Constant Profit Advisors

July 29, 2010

Planning for 2011

Yes I know, it seems early to be planning for next year already, but in my opinion you are planning all year round.  But when it comes to your strategy and grand tactics, you must always evaluate how well you are doing and make course corrections.

One thing to consider is that bank debt will still be unavailable to the vast majority of small businesses next year.  Sorry, but all the hype and hoopla about giving TARP relief for small business is a joke.  There is already enough money to lend.  The problem is that lenders are afraid because if they suffer another round of bad debt they will be hung.  And lets face it, with interest at less than 8%, there is no real risk premium for the banks. 

Small business also doesn’t really need as much debt as it thinks.  Banks are not in a position to fund losses.  This type of situation can be a godsend for small business if they wake up and “smell the coffee”.  Are you working on sub-par clients who eat up huge amounts of your most precious resource (time) for little payback?  Do you know your clients who fit the 80/20 rule?  those 20% of clients who generate 80% of your profits?  What would your cost structure be if you moved those other 80% of clients out the door and focused on those 20%? 

Small business is a niche business.  If you want to be big and service 5% or more of the market, then get investors.  Live with their restrictions and requirements.  Otherwise, get small and stay small.  Stay focused.  Get the maximum for your time.

Do you really know what your core business is?  If you look at your top 20%, I bet you will see very interesting data… like they all center around a particular product or industry.   But do you really know why these came to you and why the others didn’t?

Beyond your core business, have you figured out how to get out of the red ocean and into blue ocean?  Have you analyzed your competition in regards to competing, not against their offerings, but against what they don’t offer?  Be the niche.  You won’t attract everyone, but do you want a huge number of customers?

More customers generally require you to reduce prices and expand your offering, which increases overhead.  Overhead is not a bad thing, it is actually necessary and is the key ingredient to magic.  You must decide on the right overhead structure to support the magic of your business, not just put it out there in response to pressure.

As you plan for next year, think first who you want to service and why.  Next determine what your overhead structure has to be like to work with those customers and then make the throughput happen.  If you would like help or more information write me at johnc@constprofit.biz

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May 20, 2010

My speech tonight at the BIA dinner

Filed under: Accounting, marketing, Strategic Planning — Tags: , , , , — John Caughell @ 7:59 am

Tonight is the PAC auction for the Building Industry Association of Clark County.  I sponsored the event so I get to say a few words about me, my business, and how I can help.

So, in the spirit of tonight’s guests, the assembled politicians who hope for the association’s blessing and funding, I am providing my prepared speech in advance.  However, since I am not of the political class, I have no intention of following this speech. 

Ladies and Gentlemen,  A toast!

To better times ahead! (wait for applause, hopefully about 5 minutes worth so I don’t have to say anything more)

(damn only 30 seconds used up, what am I going to say?)

Hi, I’m Troy McClure, you may remember me from such action films as “The Lost Gator’s of Noah’s Ark,” and “Oil and Water: How BP got its Glob On.”  (wait for roaring laughter)

No seriously, I am John Caughell and it is a pleasure to be able to sponsor tonight’s event.  This PAC event is important, and not just for the money it raises.  What is absolutely vital is that we get Clark County, the State of Washington, and the political establishment in Washington to understand that you, the creators of wealth, are tired of the status quo and demand to be recognized.

Now some of you are wonders, what has any of this got to do with my Company, “Constant Profit Advisors”.  Everything.  You see, our goal is to help business continuously improve profitability.  How do we go about that?

By helping you focus on your mission. 

By helping you see your business in a different light than what your accounting system tells you.

You see, we start our involvement with your business asking a key question. “What stops you from maximizing your opportunities?”  And then we start peeling back the layers of grim and grit and bad decisions to help you get back to a focus on your mission; your goal.

Some of you in the room are clients, some are my strategic partners, some run away when I enter the room.  But we have all questioned our reason for being and asked who can help me get to where I want to go?  We might be able to.

For those of you who haven’t read the brochure, I am the treasurer of the BIA.  As treasurer, it is my duty to make sure that your hard-earned money is spent the way you want it spent; on promoting and protecting the Building Industry.  tonight’s event is wonderful because it carries out both missions. What does this have to do with anything?  I don’t know, I’ve been drinking, be glad I haven’t used any colourful words up here.

I treat my role as treasurer the same as I do when I am fulfilling my role as your company’s outsourced controller/CFO.  I keep the decision makers informed and focused on the financial cause and effects of their decisions.  And, I try to do it without talking accounting.

You see, some people tell you accounting is the language of business.  I disagree.  I think accounting is like ancient greek.  You need a translator, an interpreter of the Rosetta stone.  Someone has to read: 3 eagles, a dead guy and 2 upside down fish and help you understand that your profits are up or down and that you have increased visibility by 3 points.

We demystify accounting by translating it into pictures, into relationships, into “if this then that” cause effect charts.  Will you like it?  not right away because you have been lead to believe that detail makes better decisions.  Has anyone found that needle in the stack of needles yet?

So now to the close, that awkward moment of silence.  This is where I tell you how you can help me.  Its easy.  If you, or someone you care about, has a business with 5 to 50 employees who is finding that no matter how hard they try, they can’t make sense of the numbers and what it means to the health of the company, give us a call. No cost, no obligation.

And if you are ever curious how I do my work as outsourced controller/CFO, come to a finance committee meeting.  I know Avaly would love the company. 

Thank you and enjoy the event.

May 19, 2010

Property as a way of making money

I was invited to the Portland Community Professionals chapter of BNI for their visitor’s day.   I highly recommend visiting a chapter near you to determine if BNI can help you take your business where you want it to go.  I go back and forth on it; I like the concept of BNI (and the philosophy of “giver’s gain) but frankly believe a strong focus on the right strategic partners is more effective.  But, honestly, I would not have known that without being a part of BNI.  Consider it, you might find that a group of 40 solid professionals can help your business.

So at the meeting, I was approached by a commercial realtor and we got to talking about “making money”.  She asked my opinion on owning a home as an investment. 

A home is not an investment.  It is a place to live.  If you are wise about it, it is yours free and clear of all liens and debts by the time you decide to stop working.  If you are thinking of having a mortgage on your home beyond retirement, stop now, sell and rent.  It’s cheaper.

Equity is not “profit”.  Equity is an illusion, a shadow on the wall.  It assumes someone will pay a value that you haven’t asked for and compares it your debt.  Equity comes and goes, cash flow is all important.

You can not have a “profitable” property if it is not generating positive cash flow.  Sorry, it goes back to the concept of “equity”.  Since equity isn’t profit, a home, which doesn’t generate cash flow, cannot be an investment. 

Now, what about other property types, like commercial or residential rental?  Perhaps those can be investments, but they must still follow the general rule of making money.  Equity  doesn’t count, only cash flow.  If the property is not generating positive cash flow, how can you pretend it is worth what you paid for it?

Why is it that a residential rental generating $1,000 a month of gross rent is considered a good investment but a CD generating $300 a month of interest is not?  Lets look at this closer.

Rental

$1,000 rent

($100)  property taxes

($900) mortgage payment

($200) repair reserve

$200 net cash benefit of tax depreciation

$0 net cash flow for 30 years.  Now in 30 years, your mortgage is paid off and you get to keep the $900 of mortgage payment.  Do you know what this is called?

An annuity

Am I saying real estate is a bad investment?  Not at all.  I am saying it is an annuity product.  It is a leveraged annuity product.  It is an uninsured annuity product.  Do you see the point? 

One of my favorite clients calls me every few months and we sit down and investigate investment opportunities, including real estate.  We look at the real numbers, not the happy numbers the realtor wants us to consider.  And we then ask, “does it generate a reasonable return?”  Guess what?  They don’t always buy. 

This couple is worth about $8.0 Million and today 60% of it is in cash.  Is it the best investment?  not at all.  However, it is giving them the most reasonable return today.  Do we investigate other opportunities?  All the time.  As a matter of fact, we are meeting later this week to review a business opportunity.

The point is, they own a small, very successful business that generates 80% return on investment (that also pays him a very nice salary).  They own, really own (no debt) real estate worth $3.0 Million (and dropping in value every day) that generates $90,000 of free cash flow per year.  3% return… versus 80%.  Their cash is getting them $100,000, about 2%.

Why do I bring this up?  On the off-chance you are a realtor, mortgage lender, banker, etc. who is working with clients who are trying to figure out how to best invest their most precious resource.  If your client is having this type of conversation with their CPA, then your client is well-served.  If they are not, perhaps you should have them talk with us. 

Feel free to write… johnc@constprofit.biz

May 14, 2010

Saving time… saving money

Filed under: Process Improvement, Strategic Planning — John Caughell @ 5:23 am

Most people want to start the discussion of making more money with “cost cutting.”  What a terrible, tragic mistake.  Cost cutting doesn’t lead to increased profits, it leads to diminished capacity, which ultimately leads to lost revenues and profits.

If a business really has excess capacity, or the managers have a tendency to spend money like a sailor on leave, then, by all means, some spending control is necessary.  It may also be that the spending is all over the place, meaning that it does not follow the grand scheme of the business.  But cutting back spending on certain categories does not equate to cost cutting, it is getting back to priorities.

So great, cost cutting isn’t going to get you real profits.  What will?  To that, lets ask how far a work object has to travel in your business to actually reach a customer.  For this, we would use a spaghetti diagram.

Distance traveled equals time and money.  The farther something travels in your plant, the longer it takes to produce and the more money is spent on it, through movement, damage, etc.  The spaghetti diagram allows you to see those steps and then determine if you should adjust the work flow.

Create a map of the workspace.  Try to be close to scale, but accuracy in the drawing isn’t crucial.  Then lets walk in your products shoes.

First, be the product.  You are being handed off to the shipping company, your customer, etc.  What is the step before that?  Count the number of steps taken (in distance), write it on the map of your space and draw the line from point Z to point Y.  Make notes of how long it sits on the shelf prior to being handed over.

Same thing at point Y.  How did the product get here?  Who brought it, how far did it travel to get here?  How long did it sit before moving on to point Z?

You would do this all the way back to when the materials entered your plant. 

Look at your map.  What do you see?  Most likely spaghetti noodles.  Your product comes from dozens of different directions and move in dozens more.  Some overlap and some even hit the same process twice or three times.  Your products sit in various stages of completion and move in large batches.

And you wonder how you can save money.

Cutting costs (i.e. people) is not the answer.  Eliminating unnecessary steps is. But you must first determine what is happening before you can start to work on the best flow.

Have a great weekend.  As always, feel free to write me at johnc@constprofit.biz with questions or comments.

May 7, 2010

Issues in Cost Accounting

Earlier this week, I was at a client’s office to review the operational reports and see what changes might be beneficial.  During the review, the owner called me into his office and says his accounting is all wrong.  Interesting.

So I ask, “do the bank accounts reconcile?”  “Yes,” he answers

“Have all customers been fully billed and are they collectible?”  Again yes.

“Are all your accounts payable posted?”  Again yes.

“Then I don’t see a problem with the accounting.  So tell me what the real issue is.”

I have discovered over the years that people will always blame the accounting for management problems.  In this Company’s instance, they were worried about “Gross Profit”.  Why?  Because the sales department was compensated in good part on commissions; which are calculated based upon “Gross Profit”.

Management felt that the sales staff was overpaid in many instances. The sales staff was sure it was being ripped off.  The perfect conflict.  The real issue was that the calculation of “Gross Profit” included an allocation of the overhead.

Management believed that too little overhead was applied to the orders, the sales staff believed too much.  And they ask me and they even know I do not believe in allocating overhead to production costs. Too Hot, Too Cold, Just Right, the Goldilocks syndrome.

It is important to realize that overhead allocation is not an accounting problem.  It is a management problem.  The overall accounting numbers are correct, management just believes that moving some numbers to production costs gives them a better “feel” for the real profit of the business.  But as I have indicated in many other posts it has nothing to do with real profit, it distorts profitability and decision-making.

I believe that the sales staff (and the entire company for the matter) should have some to most of its compensation based upon an incentive system.  As profits increase, pay to the employees should increase.  The real issue is, what are the “controllable” costs in determining the correct amount to pay on incentive.

But again, what does cost accounting have to do with this?  Nothing.  Lets call cost accounting (and cost allocation) what it really is, “Managerial Manipulation”. 

Lets remember the formula:  Making Money (profits) = Increase Throughput – Decrease Overhead – Decrease Inventory

Throughput is defined as Money earned (sales) less customer costs.

Customer costs is defined as those expenses the customer could pay for directly instead of using you.  Costs such as materials (inventory) some subcontractors, equipment rental, etc. 

Remember, throughput is the Magic of your business. Your customers do not choose you for the metal you use, the CNC machine in your plant, the subcontractors who powdercoat the part, they choose your business because it is Magical to the customer.  They give you a wish and you make the wish come true.

What does this have to do with overhead allocation and cost accounting?  Nothing.  That’s the point.  Your business must have overhead to perform the magic.  Your overhead IS the magic.  Why allocate it piecemeal during the day?

Back to the story.  The client wants to know if

 their overhead rate is correct (who knows)

It is being fairly allocated to products (who cares)

how the new “Gross Profit” calculation will impact sales staff commissions (aha)

So we will create a new compensation model based upon throughput and real profit.  We will help them understand that their focus on cost allocation is driving poor decision-making and encourages excessive risk.  What will it look like?

That is our magic.

If you have any questions or comments  or would like to know more about how we might help your business, feel free to write me at johnc@constprofit.biz

May 4, 2010

We are what we measure

Filed under: Process Improvement, Strategic Planning — Tags: , , , — John Caughell @ 5:54 am

Tania and I were discussing how she is so glad the school year is almost over.  However, she dreads the last few weeks, mostly because she has to prepare report cards 3 weeks before the end of school so they can go home with the kids that last week.  That means that the last week or so are potentially unproductive.

So we started brainstorming why the system cannot report grades as of the last day on the last day.  To figure that out, we must ask ourselves the goal of education.  In an earlier blog, I wrote that my vision of the goal of education is:

To prepare people to be productive citizens

I believe that this goal provides a perfect target.  By establishing the goal as productive citizens we include both college and trade oriented individuals.  By focusing on productive, we recognize that some will be able and willing to enter the work force earlier and more successfully than others but that the ultimate goal is not just to prepare an “educated” workforce but to prepare a “person able and ready to work.”

By focusing on preparing a productive citizen, we can start creating the measure of success.  The goal is not that little Johnny is reading at a 2nd grade level by the time the first grade is complete, but rather, is Jill proficient in reading such that she can become productive in society?  socially productive might mean that one must read and comprehend at a 10th grade level.  Have Johnny and Jill mastered reading and comprehension?  No, not by the end of the first grade.  This issue at the end of first grade is, “are they making progress towards reading at a 10th grade level?

By setting the target this way, we can begin to manage student progress through exceptions, rather than norms.  If the student is not meeting the norm, they are flagged for reporting and assistance.  What I mean is that, if the target is for students to know 100 words on sight and provide a definition to those words, then perhaps knowing only 70 is the exception and triggers an action, such as parent-teacher conferences, additional tutoring, etc.

I realize that we have all grown up with the belief that a good student gets “A”s and students that are not trying get “B”s. But that is because we defined success as getting 90% or better on tests.  Thus, we have created a process that requires constant feedback about how smart children are, instead of a system that warns about exceptions and encourages corrective action. What I see, what I think many business leaders see, is that we have a generation coming to work that does great in taking tests, but cannot apply what they have learned in a work place that needs people who can improvise, adapt and overcome.

Schools, like the workplace, need measurement.  Students, like employees, need feedback.  Parents, like stockholders, need report cards.  But, what is society really seeking?  If we are honest, we just want to know that people are entering the workforce ready and able to work; without excessive retraining by their employer’s on basic skills, such as math and comprehension. 

Our goal should not be to educate for the sake of education.  More education does not make for better decisions.  Don’t believe me?  Ask how many lawyers and MBA’s it took to bring us bank bailouts. 

Thank you Tania, it was a great discussion. 

Feel free to write me at johnc@constprofit.biz with questions or comments.

April 30, 2010

Creating opportunity

Your largest customer just called and said they are sorry, but they are moving their supplier relationship to a new competitor from China who can do it for 25% less than you, including shipping costs. Your stomach flips and you feel like your world just imploded.  20% of your revenues, 50% of your profits, just went out the door.  And guess what, it will take 6 months to land enough accounts to replace this lost customer.

I have laid out a situation we all face.  So first things first.   Deal with the first issue: Why were you facing your largest customer walking out the door without new customer prospects in the pipeline?

The best time to conduct marketing is when you have enough work.  It is the most challenging time to market because you have enough work. But, reality is, 20% of your customers are going to disappear in the next 12 months for any one of a thousand reasons.  It is your marketing and buyer education department’s responsibility (i.e. YOUR responsibility) to make sure that there are always prospects in the wings.

Now, when is the WORST time to start marketing?  Why of course, when your largest customer has just left.  Now you are scrambling.  It takes time and effort to educate the right buyer to use your product or service.  Add to that the fact you are now desperate for revenue.  Desperation leads to terrible decisions.

First moral then: Market all the time. Educate your referral sources, do your advertising, go on education visits to prospects, but do NOT let up for an instance.

Next, are you sure that your prices are the most competitive?  I am not saying do the job for a real loss, but I am asking if you seriously challenged your pricing in relationship to your true costs AND the value you provide.

I have given you a clue.  The customer accounts for only 20% of the revenues BUT 50% OF THE PROFITS!  Would it be easier to offer an incentive to the customer by possibly reducing prices and also highlighting your quick response due to being local?  Can you offer better terms? 

I am not saying you should.  It might be that the pain of them leaving is a good pain to feel.  You should not cheapen your brand unless the payoff is worth it.  I am suggesting that you visit your pricing to make sure it reflects reality.  Remember, you must make money to pay bills so your imagine, while important, must take a backseat to practical reality.

Finally, have you really attacked your value chain?  Have you conducted a Value Stream Map to make sure you have cut out all the unnecessary fluff from your process?  Can this lead to a price reductions without sacrificing profits?  Can it open up new channels to offer your products or services?

If you are like most businesses, less than 10% of your time is really adding value.  Your goods and services take 3 weeks from order to delivery but it is less than 3 hours of actual production time.  Do the math… 180 hours to do 3 hours worth of work.  Are you sure there is not some way to improve that?

My advice, challenge your business today before you lose your client.  Assume that your best client WILL walk out and you will be forced to react.  Be proactive, market, market market.  Get people to know you, like you, trust that your business offers the solutions for them.  Do this every day.

The biggest problem you will face is having to choose to get rid of lower profit clients right?

As always, feel free to write me at johnc@constprofit.biz with questions or comments.

April 29, 2010

The importance of definitions

I am going to write today on a sinister issue creeping into our daily lives.  That issue: the use of the term Revenue by government.  Yes, that’s right, I am seeing it more and I believe it must stop.

I realize Websters provides a definition for Revenue which includes “the yield of sources of income (as taxes) that a political unit (as a nation or state) collects and receives into the treasury for public use.”  Does anyone else see anything wrong with that definition? 

Revenue is what a business entity receives in exchange for its good or services that covers its costs and profits (hopefully).  The key word here is exchange.  My business earns revenue by exchanging my services to a willing buyer for something of monetary value.  What is exchanged between you and a government?

Government does not generate revenue.  It offers no goods or services (or at least shouldn’t) that are exchanged with a willing buyer for an agreed-upon price.  It taxes.  It spends.  But it does not generate revenue.

Why am I arguing over semantics?  Afterall, if Webster’s definition of revenue includes taxation, why should you care John?  Because by using the word revenue, they attempt to incorporate the emotional definition of revenue.  That somehow, by using a word it will impart all the positive things we know about “revenue”. 

So, let’s be clear in our definitions shall we?  Lets not call tax receipts “revenue”.  Lets agree not to accept a politician’s statement that “state revenues are increasing.”  State tax collections are increasing perhaps, but not its revenues.  Clearly define the words we wish to use and hold their feet to the fire.

By the way, does everyone understand that we do not have a tax problem.  The US has a spending problem.  Taxpayers today pay about $1.0 Trillion in taxes, but the Government spends $3.0 Trillion.  You are not paying nearly enough in taxes, but you are collecting your handouts.  The easiest way to make sure taxes don’t increase?  STOP TAKING THE DAMN MONEY!!!!!!!!!!!!

Still on taxes by the way.  This is going to be the boring section.  For those of you who have never had to sit through a John monologue, here is how we can fix the problem.  First some background:  The US has taxed the production of wealth (i.e. income) since the early 20th century because we were a net production nation. The wealth was produced by a handful (relatively speaking) and those few paid the tax for the production.  There were no handouts and people overall did not expect wealth to be redistributed, except through effort (wages).

Fast forward a few decades.  The US became a net consumption nation.  Tax policies were enacted to encourage spending over savings.  We wanted more goods and, when our houses were stuffed, we wanted bigger houses to fill with goods.  And, believe it or not, tax policy encouraged this behavior.

However, the problem is, we have a tax system that taxes the production of wealth (income) in a consumption environment.  And today we expect the government to transfer wealth, through taxation, to help our “neighbors” purchase their new car.  But the problem is that we are taxing one way and our national wealth strategy is going in the opposite direction.  This is why tax law is so difficult to understand and seems to unfairly burden everyone.

Can it be fixed?  Yes.  Will it?  No.  You like your handouts.  You like “cash for clunkers”.   You like credits for buying windows.  It is a victimless crime, like gambling or prostitution, right?  Afterall, Warren Buffet should feel guilty for being wealthy, shouldn’t he?

We all need to collectively grow a spine.  On that note, Financial regulation is a joke.  It won’t protect the system and it won’t protect investors.  It protects the political class.  Here is how you protect investors and the system.

Get rid of the FDIC.  Make the banks pay for their own insurance through private insurance companies.  Remember, private insurance companies have one mission, “NEVER TO PAY A CLAIM”.  Now, if your bank decides to do something particularly stupid, like buy mortgage-backed securities, the insurance company will either jack their rates up or cancel the insurance.  Now, would you leave your money in a bank that charge you more or worse risks your deposits?  Seriously, how simply is this?  How many months and weeks of negotiation did this take?  20 minutes and a glass of scotch and I solved this little problem.

People, stand up for yourselves.  Don’t give in to your fears  Things go bad, things go well, but it is your destiny to control, not governments.  More government involvement just begs more government intrusion. 

That was a fun rant.  As always, feel free to write me at johnc@constprofit.biz with questions or comments.

SRC and open book management

On last night’s Newshour, they showcased Springfield Re-manufacturing Company (SRC).  Mr. Stack (the CEO) credits his company’s ability to survive and grow on the open book management philosophy.  Essentially, the company provides accounting information to its employee’s and expects them to share in the decision-making.  The argument goes that knowing the financial picture allows them to make better decisions.  And I agree wholeheartedly.

But it is not just sharing the financial information.  Knowing “the numbers” is a small part of the impact.  It is really about making the decision and knowing you have the best information to support your decision.  That includes understanding market demand, pricing models, and best practices. 

But my take on the open book management system is that it attempts to leverage a critical resource:  money.  By opening up to everyone, they now start to question supply purchases, which might cut down and extra and spending on things like shop towels.  That voluntary cut saves money, which is the company’s critical resource.  Money can then be reinvested in areas with growth potential.

But more importantly, the focus of SRC is keeping it small.  Little operating companies inside an umbrella parent.  The primary reason?  It keeps the company nimble and reactive.  Because of the small size of the operating companies, they can adapt much quicker to changes in the economy, in competition, in creating new opportunities.  Plus, each operating company is FOCUSED.

Focus is what wins.  Grow your core business, experiment with a new opportunity, and if it is successful, spin it out to a new operating company.

What can you take from this Newshour segment?

1. Do not be afraid to open your books to employee’s.  Seriously, my staff can see everything in the management of Constant Profit Advisors.  It is all in our management system, how much we bill, how much clients owe, when the last time we did work for the client, who did it and how long it took.  Is there a chance that they can misuse the information?  Yes, but whose fault is it if that happens?

2. Let employee’s make some of the decisions and have input into processes.  Want to control inventory costs?  Let them see what having unsold inventory is doing to your bank accounts and see if they can provide a solution.

3. Stay small.  I am not saying keep your business small.  I am saying, redefine what you think your company is and set it up accordingly.  If you are a restaurant and want to dabble in catering, by all means dabble.  When it becomes successful, don’t keep it in the restaurant, spin it out to its own operating company and make the management accountable.

4. Leverage your critical resources.  If your time is absolutely stretched, then sharing information can relieve you of some of the pressure of leadership.  If that gets you out of the trenches for a few hours a week and you can use that time to dream up new opportunities, it is the best decision you will make.

5. Make everyone accountable.  Set up compensation systems that reward decision-making and profitability.  To be successful, your employee’s must see cause and effect, but it cannot be arbitrary.  Have them help you design the right system, share the information and then hold them accountable. 

6. Eliminate debt.  I cannot stress this enough.  More on this in another blog post, but excess debt is what is killing companies and you.  Get your debt to below 60% of the value of your companies and your investments.  The goal should be Zero debt personally (that includes mortgages) and less than 40% in your Company. 

Feel free to write me at johnc@constprofit.biz with comments or questions and as always, if you want to discuss how we might be able to help you get control of your business, feel free to write or call to set up a consultation.

April 26, 2010

Undesirable effects for a restaurant

Saturday night, Tania and I went to the Red Lion Inn at the Quay to listen to live music.  The Antics were playing and we figured some music from our childhood and early marriage would be great to listen to.  We had a wonderful time and the band played very well.

The most interesting thing that happened though was, as we entered, a woman approached and asked us to join her table.  We were standing waiting but we are never ones to turn down a polite invitation.  After we sat and did the name exchange, she asked us what we do and Tania groaned and smiled.  (she has been coming to thursday office hours so she knows what to expect).

“You know how small business owners get this report from their accounting system and can’t figure out what it means?  They see pluses and minuses and losses and profits and don’t know that it means?  Well, my job is to help them sort it all out and use the information to increase their profitability.”

And she says. “Oh my god, I own a business and I have that trouble all the time.  I don’t know if my profits are good enough, if my costs are too high, etc.  So, you help business owners understand their business and help them decide how to get to the next level?”

Our conversation drifted to her business.  She owns a restaurant (out of the area) and she was curious how to increase profits.  She competes with the nightlife in a larger city next door (Seattle) and her community pretty much rolls up the sidewalks at sundown.  Naturally, I am in my element (in a bar with drink in hand) and we started going through the preliminaries, you know, target audience, age, income brackets, etc.

We discussed live music, we discussed DJ’s and dancing.  But about the time that I was getting started, Tania reminded me to behave and the band started playing.

So, since I didn’t have the chance to connect the dots saturday night (or yesterday since it was housework day), I thought I would give it a shot this morning.

One of the biggest drawbacks for restaurants is that they generally tend to want to compete on price.  Restaurant owners will argue differently, but they offer discounted lunch menus, happy hour pricing, etc. to keep butts in the chairs.  Their image, the hook, if you will, is a secondary consideration.  There is nothing inherently wrong with discounting price (except see my previous posts) however it doesn’t take much imagination to cut prices and, unfortunately, price cutting begets price cutting.

So I brainstorm.

How many local businesses are there?  Where do they eat?  Do you understand that business, especially marketing and buyer education professionals, do not just eat?  They are conducting business.  Do you realize that most restaurants that they frequent are not conducive to business conversation?

Business conversations cannot compete with background noise.  Each table must be an island where the conversation can stay focused.  It also calls for space between tables to visual minimize distractions.  Now, what if you had 50 private lunch rooms catering to business professionals? 

Can’t do it you say?  why not?  If we learn nothing else from Lean processes, we should learn that the art to making money is to be able to quickly change over from one process to another and that all equipment must be right-sized for the operation.  What if, we take the concept of the partition walls found in convention buildings and apply that concept?  Too cheesy?  Perhaps, but what if they panels were oak veneer? 

Now, why this?  because what business wants is decent food and minimal noise.  What will business pay for this?  A lot, if the value is there.

In short, use your strengths.  Unless you can change the image of your community, you have to leverage the strength you have.  If there is no nightlife, you are going to kill yourself trying to create it.  So, don’t fight it, leverage it.  Help business conduct business.

Is this the only way?  No, not at all.  I am simply brainstorming a possible strategy and some necessary tactics.  As we have covered before, strategy is not good or bad, it is strong or weak and, the real strength of the strategy lies in making all your day-to-day decisions mesh smoothly.

As always, I love to talk and discuss important issues about your business.  Feel free to write me at johnc@constprofit.biz if you are interested in learning more.

And if you read this, thank you for your generosity, Tania and I are very grateful and it was a pleasure to meet you and your partner. 

Have a great day.

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