Solomon Bruce Consulting Blog

Sunday, January 31, 2010

Need working capital? Look at the inventory!

         One of the challenges that many businesses have at this time of year, February/March, is the lack of cash flow.  No matter how good or bad the sales were last year, many businesses seem to short of cash in February and March.
         Last week, we worked with a client who was in this exact situation.  The firm had a successful year in 2008, however, did not break even in 2009.  Alas, the client needed some help and engaged our firm to ascertain what might not be working.
         As we reviewed the firm's financial data, it became very apparent that a substantial amount of money was tied up in inventory.  Now, this is NOT a bad thing, if the inventory is moving in and out at a rapid rate.  However, it is a bad thing if the inventory is sitting on the shelves and not moving.  Alas, that was the case with this client.  The firm had purchased excess inventory "expecting" to rapidly sell it as the year progressed.  However, the economic conditions turned in such a way that the inventory did not sell, became stale and consumed much needed and precious working capital.
          One of our first questions to the client was why the excessive inventory?  The answer-- "I know we'll need it and we'll be able to sell it once a demand is placed.  After all, that is good customer service!"
           As we analyzed that response, our next question was what, if any, data was available to substantiate that decision.  Sadly, no hard data was available, just a "gut level" intuition that the inventory would be needed.
           This client is in an industry where once the inventory has been purchased, it is not returnable to the vendor for any reason.  Thus, the firm had inventory that may or may not be sellable.
            The further we explored the financial data, we conducted a physical count of all inventory to verify the data that was contained in the accounting system.  Here, we found a couple of errors which reduced the value of the inventory by approximately $15,000.  Now, finding that error caused us concern on what other data errors may be in the accounting system.  We'll leave that question for another time-- just focusing on inventory today.
            Inventory is one area where business owners have to pay real close attention to dollars.  If you forget to watch the inventory account, you may end up with excessive inventory which may or may not be able to be sold.  Inventory which is perishable, i.e, chemicals, paint, film, solvents must be carefully monitored.  Inventory which is pilferable is another big concern.  Everybody likes a "free" steak from the restaurant when the shift is over.  Food costs in the restaurant can make the difference between profit and loss.
            We explored the "supply chain" system.  In our client's particular case, the lead time for an inventory item is about 4 weeks.  As we dug deeper, we determined that the industry that the client is in accepts 4-6 week lead times for inventory parts.  Thus, there was no reason to put working capital in inventory "Just in Case!"
             What about your business?  Do you have tight control on all of your inventory?  Do you monitor your sales each nite to be sure that the inventory is properly decremented?  When was the last time that a physical inventory was conducted?  Do you reconcile your accounting system with your physical inventory, making any adjustments necessary?  These are all questions that a consultant will explore when addressing inventory issues.
              With technology changing so rapidly, if you fail to pay attention to inventory, you will have excessive capital invested in a commodity that has no value.  Much inventory is very perishable today.  Most supply chains are able to deliver new products to your store in 48-96 hours, negating the need for excessive amounts of product inventory.
               If cash flow is a problem in your firm, investigate inventory quantities and vendor return policies.  Although you may have to pay a restocking charge, it may be worth it if you are able to gain some additional liquidity.

Wednesday, January 27, 2010

Hey Sweetheart, It ain't about you, its all about the client!

I talked with a business owner the other day who was excited and happy!  In fact, she was really walking on Cloud 9!  I asked her why she was so happy.  She told me that her small firm had just received a multi million dollar contract and in the process, beat out several other firms much large in size and stature than her firm.

Curiosity being what it is, I could not help but want to know more.  So I asked!  Here is what she told me.  Her firm competed with over 50 other firms, some of regional and national significance on this particular project.  After the client evaluation team ranked all of the various competing firm proposals, her firm, along with two other firms reached the final review stage.  The other two firms were of much greater size and stature than her firm-- HOWEVER, the key factor which allowed her firm to win the contract was that they LISTENED TO THE NEEDS AND DESIRES OF THE CLIENT!

The business owner told me that one firm presented a "canned" solution to the problem, while the other competing firm proposed something that the client had no interest in.  Her small firm carefully listened to what the client said they needed and wanted.  Her small firm then took those ideas and proposed a solution that exactly fulfilled the needs, desires and expectations of the client.  The end result-- a multi-million contract which provides much needed work for several months.

Now, the real question becomes, do you really listen to the client or do you think that you know more than the client and have a pre determined solution in mind before the client is finished describing what he/she needs or wants?

Remember, in grade 2, the teacher always talked about listening.  There is a difference between listening and hearing.  When you listen, you detect the various nuances and inflections that the speaker provides when he/she is talking.  When you hear, you know that someone is speaking, but normally do not ascertain the real specifics of the conversation.

  • When a client asks for a specific product, service or need, do you really LISTEN to what is being requested?
  • Do you use probing, open ended questions to gather more information about the needs of the client?
  • Do you try to accurately help the client refine his/her needs and desires before proposing a product or solution to the client need?
If you answered no to any of the above questions, you are probably not maximizing your ability to completely fulfill the specific needs of the client.  Remember, the client is the one paying the bill.  Giving he/she what they want, and helping clarify their needs and expectations in the process will normally result in a happy client as well as a happy vendor.

Listening to the needs of the client is paramount in increasing overall business viability.  Don't forget to carefully listen to what the client wants.  When you listen, you substantially increase your ability to gain business than may have gone to a competitor!

Saturday, January 16, 2010

I need some help-- will you help me?

One of the most important duties of a supervisor or boss is to provide mentoring to those individuals who either ask for it or who you recognize will benefit from it.

There are many ways in which mentoring or coaching can be accomplished.  In business today, the most common form is to show junior employees "the ropes"!  This may be something as simple as how to make a call, what to say, when to say it, etc.  It may be as sophisticated and complicated as having a junior employee show you how to use some of the new features of the computer.

Let's talk about both types of mentoring-- direct mentoring and reverse mentoring.  Both are very common in the business world today-- and both types provide a tremendous amount of benefit for each individual-- both the mentor and mentee.

As a previous Business College Dean, I have helped lots of students get ready to go to work, and once in the work world, answer questions that they were uncomfortable asking anyone else.  If you mentor someone in/out of your organization, you have a duty/obligation to him/her to be able to provide the best insight and advice that you are able to provide.  This may be as simple as how to network at a Chamber of Commerce function, how to attend a fancy client dinner or it may be as sophisticated as helping the mentee not only gain the confidence but the skill and ability to be able to supervise or take on additional responsibility.

With any human relationship, there is more than one way in which to accomplish the task!  Some folks require a calm, easy approach, with lots of explanation and time required.  Others are able to be told what/how to do something and are able to do it.  The key here is that, in many cases, you may not be the direct supervisor of the individual who is asking for the assistance.  If  this is the case, you need to help the mentee without degrading or making comments about the mentee's direct supervisor.  In essence, you are the individual who is showing the mentee how to be successful in the world of work.  A key point here is that there is always more than one way in which to accomplish a task or complete a project.  Although the mentee may not agree with what he/she has been asked to do, it is important to be able to learn different points of view!  This will come in very valuable when the mentee becomes a mentor!

One of my most recent mentees had graduated from a fine, very prestigious university and has struggled for the past 7 months trying to find his first job!  I had met this individual at a university/industry networking opportunity which I attended with a client.  The mentee was impressive, however, discouraged about his lack of success in finding a job.  I decided that I wanted to help this young man.  In the past 4 months, we have had several conversations, I have written and re-written several resume drafts as well as shared about how the interview process works.  The bottom line is that after almost 8 months of searching for a job, he had success.  Now, I am not saying that I want/need any credit for his success, however, I was very happy for him that he has found a good job in this dynamic economic environment.  When somebody asked me what I got for Christmas, this is what I told them-- and I meant it!!

The key here is to help those that are either just learning, or need some additional insight from those that have more experience, wiser judgement and have encountered a few "knocks" along the way.  After all, is that not what we are here to-- help our fellow man?

The converse is also true.  Reverse mentoring allows newer, more junior employees to show/tell more experienced employees how the computer/social media/texting/cell phone world works!!

Interestingly, I had someone ask me the other day if I texted, or knew how to text!!  I laughed at the question!  Yes, I am very comfortable using all the latest forms of technology, however, I never hesitate to ask one of our younger associates if I either don't understand something, read something that does not make sense or want to see how to do something that I seem to not figure out with the computer or cell phone!

With many more experienced individuals, they are afraid or embarrassed to ask for help from younger colleagues.  I am not!  My logic is that we all cannot know everything all of the time-- there is nothing wrong or you don't need to feel embarassed to ask for help/assistance/understanding on something that you may not have detailed familiarity.

Mentoring is one of the most rewarding parts of the leadership challenge-- irrespective of whether you are in business, the non-profit sector or government.  Being able to see other folks learn and understand something that they did not know previously is very exciting.

How do you do it?  Are you open, willing and enthusiastic to help other colleagues learn, understand and relate to matters that they need help on?  If not, you should be.  These individuals are team members as well and your assistance will be invaluable in insuring that they make a greater contribution to the overall team effort.

Don't be afraid to seek the guidance and assistance of younger colleagues.  In most cases, younger colleagues will be excited to show you how to do something that you may not have done before, especially in the computer domain as well as social networking.

Tuesday, January 12, 2010

Eliminate Personnel Turnover--Here is How!!

One of the most vexing problems that many business owners face is personnel turnover!  Some businesses that we have worked with have had personnel turnover exceeding 300% in a year.  That means, that they have had 3 different people for each job, just in a short 12 month timeframe!!!

Wow, you say, what is the problem at that company?  What are they doing that causes so many people to leave so rapidly? Must be a horrible manager?

This is a question that we are frequently asked.  The answer is actually quite simple, somewhat intuitive, however, sometimes difficult to comprehend.

The first question we ask as we work with the business owner is, "Do you have job descriptions for each employee?"  Normally, the answer is NO-- we don't need a job/position description for our line of work.

A job/position description is key to any position for any employee that you have.  This job description should outline the duties and responsibilities of the job, any health or safety hazards that the incumbent may be exposed to, travel responsibilities, supervisory responsibilities, who the supervisor is.  These are basic job description requirements, additional requirements can be addressed if germane to the position.

The company should have a complete and comprehensive procedures manual documenting all of the various processes and procedures that the firm uses.  This is complicated and somewhat tedious, however, once completed, you will say prayers many times over for identifying each and every process that your firm uses.

Salary is another key point.  The old adage, "You get what you pay for" is no more important than in the personnel arena.  It is true that you can find individuals to work for a certain pay level.  It is also true that you will find "higher grade" candidates if you elect to pay more than just the basic industry minimum.

I am aware of a firm that is in the food processing industry.  The firm has several employees, all of whom have only a high school education.  However, the firm has a turnover ratio approaching 0%-- meaning, once somebody gets hired, they don't leave!!  They like the firm and the boss.  Here is what is interesting-- they starting salary is about twice minimum wage, with the maximum salary about three times minimum wage.  Yes, they have a full benefit package, health, retirement, vacation, 401K, etc.  The firm has a very comprehensive position description for each employee.  Everybody knows what is expected of them.  The procedures manual is equally complete and comprehensive.  The owner is a firm believer in education and training, insuring that her staff is constantly trained on all of the new processes and procedures of the industry.

Does paying a greater salary, having clear and comprehensive job descriptions as well as a complete policy manual actually cost more money?  The real answer is NO, it is actually cheaper, in the long run, than to not  develop anything.  YES, there is an initial cost involved with developing the job descriptions and procedures manual, however, that cost is rapidly returned several times over when employee turnover is reduced to almost zero.

  • Does your firm experience substantial employee turnover?
  • Does it seem like there is continual employee discontent and frustration?  
  • Do your employees know what is expected of them each and every day? 
  • Do you fairly and adequately compensate your employees for their contribution to your firm?  
  • Are your employees happy to work for you?
If the answer to these questions is NO, then perhaps, you should seriously consider making some key "field adjustments" in your personnel operating policies.  As a business owner, you may experience some short term pain and frustration, however, the long term return on investment is significant--- and you will reduce your employee turnover rate.

If you need help on this matter, let us know, we can give you the assistance you need to increase your profitability and efficiency and reduce personnel turnover!

Thursday, January 7, 2010

Is There Anything Else?

In the business that I am in, I dine out with lots of people.  Sometimes it is breakfast, lunch, coffee or dinner, however, eating away from home is something that I do!

I find it absolutely interesting when you go out and eat and the normally server asks, "Is there anything else?" 

My standard comment is, "What do you recommend?"

Most of the time, the response is "Nothing".

I find this response amazing!  It is amazing for a number of factors-- this is the one chance to upsell the menu, ask for a greater order and increase the average sale--- allowing the server to make a bigger tip!  Most folks, by human nature are willing to take the suggestion of others!  I am! 

My point here is that anticipating the "silent" needs of the client are something that a business owner always has to be alert to.  If you don't ask, you will never know if there are unmet needs that the client wants, desires, expects or needs.  There are always additional needs that the customer has that he/she may not voice or identify.  A good salesperson should always be willing to ferret those needs out so that the customer needs are indeed fulfilled.

In the restaurant example, I will normally take a glass of orange juice if asked if I want one.  I may elect to order a glass separately when placing the order, but I normally will accept one, if offered.  This is just a trivial example, however, it clearly illustrates the principle that I am addressing.

I always have an additional  suggestion for my clients when we are discussing an engagement.  Even though I may have understood what the client desired, requested or signed up for, I always suggest some other factor that the client may not have considered or may increase the value of the engagement that he/she has already agreed upon.

This additional suggestion does not need to be done in a pushy or continual manner.  If you ask twice and each time the client does not accept the offer, then you can normally assume that you fulfilled all of the client needs with the products that he/she has ordered.

A prime example of this that has gone totally overboard is at the "Quickie Lube"  automobile oil change places.  Here, your original intent was to go and have the oil changed in your vehicle, however, you are normally pushed to change the air in the tires, flush the rear end, radiator and transmission systems, replace all of the belts, hoses and filters as well as have the car washed and the inside of the car treated to a "spa" treatment!!  Interestingly, the technician goes through this same pitch every time that you come in for service, irrespective if you did agree to have all or part of this done during your last visit!

There is nothing wrong with encouraging your staff to find those "silent"needs of the customer and ask if the customer wants those needs addressed.  If the customer say NO, well, you tried and did not succeed.  If the customer says YES, you have helped the customer with a challenge that he/she may not know that they had as well as provide an additional sale.

Encourage your sales staff to always try and identify the "silent" needs of the customer.  Interestingly, each customer has "silent" needs that are wanting to be discovered, but the customer does not realize or recognize that those needs require attention.  At the end of the day, your customer will thank you for helping solve a potential problem that he/she may not have realized existed!

Sunday, January 3, 2010

I only have the $15 certificate! Will that work?

I had dinner the other day in a small family owned diner. The food was good, there were lots of people eating and the holidays were coming upon us.

I sat at the counter-- just seemed like the right thing to do! As I was waiting for my sandwich, an elderly lady came in and wanted to buy a $25 gift certificate from the diner to give a friend from church for Christmas. She told the waiter, a young man about 19, what she wanted. He said that he would go get it. As I was at the counter, I could watch this whole process unfold!

He came back several minutes later and informed the lady that they were out of $25 gift certificates, all they had were either $15 or $50 certificates available. Would she like either of those? The lady pondered a while, and decided, out loud, that she could pay another $5 and get 2 of the $15 certificates--- that would be close to the $25 certificate that she originally intended to get. She went ahead and told the waiter that she would take the 2 $15 certificates.

Now, as I was eating my sandwich, I got to thinking about this whole scenario. The lady had many choices from which to get her friend a gift certificate. Most every restaurant in town will offer gift certificates to you. She chose this specific one because the food was good. However, if she did not have the other $5 to make up the balance, the diner could have lost a $25 sale.

I don't know if a manager or owner was on the premises. However, I think that another way to have handled the matter would have been to give the lady the 2 $15 gift certificates for the $25 that she originally wanted to spend. I would have told her that we were out of the $25 gift certificate, however, I would be happy to give her 2 $15 certificates to make up for the hassle.

Here is what I think would have happened:
A. The Lady would have been surprised by the offer of generosity of the waiter.
B. She would have told all of her friends about what a wonderful waiter the young man was and what he did to solve a problem. She probably would encourage others to go and eat at this diner.
C. The "word of mouth" advertising that was probably given was well worth more than the extra $5 of the gift certificate.

Studies have shown that gift certificates are redeemed between 60-82% of the time, depending upon the study. Let's look at the most optimistic redemption rate, 82%.

Assuming that 82% of all of your gift certificates are redeemed, that still leaves an 18% non redemption rate (read REAL PROFIT)--because people paid for the certificate, but did not use it. This is profit in your pocket!!

Most folks will always use the maximum amount of the gift certificate. A friend gave me a gift certificate the other day for Amazon. Although I did not really want anything-- I found some things that I could use-- however, at the end of the transaction, I used the entire gift certificate and then some-- wanted to get full value for the gift certificate. I think that we are all like that!!!! The bottom line is that I spent more money than the gift certificate was for and the store made more profit!

How do you handle gift certificates in your business? Do you have "hard and fast" policies, or like employees at the Ritz Carlton hotel, are your employees empowered to "do what is right" to satisfy the customer?

Ritz Carlton hotel employees are all authorized to solve any problem up to $2000 limit with "no questions asked". If a greater adjustment is needed, management approval is required. Interestingly, it is very rare that any problem ever reaches the $2000 limit.

I suggest that you not have such hard and fast policies that your employees are not empowered with great flexibility to adjust to customer needs. A little flexibility goes a long way into increasing sales, returning happy customers and greater profitability.

During your next staff meeting, I suggest that you review your gift certificate policy, if you have one. If you don't have one, now might be the right time to consider developing one. If you decide that "rules" are needed, put yourself in the place of the customer on the other side of the counter--- if you want to be treated to that rule, I suspect that your customer will accept it as well. However, if you find the rule either onerous or silly, I suspect that your customer will as well.

Don't make the "rules" so tough that your customers don't want to buy a gift certificate from you! Creativity and ingenuity are the factors which will increase your sales through gift certificates!

Friday, January 1, 2010

Planning fo the New Year!

  The holiday season has arrived.  We are past Black Friday, Small Business Saturday and Cyber Monday.  One of the questions that you are probably asking is, "How did I do, did I get any of the hype that the media talked about?"  Well, that is a great question, "Did you?"
   Of course, we don't know unless we have DATA.  DATA comes in many forms, sales receipts, increased traffic counts, more phone calls, more folks into the stores, more deliveries and installations scheduled.  Depending upon your type of business determines the type of data you may have.  However, one thing that is crucial now at this time of the year is to begin planning for next year.
    Here is a link that my friend Rebecca Helvik, our Small Business Development Center director here in Billings, Montana  sent me.  Strategic Planning as discussed in Entrepreneur magazine.  They call it business planning, however, it is really strategic planning.  Now, this is not complicated or impossible.  Business Planning is the roadmap to tomorrow!  You know where you are today, planning is going to help you define the road to tomorrow.  This is not hard or complicated, however, many of our clients have found that working with us going through this actually saves time, money and lots of frustration and questions.
    When you use a consultant to help you plan for next year, you get an unbiased, objective viewpoint of your business that you may be unable to provide otherwise!  Our goal is to help you improve your business-- we want to do that any way possible.  The checklist and defined items in the article give you a great start.  Give it a shot.  Get started!!!  If you need some help, or just want to talk, give us a call.