Solomon Bruce Consulting Blog

Sunday, February 28, 2010

Company Culture Drives Employee Behavior-- Good or Bad!

  I was visiting with a business owner the other day.  He told me that he had installed some video surveillance equipment in his business to ostensibly improve organizational efficiency.  His business is in the medical space, where working with various types of  prescription medicine is a daily occurrence.
  As we visited, I asked how his new video equipment was working.  Interestingly, he told me that the equipment worked well, however, he had already identified some staff procedural errors.  The more we talked, I discovered that all-though his business had established, documented procedures for most tasks, it appeared that the employees did not follow the established procedures.  When he told me about some processes which appeared to be egregious, I suggested that perhaps he may have to terminate some employees.  He told me that if he terminated every employee every time a procedural violation was discovered, he would have no employees and would end up doing all the work himself!
   Now, I fully understand that as humans, we all make mistakes and are prone to errors.  However-------, the corporate climate determines if we continue to make errors or we follow procedures documented in the process and procedures manual.
   I asked if he had documented processes and procedures.  He told me that he did-- and the staff were responsible for reviewing those procedures on a periodic basis.  I suggested that he may wish to increase the frequency of the review process, until such time that staff were both intimately familiar with the processes and minimal, if any errors were detected.
   I am a big fan of checklists.  The Air Force ran by checklists.  Now, some may say that nobody can think and thus, a checklist is needed.  A recent article in Business Week provided another spin.  The recent Business Week article talked about the B-17 Bomber and all of the initial problems that airplane encountered when it was new.  What was discovered was that the B-17 was so complicated for pilots, they could not remember all of the steps required in order to land the plane.  Thus, several crashed early in the program.  Not only were human life lost, the investment in aircraft was also significant.  However, after the development of take off and landing checklists, the accident incident rate was reduced to almost zero and the B-17 continued on to a storied history.
    The same is true of your business.  You should have a documented process and checklist for each and every process in your business or organization.  There should be a process for opening the business, turning on the lights, taking out the trash, setting up the displays-- EVERYTHING and EVERY PROCESS needs to have a documented process and procedure.
    Your next question is WHY?  The real reason is standardization.  If all of your processes and procedures are standardized, there is no question about what is expected, how a task is to be accomplished and what the end result should be.  Process standardization and checklists also increase productivity and decrease training times for new employees.  For a small business, the key to process documentation, standardization and checklist compliance is consistency.  For many small businesses, the owner does everything.  If the owner is hit by the train on his way to work, nobody knows how to do anything.
    Think about your business.  Do you have established processes and procedures?  Do you have process checklists for each and every task?  Do you require your staff to follow the checklist each and every time?  Do you explain during weekly or bi-weekly staff meetings the importance of following processes and procedures?  If the answer is NO to any of these questions, you have the opportunity to increase your efficiency, work to achieve greater profitability and provide standardization of service.
    My health care business owner decided to go back and review his process and procedures with his staff again, after we had our visit.  Remember, the reason you are in business is for GREEN DOLLAR BILLS!  Make sure that you have procedures in place to maximize your acquisition of those bills!

Wednesday, February 24, 2010

Dollars walking out the door? Do you see them leaving?

Last week I was away at a client engagement.  I stayed at a motel that had a coffee shop/restaurant/bar co-located with it.  On the first morning of the engagement, the waitress offered me a second glass of orange juice.  I said, "Sure, I would love to have another glass of OJ!"  When the bill came, amazingly, the second glass of orange juice was not charged.
  That evening, I stepped into the bar to see who was around!  I met a former student who was in town for business.  We sat and had an adult beverage, and he elected to eat dinner.  At the end of the evening, he picked up the tab and said, "They did not charge us for the second adult beverages!"
   Now, as a professional consultant, my antennae perk up high.  Do we have a problem here?  Is the corporate culture one of "giving" away product?  Do we have extra product in which to give away?  Do we have a staff training issue?  Is the staff giving away product in expectation of a greater tip for themselves?  These are all questions that a professional consultant is interested in knowing.
    Interestingly, the meeting that I attended for our engagement was also attended by the owner of the motel.  I asked her if this is common practice in her business.  Well, you probably know the answer-- NO, it was not a common practice in her business, or so she thought!
    Sadly, it appeared to me that giving product (and PROFIT) away is a common practice in her business, she just did not know it.  Now, I don't find it uncommon to "give" something away occasionally, especially in the hospitality industry.  However, I find this experience probably not a mere coincidence.  It appeared to me that to have "FREE" product "GIVEN" away in the same day by two different staff suggests that perhaps the business has a problem.
    Do you know if any of your dollars are walking out the door?  More importantly, do you know how many dollars are walking in the door and remaining in the business?
    If you cannot answer definitively or clearly on any of these questions, this is the time to engage a professional operations management consultant to help you and your firm regain profitability.  As the owner of the business, you establish the corporate culture in which the business operates.  As I have mentioned in many previous posts, you must be actively involved in all facets of your business each and every day.  This includes knowing what is going on all the time.
    There are very definitely times when "giving" something away makes great business sense and is the right thing to do.  However, those expenses should be carefully and fully documented in the budget and used for marketing and resolving customer challenges.
    Pay real close attention to what is happening in your business.  Interestingly, nobody in this motel knew me, who I was, what I did or where I was from.  This is all the better.  You know, if they are giving "PROFIT" to me, they are giving "PROFIT" to many others as well.  This is a matter that is well worth watching, especially if cash flow appears to be tight or profit appears to be less than it should be.
    With our turbulent economic conditions, paying attention to where the dollars are going every day is something that you, the owner, needs to pay attention to.  If you don't pay attention to the dollars, the dollars will find a way out the door and not into your pocket--where they should be!

Friday, February 12, 2010

Equipment Leasing- A Viable Option in These Turbulent Times

  In today's turbulent economic conditions, many business owners find themselves with short cash positions and a continuing reluctance to commit to the new expense of adding or replacing equipment.  Even though, this may be exactly the right time to replace equipment do to some great deals, the lack of fiscal resources may preclude a business owner from "making a big jump" and spending large sums of money.
  A viable option in today's economic climate is to lease new equipment to allow your business to remain cost competitive and possibly, reduce labor costs and increase organizational efficiency.
  A Fair Market Value (FMV) lease is an equipment lease that establishes portion of equipment purchase value as a "residual" payment at the end of the lease term.  This residual is typically 10-20% of the purchase value.  At the end of the lease term, the lessee has three options:
      A.  Return the equipment to the lessor and potentially replace/upgrade with new equipment
      B.  Pay the residual amount and receive full ownership title to the equipment
      C.  Refinance the residual amount into a monthly payment structure, with ownership transfer at time of payment completion.
   The Internal Revenue Service typically views an operating lease as a "rental" (since the payment structure is not based on full equipment value), 100% of your lease monthly payment can typically be written off as a business expense.  Check with accountant, attorney and tax professional for the exact circumstances of your case.  We don't provide any tax advice!!
    Depending upon your particular business case, it may be more beneficial to take advantage of depreciation, as opposed to a monthly expense.  Equipment leases can be structured as a finance, or capital, lease with a $1.00 residual payment at lease end.  These leases are considered to be "financing", so all of the benefits of ownership are available immediately.


     Your FMV lease payment may be treated as an operating expense on your financial statements.  This approach does not increase your capital equipment purchases and add to your long term debt.


     Leasing provides the flexibility to adjust the residual amount and the length of the lease term, allowing for payment structures that make sense to your business cash flow.  Some new equipment may allow for business expansion, technology upgrading or production capacity increases which may increase cash flow.  With affordable payment structures and the ability to write off payments, leases can essentially pay for themselves.

    Leasing makes sense in a wide variety of applications as you consider enhancing your overall organizational capability.  Like any financial decision, this is one where your accountant and/or tax professional need to be carefully consulted to determine the benefits of leasing to your business.  However, in these turbulent economic times, leasing may be exactly the way to acquire new equipment that can increase and enhance your business operations.  Now is the time to consider these ideas so that when the economic conditions return to normal, which they naturally will, you will be ready to achieve even greater sales and operational productivity.

Tuesday, February 9, 2010

When the phone rings, ANSWER IT!

  In our previous blog, we addressed how to get the phone to ring-- get out and pound on doors and make something happen.  Today, I want to address the complimentary challenge, the phone rings and nothing happens.
  I was at Rotary the other day and a member was complaining that he had called a business, wanted some help, and had yet to be called back.  One of the other members at our table opined that the firm was real busy, had recently expanded and was looking for a larger office space.  This member is a realtor who is helping the firm find new office space.
   As we discussed this challenge, we all concluded that it is hard enough to get a prospective client to call so that a sale can be made, but it is even more challenging when you are ready to buy, try and call the perspective seller and never get a return call back to address your question and customer needs.
   Now, the first question that must be asked is,"Did the phone ring?"  Well, the customer left a message on some voice recorder, he dialed what was the advertised phone number in the advertisement, received a voice recording announcing the name of the firm that he called and told to leave a message.  I guess we could say that he called the right business.  The real question is why he did not receive a return phone call back.  Now, about 5 days have transpired since the customer made the initial vendor contact, which is probably about 4 days longer than any customer should have to wait for a return call.
    The idea that the firm was expanding is of significance.  Was the firm expanding at such a rapid rate that they did not have time to return phone inquiries?  Who is responsible for checking the voice mail and either directing the call to the correct staff member, or making the initial call to ascertain what the perspective client needed?  Perhaps the phones had been disconnected for some internal moving to address the expansion plans.
    The key point here is that it is hard enough to get the phone to ring anyway.  However, if the phone did ring and nobody answered, or a customer left a voice mail and did not receive any response back, that indicates, at least to my fellow Rotary member, that the vendor was not interested in his business.  Indeed, that he is what he thought and asked us at the table to make some recommendations/suggestions on other vendors who could fulfill his need.
    Who answers your phone calls?  Who checks your voice mails?  How frequently do you have your voice mails checked?  Do you "test" the system periodically to see if indeed the identified procedures and protocols that you have established are followed?  If you don't have any procedures or protocols that address telephone answering, perhaps, this might be a good time to develop some!
    In today's challenging and turbulent economic conditions, it is hard enough to get the phone to ring at all.  However, it is even more frustrating to have someone call you wanting to buy the product or service that you offer and never receive a return phone call explaining how you can help with the customer's challenge.
    There is no reason NOT to return the phone call.  Even if you do not provide the product, service or need identified by the customer, you have a chance to talk to someone who thought that your firm was the correct one to provide that product or service.  You have the opportunity to explain your business and suggest/recommend another firm who may be able to address the customer need.   
     I have returned phone calls to perspective customers and explained that our firm did not perform the service that they were seeking.  However, in our phone call, I was able to explain what services we do provide and how those services could address other challenges that the customer had.  Interestingly, in most cases, I was at least able to explain more about our services, even if we did not receive an engagement at that particular time.  Make sure that the phone is answered all the time.  If you use voice mail, make sure that voice mail is checked several times each day and return calls are made immediately.  Don't force a perspective customer to go to your competitor just because you did not pay attention to detail.  Remember, Attention to Detail is the key to success in business.

Monday, February 8, 2010

The Phone is not Ringing-- What is the problem?

  I was with a client last week and both he and his partner said that the company phone was not ringing.  I had them give me their office number, and with my Blackberry, I dialed the number while sitting in their office.  Guess what, the phone rang just fine.  In fact, we found out that the phone worked whenever the number was dialed.  What the client and his partner figured out was that the phone was not broken, however, their marketing and public awareness needed some additional attention.
    My next question is how do they let potential clients know that they are in business?  Sheepishly, they said that they did not.  They just expected the phone to ring because they did good work!
    Now, there is nothing wrong with that logic, however, as both the client and his partner observed, it did not work.  If you want people to find you, you have to tell them where you are, what you do and how they can contact you.
    The current economic malaise that we are in has caused many business owners to question the value of increased expenditures for advertising and marketing.  This is probably the time when a business owner needs to INCREASE his/her expenditures for marketing.  Now, you might argue that this seems counter intutitive--i.e., makes no sense to spend money on advertising when in a down economic market when sales are slow.
     The logic for these increased expenditures is as follows:  A business needs to continue to advertise/market to let clients know that the business is still in operation in both good and slow economic times.  When in slow economic times, it makes good sense to advertise/market so that your clients know what your capabilities are and that you are able to fulfill customer needs.
     Now, the cost for marketing/advertising is expensive.  However, there are ways in which you can help reduce some expenses.  A business's chamber of commerce membership provides lots of networking opportunities-- After Hours, Rise and Shine Breakfast, Special Seminars are all tools which to meet other business people.  Your business paid for the Chamber membership, you need to use it.
     I remember an old friend of mine that was a career chamber executive often say that the Chamber provides many opportunities for the members, however, it is up to the member to avail themselves of the opportunities.  Participating in the many committees of the Chamber builds your brand awareness as well as allowing you to meet other business people in your community.  This is a good thing!
     If business is somewhat slow, look at participating in some community activities-- the school, Boy/Girl Scouts, Youth sports, Little League baseball,  Rotary, Habitat for Humanity are just some examples of community activities that can always use help.  The community activity gets the help, and your firm gets the publicity for helping.
     This may sound somewhat simple and the question you may ask is "Why does he say spend money when we don't have much?"  Recognizing that resources are tight in any market, and even more so when sales are down, if you wish to continue in business, you must continue to let clients know that your firm is still up and operational.
      The old fashioned way of knocking on doors is hard work and somewhat frustrating-- however, if there is no work in the shop, it is far better to "mine the contacts" and see what might be available instead of waiting for the phone to ring.  After all, you can transfer the office phone to the mobile phone, and begin the trek of knocking on doors.  Of course, some strategic planning needs to go into which doors to knock!  You can just start down the street and begin knocking, you may get a job that you did not anticipate.
       I was in an office building to see an accountant several weeks ago.  After I visited with the accountant, I did go "knock on doors" of the other businesses in the building.  I knocked on the door of a social services agency, talked with the executive director and told her what I did and how I did it.  Interestingly, she did not need operations management consulting, however, she had another task that she did need help with.  I told her that our firm could help her with the other task.  We agreed upon the requirements of the task and the number of deliverables.  When I got back to the office, our team jumped in and instead of 3 deliverables, we designed 6 different deliverables.  The bottom line was that the executive director was elated with the work we produced and we were happy to help design some ideas for her agency.
     What are you doing to generate phone calls?  Are you knocking on doors?  What about social media?  Do you have a Facebook or Twitter site?  Are you participating in various community events?  Are you participating with the Chamber?  If not, these are ideas that may help you generate the phone ringing!

Monday, February 1, 2010

Cash Flow Projections-- Do you know where the money is located or when it is coming?

            Yesterday, we discussed capital resources tied up in inventory.  We talked about the fact that inventory can consume a large amount of disposable cash, especially if the inventory is not moving or "turning" rapidly.  We briefly mentioned obsolescence, spoiling as well as pilfering when addressing inventory issues.  We did not talk about storage-- that is coming.
             Today, I want to spend a few minutes on Cash Flow Projections.  This is another step in the business operations cycle that many business owners either forget to do, don't know how to do it or don't believe it is important in their business operations.
              Cash flow projections are just that-- projections forward from the time that the analysis is completed showing expected cash flow at a certain point in time, normally at the end of a certain month.  Now, there is nothing spooky or complicated in doing these projections, your MS Excel spreadsheet or any other spreadsheet is ideally suited to help you set up these forecasts.
               Develop your spreadsheet with all of your sales and income forecasts for each month for the next year.  This should be divided by month on top, with different sales categories along the side of the spreadsheet.  Now, do the same thing for all of your expenses-- identify all expenses on the side of the spreadsheet, by month.  When this is completed, now subtract the expenses from the sales/income line, giving you a measure of operating income.  If you now subtract the taxes from the operating income, you should have net business operating income.
                 The net business operating income shows you what your bottom line financial position is each month.  Now, here is where you can do sensitivity analysis with the spreadsheet to see what input variables, i.e, either increased sales and income or reduced expenses, are needed to increase the overall bottom line.  This is an important task that many business owners do not do-- and then become surprised when they find themselves with a lack of operating capital during a down month.  Going through this exercise gives you a good idea of what your cash position should be for any month forward.
                  Cash flow projections help you identify if you expect to have a down month, or conversely, know that a major sale or sales will be coming in that will substantially boost your revenues.  If you have expenses that are billed quarterly, i.e, taxes, insurance payments, dues, etc, you can see the impact of the change.  If you expect to have either a down month or a "bonus" month, you are then able to adjust your cash expenditures to be in alignment with expected income and outflow.
                   Cash flow projections are key to any business, especially in the turbulent times that we are currently experiencing.  Careful planning today will result in less stress tomorrow!