Why Budget?

I recently had a client ask why it was important to budget or more accurately, I had a client state that he didn’t see the value in budgeting.  Having been in business for many years without doing a budget, I guess I can understand why he would say that.  Budgeting reminds me of using a map or a GPS to get to somewhere new.  Have you ever tried to go some place new without having looked up the place on MapQuest or keying it into your GPS?  Of course not, that would be ridiculous!  You’d get lost or would make a lot of wrong turns; it would take you a lot longer to get there; and you might even drive right past the place and not even know you’re there.

Hmmm, sounds like trying to run your business without a budget, doesn’t it?  Following are 5 reasons off the top of my head on why I think budgeting is important:
1.    It defines your annual goals in measurable, time bound terms.  You can’t get much more specific than months and dollar amounts for your businesses sales, expenses, cash flow, assets and liabilities.
2.    If your business is cyclical, it helps you prepare for valleys and peaks and let’s you know where you need to be year to date to stay on track.  This is something that would be very hard if not impossible to track in your head.
3.    It lets you know when things are slipping and by how much.  It could be any of the items mentioned in #1. As trends develop, you are able to adjust your behavior to prevent a disaster.  It gives you early warning signs.
4.    It lets you know where you are excelling – if sales are up or if you a doing an excellent job of containing your costs, it may indicate to you that you can invest more money in advertising or technology or equipment.
5.    Most importantly, it defines success in black and white terms.  At every point in the year, you will have an objective measurement system to let you know if you are succeeding or not.  It doesn’t candy coat your failures and it reminds you to celebrate your successes.

So take the time to put together a budget, it doesn’t take long and it is probably one of the most important tools and measurement systems in a business owner’s arsenal.

Understanding Goods & Services Profitability

One question I always ask my clients is, do they know what their most profitable service and/or product is?  If they say yes, then I ask them how they know that.  More often than not, small business owners either don’t know or if they do, they base their knowledge on a gut feel.  I’m here to tell you that your “gut feel” may be good for picking your dinner, but it typically isn’t accurate enough to put money on when it comes to understanding your business.

So why is it important to understand the profitability of your different products and services?  Following are some things that come to mind:
1.    It helps you prioritize/decide where to spend your marketing dollars – promote your high profit margin items. 
2.    When you are talking to customers and potential customers, you should be promoting the higher profit margin items as well.  These are typically your value-added goods and services.  Your customers believe in their value – be sure to highlight that fact.
3.    If you are planning to grow your business, focus on how to grow your most profitable items – don’t spend your time or money trying to grow the less profitable ones.  If they happen to grow along with the profitable ones, fine, but don’t make them your focus.
4.    What is it about your higher profit items that are different from your lower profit margin items?  Can you change something about your lower margin items to increase their profitability?  Increase your mark up, reduce their real cost, change their packaging, change your customer’s perception of their value, etc?
5.   Can you change the way you provide a service to increase the profitability of that service?  Can you hire less experienced labor for certain jobs, can you automate steps in the process, so it takes less time?
6.    Can you consolidate like items and eliminate the lower margin one(s) – do you really need to sell 15 different types of widgets or will 10 do just fine?

These are just the tip of the iceberg when it comes to what you can do with profitability information.  It is extremely powerful, so be sure your systems and records are set up to capture this data accurately from the beginning.

How To - Developing a Marketing Program

We live in a world where instant gratification is a way of life.  We get irritated by red lights and lines at the supermarket.  The other week, my microwave died and I had to cook my dinner using the oven – it took 30 MINUTES!!!!!  I was totally peeved that my dinner wasn’t ready in the usual 5 minutes.  I mean seriously, how did people live before microwaves?!?

Yet not everything in life is instantaneous.  Take growing a garden – I plant the seeds and nurture the seedlings starting in mid February.  I harden off the plants in April and transplant them to the garden during the month of May.  I am rewarded with some crops as early at June, but most aren’t ready until August.  That's seven months – I work and wait 7 months for the taste of a fresh tomato on the vine – but there is there’s nothing like it in this world!

Marketing is like growing a garden – there isn’t much instant gratification involved and there is no silver bullet that I’ve found.  In order to succeed, you need to have a systematic approach and a system in place to measure and monitor your responses.  In other words,
1.    Pick the marketing tools that fit your personality, your customers and your budget.
2.    Develop an annual calendar of your marketing activities including time and cost. 
3.    Set up a system to track where your customers heard about you. 
4.    Tie that back to your marketing activities. 
5.    Throw out the ones that don’t work for you and stick with the ones that do work for you. 
It takes time and effort to build a good marketing program.  It’s an ongoing process – not something you can do once or twice and then stop.  Remember the sweet taste of a home-grown tomato.

Musings of an Older Entrepreneur

I remember when I struck out on my own into the wonderful, but very foreign world of the "entrepreneur".  People said I was brave – that it took a lot of courage to start my own business.  I never really looked at it that way.  I spent my entire career "climbing the ladder" to senior management before it dawned on me that I was living my father's dream. My dreams involved more autonomy, creativity and at least the perception that I was making a difference.  So in a manner pretty consistent with how I make decisions (when I decide, I'm all action), I woke up one day and said “enough is enough” and I resigned.

Okay, so I won’t recommend that course of action for most people.  I looked at my financial situation, what my future commitments were and how much leeway I had.  I was lucky in that I could afford to take sometime to figure things out.  I thought long and hard about what would make me happy.  I read and did the exercises in What Color Is Your Parachute? by Richard Nelson Bolles (if you are contemplating a change, this is a must read!).  I compared my personality & skills to what is required to run a consulting business.  I talked to a lot of people doing consulting.  I researched, I planned, I budgeted and I dove in head first.  I did all this right before one of the worst recessions in the last century.

So where am I today?  Well, I’m not rolling in the dough, but I’m getting by and my business is growing rapidly, so the future is bright.  The most extraordinary thing of all has happened, however…  I’m happy and I love what I’m doing.  Seriously, I look forward to working and best of all, I'm making a difference.  I'm helping people improve their businesses and their lives. 

Why am I sharing this with you?  I guess to point out that it’s never too late to change.