Running a Business

Growing a Business

A blog for businesses with 20 or fewer employees or for people planning on starting one.

Author: Henry McCabe

Goals- A Someday Goal

On October 10, 2013 I wrote: "I've yet to meet a person running a small business that does not want to grow sales and profits." In a subsequent post I wrote that  you should write or update mission and vision statements, evaluate your current situation and prepare strategic and tactical plans. In two later posts I provided a list of questions to ask yourself as a means of evaluating your current situation. The answers should provide a guide to what needs to be done to bring about growth. If you have done those things, you should be ready to begin work on a road map to the future.

But wait, I've skipped something!  In order to go somewhere you have to pick a destination. In this case a set of long term goals for the business. Those business goals should satisfy your personal goals. That is, what is it that you want the business to do for you. I call them Someday Goals because it may take years for you to attain them. Many business planning guides skip this vital step. That is a mistake you can avoid by a sitting down and working out some long term goals. Someday Goals may be qualitative, such as returning to a normal work week or establishing an exit time date and strategy. Others may be quantitative.

Compensation, a quantitative one, is most important, unless you are running a hobby business and do not care how much income the business provides. Don't be a hobbyist. Decide on a Someday Compensation Goal that should be achievable and develop a financial profile of what your business needs to look like in order to provide that amount of compensation. Below is a tool I developed for my clients as a way to arrive at a Someday Goal for compensation. If you want a copy of the spread sheet, go to the web site for the SCORE office I work from, fill out the Request a Mentor form and in the What business question block write: "Please assign Henry McCabe. Henry, please send the Someday Goal Tool." If you have a business question I might answer, write that in as well. I'll get back to you by email.

Planning. The only thing we know for sure about any plan we make is that actual events will turn out to be different. We must not let the attempt to create a perfect plan get in the way of completing one. An imperfect plan is better than none at all.

Answer to last quiz: A Valuable Customer      Definition Quiz. What makes a customer Valuable?

Someday Goal For My Business- Compensation
Instructions
Use this spreadsheet to develop a financial profile of what
your business would have to look like in order to provide
a given level of personal income for yourself.
Based on that profile you can develop a plan for how to
get there from where you are today. This is different from
developing a financial projection because instead of estimating
the results of action over the short term, 1 to 3 years, you are
"backing into" the  amount of sales and and related costs needed to produce
the amount of income you desire. They become a set of goals to meet.
Once you have set a goal you can flesh out the model with details on
revenue, cost of sales and expenses.
Research industry data to establish a profile of revenue and expense.
Replace the sample data with your data in the cells color coded:
The results will appear in the cells color coded:
Factors and Results	Scenario 1
Factors
Owner's cash compensation goal $	$125,000
Owner's compensation goal % sales*	15.0%
Estimate of cost of sales % sales*	50.0%
Estimate of overhead cost % of sales*	30.0%
Net cash flow retained for reinvestment goal % sales*	5.0%
*Percents must total 100 %. True if they do. False if they don't.	TRUE
Results
Sales required to achive goal	$833,333
Estimated cost of sales for those sales	$416,667
Estimated overhead for those sales	$250,000
Resulting net cash flow (profit)	$166,667
Net cash flow taken by owner	$125,000
Net cash flow left for re-investment or as retained earnings	$41,667
Warranty and Copyright
The author does not warrant that the results of the worksheet are correct. Use at your
own risk. Report errors to the author. ©H. W. McCabe 2013. All rights reserved.

Starting a Business

Three Ways to Describe Potential Customers
by Henry McCabe
A blog for businesses with 20 or fewer employees or for people planning on starting one.

In my October 3, 2013 blog I wrote: "Describe for yourself the important characteristics of the consumers or businesses that are likely to buy your product or service because they may have a need for it."  It is to those prospects that you should address your advertising. That is called targeted marketing.  Money and energy spent on promotions  to others is wasted. In order to target likely prospects you need to define who they are so that you can find a way to reach that group in particular. Do this by describing their characteristics. There are three groupings of them: psychology, demography and geography.

1. Psycho-graphics. These are the psychological factors that lead consumers or businesses to make purchase decisions or that influence the decisions they make. The underlying factor is a desire to satisfy a need or want, as described in an earlier post. Expand on that with such factors as: life style- basic or luxurious; desire for prestige, buying habit- impulse or carefully calculated, ethnic background, desire for convenience, style consciousness, infirmity, hobbies, amenable to change or not, fear of wrong decision and so on.

2. Demographics. These are quantifiable factors. The age, gender, place of domicile, vehicle ownership, income level, social class, occupation, educational level and other such facts about consumers. For businesses: industry, location, size of firm, quality requirements, technology needs, and other such facts.  Also, where are they most likely to get they get their information from: TV, periodicals, internet, friends, etc.

2. Geographics. These are obvious but are sometimes overlooked.  It is where the prospects live or do business and make their purchases relative to an area you can profitably serve: local. regional, national or international.

Using these factors you can create a profile of your likely prospects. Then find a way to reach them. Creating such a profile may sound esoteric or complicated but it is relatively simple. Just sit down, make a chart or table and list the best factors you can think of. Here are two examples.

Consumers	Businesses
Age	Industry
Gender	Sales volume
Nationality	No. of employees
Household Size	Profit or non profit
Education	Home based
Occupation	Location based
Income Level	Mobile
Ability to pay	Consumer of product
Special Interest	Re-seller of product
Hobby	Location
Place of Domicile	Source of News
Place of Employment	Computer Literacy
Willingness to travel	Have unmet need
Source of News	Need being met
Source Entertainment	Price sensitivity
Computer Literacy	Formal buying
Have unmet need	Informal buying
Need being met	Frequency of buys
Price sensitivity	Size of buys
Want credit	Competitors
Credit worthiness	Field open
Home value	Want credit
Brand of auto	Credit worthiness
Clothing style	In a network

Planning. The only thing you know for sure about any plan you make is that actual events will turn out to be different. Do not let the attempt to create a perfect plan get in the way of completing one. An imperfect plan is better than none at all.

Definition Quiz. What phrase or sentence describes a customer you want to do n business with?

Answer to last quiz: An Income Statement

Running a Business

Six Areas to Assess
by Henry McCabe
A blog for businesses with 20 or fewer employees or for people planning on starting one.

In order to plan for future growth, you need to assess where you are now in order to identify what you must change to bring about growth. Assess your situation by answering a few questions about six areas of your business: Goals, Management, Marketing, Sales, Operations and Finance. My last post covered Goals, Management and Marketing. This covers the last thee.

Get Your Businesses Growing With SCORE Templates and Tools

4. Sales. Have I considered using other distribution channels besides the one I now use? Do I know what other distribution channels are available to me?  Is my advertising  program generating a sufficient number of qualified prospects? Have I defined what makes a prospect a qualified one?  Are I and my customer facing employees converting the right number of prospects to sales- not too few or too many? Do we have and use a planned selling process? Have I set sales goals for myself and my sales team? Do we meet our targets? If not, do I know why? Are you simply hoping prospects will place orders instead of leading them to do it? If the answer to the first eight questions is no and to the last is yes, then one way to foster growth is to design a selling system, and train everybody, especially yourself, to use it.

5. Finance. Do I have a way of keeping accurate financial records? Do I study my financial statements and reports each month looking for things that are out of line? Do I my monitor accounts receivable and payable every month?  Do I have a financial projection or budget or set of goals for each year? Am I meeting my goals? Has my cash position been improving year to year? Do I have a system for monitoring costs and expenses? Am I maintaining a relationship with a banker in preparation for the day I need a loan? Is the management of your investment and future financial well being on autopilot because you are not paying attention to the coming and going of your money? If the answer to the first eight questions is no and to the last is yes, then one way to foster growth is to put into place a financial planning, reporting and analysis system and then to use it.

6. Operations. Have I documented the various processes that occur in my business from order entry to final delivery? Have I taught my employees how things are to be done? Have I established goals for critical processes? Are my products and services of suitable quality and are they delivered on time most of the time? Have I defined my quality and delivery goals?  Do I have a way of measuring progress against goals? Do my employees know what the goals are and do I and they receive feedback on actual results? Will the business continue to operate in the manner I expect if for some reason I am absent for a period of time? Are your day to day operations run in a haphazard manner totally dependent upon your emotional reaction to the circumstances of the moment? If the answer to the first eight questions is no and to the last is yes, then one way to foster growth is to put into place an organized and documented management system and then to follow it.

Planning. The only thing we know for sure about any plan we make is that actual events will turn out to be different. We must not let the attempt to create a perfect plan get in the way of completing one at all. An imperfect plan is better than none at all.

Definition Quiz. What report shows the monetary results of last months operations?

Answer to last quiz: Marketing