| confidence. | | | | information. (ALL OF IT) This generally takes two |
| It is usually at this point there are a couple a ways a | | | | or three days. At the end of this analysis comes |
| business can go. | | | | the truth. |
| 1) If the business decisions were bad and severe | | | | The truth, if you are ready for it, will inform |
| enough, bankruptcy! This might take 1 to 5 or 6 | | | | you whether the business is still a viable entity and |
| years to accumulate. | | | | what steps must be taken and how soon. A |
| 2) If the decision were not severe enough to put | | | | serious list of priorities. |
| them out of business, the owner becomes tentative. | | | | The consultant will take it upon themselves, to begin |
| "I'm not making the decision. I've had enough of | | | | making immediate change. At the same time, |
| that." | | | | ownership and management training will begin. |
| This is an example of an owner who steps off the | | | | Ownership training will require basic class time, |
| highway of progress and moves onto the sidewalk. | | | | instructing the owner and management in reading and |
| Now, they have become much more comfortable | | | | understanding financials and basic internal financial |
| with watching everyone pass them by, but | | | | business management. |
| that’s ok, at least they do not have to make as | | | | Why? |
| many decisions. Therefore, ergo; safety in | | | | Because, a business entity, no matter what the |
| mediocrity. | | | | product or service or what the industry, talks to its |
| If you do not understand how to generate and | | | | owner and its managers. |
| manage your own financial business management | | | | It talking all the time. It is assisting in the owner and |
| tools you will definitely suffer from: | | | | its managers decision making processes. It is |
| Cannot price your product or service. (Yes I can, I | | | | helping to decrease the odds of making a mistake. |
| simply use Manufacturers Suggested Retail Price that | | | | Owners and managers are not trained in how or |
| are generally supplied to me!) What does your | | | | what to listen for. Generally, neither are CPA's or |
| manufacturer know about "your cost of doing | | | | MBA's. They are trained in concepts and theory. |
| business"? Or, (Yes I can, I simply use the formula | | | | They are trained in case study, but practical business |
| my father taught to me!) How long ago did he come | | | | application, nope. |
| up with this formula and what makes you think that | | | | True business knowledge, understanding and |
| it will work in today's economy? | | | | developing an "ear" for listening comes from |
| Will always suffer from a lack of profits. Basically, | | | | experience. |
| you will always be a the brink of disaster. | | | | CPA and Bookkeepers are trained in "Tax |
| Will always suffer from stress and worry. | | | | Accounting". Ask them how to use breakeven |
| Will always suffer from poor asset management | | | | analysis to increase sales and they generally cannot |
| which in turn will lead to an eventual decrease in your | | | | do it. But ask them to process your taxes and this |
| return on assets (ROA) | | | | they can do easily. |
| Will always suffer from a lack of "family" time. | | | | Business ownership training "MUST" start with their |
| Will always enter a new year, suffering the same ills | | | | own income statement. They must come to |
| as last year. | | | | understand how and why it is set up the way it is |
| Will always suffer from dependence on "others", ie. | | | | and they must be trained in how to read their own |
| banker, CPA, accountant, bookkeeper. | | | | income statement. |
| Will never grow at a rate you want, if at all and if | | | | This is where business knowledge, control, and self |
| you do grow, it will not be because of your solid | | | | worth are generated. |
| business decisions. | | | | My next article will show the breakdown of an |
| Will never be in control of your own destiny. | | | | Income Statement (Profit and Loss) and discuss the |
| Will never control sales, sales will always control you. | | | | logic behind the breakdown. |
| Will always be a "seat of the pants" owner. | | | | |