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Category - Investment

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1
Does my small business really need a Board?
2
What To Do In a Financial Crisis
3
Should I buy a business to give me a salary?
4
How much should I pay myself?
5
10 Business Opportunities in good or bad times

Does my small business really need a Board?

Last week I wrote about establishing a governance framework in a family business. If you missed it, look here.

Just to refresh ourselves, the difference between governance and management is that governance is about strategic direction, overall policies, establishing a vision and mission, whereas management is about caring for the operations of the business, the “how’s” of running the business to meet strategic direction and policy.

The decisions correctly made in governance are about the really big things in the business that will affect the long term future of the business.

Appropriately these governance decisions are made by a Board of Directors while the CEO and other managers look after operational management.

In a small business, whether a single owner-manager business, or one with a number of family or unrelated partners, both governance and management decisions are often made by the same people wearing different hats, and more often than not, the decisions are made smoothly and efficiently.

So, why would you need to put a Board in place?

I believe a number of issues make the establishment of a good Board beneficial to your business, at the right time. Read More

What To Do In a Financial Crisis

Touch wood that you never experience a financial crisis in your business.

However, it happens, and it happens to the best of us. No matter how much you think you are on top of your game, sometimes you take your eye off the ball, and sometimes one thing you never watched out for jumps up and – Wham! A financial crisis hits your business – a major account receivable goes belly-up and with it, takes your profits and future cash flow. Or perhaps an employee walks out and takes your business, or maybe even commits fraud over some time and leaves you with a big cash hole. Perhaps you may even have been (or should have been!) aware of a trend that kept getting worse, business fading away?

If this ever happens to you the first thing is to work fast. Stop feeling sorry for yourself and work out a plan quickly.

Put yourself in the big picture.

When crisis happens, it is tempting to burrow down to find the “fault” and to try to fix it. However the “fault” is often a symptom and if you pour effort into it, this may be too little too late.

Better to take a brief step back and see the big picture – make sure you accurately assess your business’ and your own assets and liabilities, make sure you understand your overall income and expenditure. Looking at the big picture can give you a better idea of what happened and why – not just the end results. Understanding your assets and liabilities and income and expenditure should give you some ideas about what resources you have, what risks you need to take care of, and what you can do to stem the flow.

With a good understanding of what happened and how it happened, and knowing what your resources and capabilities are, set yourself some short-term and medium term financial goals. Read More

Should I buy a business to give me a salary?

I recently spent three months in constant contact with a client advising him on a management buy out.

Not so unusual….except this time I was trying to talk him out of it!

Here’s the situation, my client is an engineer, and has been an engineer all his adult life. He rose through the ranks of the company he has worked for since he left university until he became General Manager reporting to the CEO who was also the owner. During his career with this (small) company, he helped to draft procedures manuals and develop their internal systems; he got to know the clients and while not in sales, he helped develop relations through his work and his network with the customers was excellent.

Then, the family owners decided to sell out to a publicly listed company. My client stayed with the company and started reporting to a new CEO appointed by the public company. He can’t say that his relations with the CEO and the new owners, represented by the Chairman, were bad. Indeed they were courteous, but simply different.

Of course it would be. He had gone from direct relationships with people he had known since he was a young man 20 years ago to corporate relationships with people he hardly saw. As friendly as these new relationships were, they had to be different.

After a few years, the market turned. The specialist engineering services provided by his company started to lose demand, and the business results plummeted. The public company held on for as long as it could but then had to make the commercial decision – it had to sell the company and asked if my client wanted to enter into a management buy out.

I won’t detail the financial structure as that’s not the point of this article. Suffice to say that the company was not worth anything after the last couple of years’ bad results.

However my client believed he could revive its fortunes and turn it around – in the last couple of years, the CEO and the Chairman had not listened to his warnings about how to conduct operations and how to market their services and he felt they were starting to lose contact with his network. However he had kept contact and felt that he could bring their business back, as well as make the operations more efficient.

The point was, how much would this cost him? Since the business was worthless, and closing it would cost the public company hundreds of thousands in redundancies and other costs of closure, I felt he was in the best bargaining position. We worked out scrap value for the plant and equipment, agreed that we would not take over any liabilities, and decided that was our bottom line. I discussed with him in detail how it was simply not worth more since there was no “goodwill” in a loss-making company, and any up-side would have to be put in by himself after the takeover.

That was the context – it should have been a short negotiation. Either the public company would negotiate a little then accept, realising that this was the best offer, as otherwise they would not receive any money but would have to pay out a lot of closing costs, or they would refuse and my client needed to walk away.

So why did it take three months? Read More

How much should I pay myself?

When I’m consulting to startups or small businesses there is a perennial question: “am I paying myself the right amount?”

That really is a difficult question to answer.

On the one hand, I’d like to say that you should pay yourself what you would have to pay someone else to do what you do. That’s difficult enough as it is. After all, as business owner you are almost certainly doing things above and beyond a normal Job Description – long hours, things “beneath” a manager’s role, the literal bottle-washer. How much would you pay someone for all that?

On the other hand you did not start your business to earn a salary. What you put into the business will reap you the rewards a salary earner will never get – even though it may take a few years to eventuate. You will have equity, you will have the satisfaction of working for yourself, and perhaps the most powerful of all, you will fulfill your dream – the reason you started in business.

Watch this video for a discussion of what you will have to think about when you try to work out what you should pay yourself.

Let’s be honest. At the beginning, what you are likely to be able to pay yourself is simply what’s left in the bank at the end of the day! That can be difficult for business owners who are single income families with mortgages especially in the early days when cash available in the business is in short supply.

I’ve written before about how business owners need to realise they may have to make sacrifices, and this may be one of them.

However your reward really comes from the future, the building of a sustainable business with a base for growth, steady profitability and a structure that you can mould to your vision. Stick to the vision. Focus on what it takes to make your business successful. Be clear about quality and customer service. Stay determined and constantly on track.

Sure it gets hard from time to time, but work smart and work hard, plan your way forward and you will get there. When you do, the celebration is worth the sacrifice!

In the meantime, subscribe to our newletter here so that you can get all our resources, tools and tips to grow your business sent directly to your inbox for you to read and prosper from in your own time.

 

10 Business Opportunities in good or bad times

A couple of weeks ago I wrote about 10 business survival strategies in difficult times.

I received a ton of email telling me that you guys are actually having it good out there!

John from Sydney said that his office design business had never seen it so good! Peta, also from Sydney, said that while she did see ups and downs the sales in her online home-wares business was growing steadily. Anne and Peter told me that their cafe in Adelaide hit a rough patch last year but they seem to be recovering now. From London, Geoff who runs a house-clearance company (Steptoe and Sons?) says that with a little smart management he has maintained his sales while reducing costs.

That’s great!

So I thought this week I’d “balance the books”. Here’s a video about 10 business improvement opportunities that you can take advantage of in good time (or bad – see, I’m hedging my bets).

These are 10 things you really should look to do whatever the economic climate – they just make sense if you want to make your business be more efficient, be more responsive, be more profitable, and grow.

  1. Improve your business position, whether physical (better location), market share or quality products;
  2. Look for opportunities to buy out your competitors or their equipment;
  3. Increase the quality of your employees;
  4. Reorganise your finance facilities;
  5. Renegotiate property leases;
  6. Increase margins (by increasing quality and service);
  7. Eliminate unprofitable business segments or products;
  8. Restructure and reorganise operations for more efficiency or customer-responsiveness;
  9. Reorganise your office – put in more efficient systems to save time and cost;
  10. Review your long term personal goals.

OK people, send me more email about how you’re going! I love getting your ideas and your stories.

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