Key Idea #1: Face The Facts Often. Jim said that looking at the results of our work often is better than waiting for complete or professionally created reports.

Topic for discussion: Why did Jim say that a cabinet builder is first a business owner and second a cabinet builder?

Answer: If the cabinet builder builds as a hobby then fine, he is a cabinet builder. However, if he charges for his services and considers making cabinets to be his profession, he must see himself as a business owner first and foremost.

There are millions of business owners who would rather not be bothered with running a business. We just tend to want to, "do our thing." Our first editor saw himself as an artist and he hired a bookkeeper the minute he opened for business. He was determined to be only a film maker. He had no business card. Good thing he married a woman with a job who can rescue him. He doesn't have a business and we suspect he doesn't want one.

When you accept the fact that you are a business owner, you must learn the language of business which is all numbers. It doesn't matter what you say or think. The game is played with numbers.

Jim is saying that these numbers are easy for you to play with and you should be looking at them daily, weekly and monthly. Ignoring the numbers is your way of subconsciously avoiding being in the game.

You think about it: Do you have software that makes it easy for you to create financial statements often?

Key Idea #2: Enroll In FSU. Jim Schell was amazed by what he discovered when he started as a volunteer to help small business owners work through problems. He learned that most business owners don't understand how to read a financial statement.

Topic for Discussion: What is FSU and what can you learn there?

Answer: Jim created FSU and it stands for Financial Statement University. This is an imaginary place you can create for yourself by reading, talking to your CPA or banker, or by taking a class in accounting. Jim's book, Understanding Your Financials, is an excellent place to begin because it it simple.

You heard in this episode that financial statements have three parts and those are: The Balance Sheet, The Profit and Loss Statement and The Cash Flow Projections. Jim says, "The Balance Sheet tells us where we stand today. The Profit and Loss tells us what we have done in the past and the Cash Flow Projections predict the future." Put that way, one would think that every business owner would want to live, breathe, eat and sleep the financials.

You think about it: How often do you create financial statements and how do you use the information?

Key Idea #3: Study Your Trends. Jim says that no number is relevant or useful unless you are comparing it to other numbers.

Topic for Discussion: Is he joking?

Answer: No. It makes perfect sense. You might think it is wonderful that you had $30,000 in sales this month. But if last year in the same month you had $40,000 then $30,000 is not good unless, for example, you cut your overhead in half since last year.

As we prepare this episode, there are a couple of trends that are hurting small business owners. One is the cost of health care and the other is the cost of fuel. If you are not studying the trends in your business, you can be thrown off course before you know what hit you. To create trends, simply generate monthly financial statements and compare key numbers against last year or last month.

You think about it: What would your sales trend line look like if you put it on paper? How about your profit?

Key Idea #4: Share Your Financials. Jim laughs about the silly notion that financials should be kept secret. He says you should be sharing them with your banker, your key employees and any advisors or board members you may have.

Topic for Discussion:Why share any information with anyone?

Answer: You share to elicit feedback which will help you to improve. Many times here we have written about the hard-headed, independent business owner. The reason a business is successful is often due to the hard-headed, independent business owner. At the same time, the reason a business fails is often due to the hard-head, independent business owner. This independent streak we all have is probably the reason we don't want to share information or ask for help. We want you to stay strong and opinionated and at the same time be open to advice from people you admire and trust.

You think about it:When was the last time you met with your banker and went over your financials? When was the last time you asked your CPA to review the financials with you? When did you ask your CPA for advice on how to reduce costs? When was the last time you asked your banker to offer suggestions for your improvement? Do you have a board of advisors you can share your numbers with and seek advice from?

Key Idea #5: Make Changes Based Upon Numbers. Jim is challenging Nani to make changes in her project bid sheet because her profits are too low.

Topic for Discussion: Why does Nani seem to be doing the same thing over and over even though she is not getting the profit margin she really needs to grow her business?

Answer: Inertia, denial, no need for money? Or it could be some deeper phycological issue like Nani doesn't think she and her husband deserve to make more money. Ron Willingham, author of Integrity Selling, says that many salespeople fail because they think money is something other people are supposed to have. He says often salespeople get to a level of comfort and just stop putting forth effort because they can't see themselves wealthy.

You think about it: Does your business generate enough profit for you to grow? Is there enough profit you to eventually become wealthy? If not, why not? If not, why are you doing it?

Bonus Key Idea: Accelerate Collections And Defer Payments . Jim talks about accounts payable aging and the huge problems this can cause for your cash flow. Managing cash flow from operations is critical to the health of your business.

Topic for Discussion: How does a small business owner manage cash flow from operations to his or her advantage?

Answer: In addition to the money you put into the business, debt financing and equity financing, there's cash flow from operations. Primarily, this consists of cash receipts from sales, generally the collection of receivables, and cash disbursements related to inventory and other accounts payable purchases and, of course, payroll. Let's look at cash management strategies for each of these:

Cash Receipts from Sales

If you are not in a business where your customers pay cash for goods and/or services received, then you will have accounts receivable. The sooner your customers pay their bills, the better your cash flow. To encourage them to pay promptly:

• Collect advance deposits on sales if possible.
• Get your invoices in the mail quickly, preferably delivered with the goods and/or services.
• Offer a small discount to customers who pay the invoice substantially before it's due. Put this clearly on your invoice, e.g., "2 10, Net 30" means the customer can take a 2% discount if (s)he pays in 10 days, otherwise payment is due in 30 days.
• Charge interest on amounts not paid on time, i.e., according to the terms of the invoice. Prominently display the interest rate and terms on your invoice.
• Call each customer on THE day that his or her invoice is past due.
• Mail monthly statements summarizing outstanding invoices.
• Most accounting software packages used today have this capability. Most importantly, minimize your bad debts. Get credit references and do credit checks on all new customers. Monitor your accounts receivable aging daily and stop shipping or serving problem accounts until collection issues are resolved.

Inventory Purchases and Other Accounts Payable Items Here, our strategy shifts. While we do everything we can to accelerate the flow of cash into our businesses, once it is there, we do all we can to hold onto it as long as possible. Don't cross the line of affecting your credit rating or vendor relationships, but walk right up to it. Here are some specific things you can do:

• Practice JIT inventory control. JIT stands for "just in time". Order what you need to be available when you need it, but don't stockpile goods. Inventory investments tie up MOM.
• Ask your vendors for extended terms. Tell him you are starting a new business and you could build it up faster if you could match your payments to the vendor with your collections from your customers. Take the time to explain your business to your vendor and then ask for terms of 30 days more than your normal collection cycle. In other words, if most of your customers pay in 45 days, then ask for 75 days. Remember, your vendors are like you, they are looking for new quality customers. And who can better sell the idea of your business' promise than you?
• Deposit your funds locally and then arrange to have them transferred at the end of each day to an out-of-town bank. Write your checks on the out-of-town bank. This usually gains you about three days of "float" where the vendor records your payment before the funds are actually available to him or her. Writing a check without the funds to back it up is against the law and we are certainly not advocating anything illegal but good cash management systems take advantage of the float.

Payroll If you are one of those rare small businesses who have started your business with employees, you have special considerations.

Meeting payroll is one of the biggest responsibilities and expenses of most businesses. You do have to pay your people and you certainly have to deposit your payroll taxes on time. Still, there are some cash management opportunities here.

Outside payroll services and staff leasing companies provide a wonderful service to small businesses. In addition to handling all the required filings, they offer the opportunity to procure certain employee benefits, such as workmen's compensation insurance, at reduced rates since you are purchasing as part of a large pool. But these services may be a luxury you cannot afford in the early years. In addition to the cost of the service, because the payroll service company is writing the paychecks for your employees on their account, they'll require that you fund that account several days in advance to ensure the funds are available as they process the payroll. They also draft the payroll taxes from your bank account, including the employer portion of social security, as the payroll as processed.

In fact, you are required to remit payroll taxes, those withheld from your employees and the portion the employer pays, at varying times based on the size of your payroll. The smaller the company, the more the deposit can be delayed. You can research the statutory requirements in your State on the Internet. The point we are making here is there are cash management opportunities in processing your own payroll.

You think about it: What can you do in your business to improve cash flows from operations?

Key Idea #6: Create A Key Indicator Report. Jim says you need to extract data from your financials that are more relevant to your industry and even your specific business.

Topic for Discussion: What's the difference between the financials and a key indicator report?

Answer: Mainly format. Accounting can be complicated and that's why there are nearly half a million CPAs in the US and who knows how many bookkeepers there are. Financial statements follow a uniform template which is great for bankers and others who need to use financials to make decisions. However, Jim is suggesting that all numbers are not equal and depending upon where you are right now, you should customize the information derived from the financial statements to make the data more useful and motivational.

Topic for Discussion: What number was Jim questioning Nani about and should that number be her top key indicator number?

Answer: He was hammering her on gross margin which she says is only 25%. In the interview material that did not make it into the show, Jim insisted that Nani change her bid sheet and keep changing it until her gross margin gets up to 40% And, he said she needs to focus only on gross margin until she sees 40% on a regular basis.

You think about it: Are you willing to create a key indicator report? What will your key indicators be?

Key Idea #7: Give Employees Key Indicator Responsibilities. Every person worth having on your payroll wants desperately to know if they are doing good or if they are doing bad.

Topic for Discussion: What happens to an employee who is given a specific goal to manage?

Answer: In most every case, the employee will improve performance. There are so many books on the subject of employee productivity it is depressing. Obviously leaders just aren't learning because the books keep coming out and they say so much of the same thing. Jim wants you to find a key indicator that every employee can own then step back and watch them improve.

Tom Gegax started a business from scratch and built it into a multi-million dollar company with 2,000 employees. Here is his advise for building an effective team of people. Notice it starts with making each person aware of your expectations and that should begin with establishing a key indicator that an employee can track.

Tom believes that employees can contribute to the team success most effectively if they are:

1. Fully aware of his expectations of them,

2. Motivated

3. Educated, and

4. Provided with constant feedback.

Set Expectations: Provide each employee with a written job description and a copy of your company's organizational chart as part of his or her first day's orientation. In addition to increasing the employee's productivity, setting expectations very clearly and in writing provides the employee with a level of comfort and knowledge of his or her role in the business.

Motivate Employees: Every employee in the organization should meet with the person to whom he or she reports at least annually. This meeting should include a historical evaluation of performance since the last meeting as well as goal and objective setting for the next period. The employee should be made aware of how his or her individual goals are part of the overall goals of the business. Finally, the anticipated award, e.g., promotion or bonus, for successfully achieving those goals should be clearly stated. Both the evaluation and prospective goal setting should be in writing and signed by both the employee and supervisor. Subsequent years' evaluations should include a review of goals set the previous year.

Educate Employees: Every position in a company requires a certain minimum skill set. That skill set should be included in the written job description. Improving the skill set with additional training for the current position or for a position in the company that the employee is working toward should be discussed in the annual evaluation and goal setting session. Every employee in the organization should benefit from training each year.

Provide Feedback: Annual evaluations and goal setting, formalized and documented, are an outstanding way for even a small business to effectively manage its human resources. However, once a year is just too infrequently to provide employees with the constructive feedback they need. Positive feedback should be provided publicly, with recognition given to the employee throughout the company. Negative feedback should be provided privately, behind closed doors, and documented if it is considered to be grounds for dismissal if not corrected.

You think about it: Can your key indicator report be used as a management tool? Are you willing to give it a try?

Key Idea #8: Course 201. Work with your CPA.

Topic for Discussion: How often do you communicate with you CPA? ...collaborate? ...consolidate?

Answer: The communications goal should be every fiscal closing with the key indicator reports by person with automatic red flags where there are any ratios either significantly above or below the overall fluctuations of the business. If your commonsense analysis of any ratio that is significantly out of range does not provide the insight, then it is time to collaborate online with your CPA. Share a common workspace in the virtual world and have a consultation.

Topic for Discussion: What happens to you when you make financial projections?

Answer: You actually extend yourself into the future and you bring your past into the present. A financial projection is based on past performance, current realities, and one's will for the future. A projection is a statement about your will, hopes, desires, dreams and more.

So? When you don't, you have not challenged yourself, your teams, and your customers. You are not thinking as critically as you can and you do not necessarily focus on what is important.

More to come... on consolidations. Answering the key critical questions for each other.

Questions? Drop us a note.