For a small business, one of the most difficult tasks is to collect on receivables: invoices.  Small business owners work very hard on building a strong relationship with each customer.  Many even become personal friends with clients.  Therefore, it can become very difficult to collect money when it’s due, and it gets harder and and more uncomfortable with each over-due minute.   But cash is cash and is the life-blood of our businesses.  So what’s the solution?

My advice is to have a very aggressive, disciplined cash collections process, as such:

1. Get your invoices out on time.  In fact, I say get them out early.  I used to send invoices to builders even before we were finished with our work, knowing that they typically pay 45-60 days out.
2. Be firm on your invoice.  Make the due date clear and consistent.  If you need to be a bank and offer terms, then getting this invoice out on time (i.e. early) is even more important.  Be sure to include a little nudge, like “please remit payment immediately.”
3. Give them a small grace period after the due date, but once they hit that date, send them a ‘nasty-gram’ immediately.  Politely inform them that payment is past-due and that you expect payment in full immediately.  This letter can be gracious and firm.  And because it’s a letter, it is impersonal enough that it shouldn’t get in the way of your relationship.
4. If the customer still hasn’t paid, then it’s time for a phone call: “Hey [name], can I stop by and pick up that check?”  Friendly, but with a firm expectation of payment.

You can come up with your own formula.  The point is to have some firmness and some discipline.  That sends a message to your customers that you expect payment, and they will start to put you at the front of the line when they write checks.  This will also help you maintain that great relationship because there won’t be any hard or uncomfortable feelings that go along with a long-outstanding invoice.

A while back, in another business, I found myself asking a supplier for extended terms to buy some equipment.  I had been a good customer and wanted to know if they could give me 60-days on a few invoices.  Their response, at first, really put me off: “Sorry, Stuart, but we’re not a bank!”  Not a bank?  What?  I was just asking for some extra time!

The point is a real understanding of cash flows.  You see, my supplier also had their own suppliers, whom they had to pay on time.  If they extended me some credit, then they’d have to find the cash to pay their own invoices.  They probably get that from a line of credit (I’m making some other convenient assumptions, here).   They pay interest for a line of credit to a BANK.  So, in order to make extended terms to their customers, they’d have to charge a fee/interest to cover their own fees/interest, thereby turning themselves into a bank.  They were smart enough to know that 1. they were not in the banking business, and 2. there ARE banks out there for that reason.

Why do I bring this up?  Because we’re talking about YOUR cash, the life blood of your business.  Don’t allow your customers to use you as an interest-free bank.  When you give ANY terms on your invoices, you are lending them money with zero interest.  Your goal should be to collect that cash as soon as possible.  So my advice: when asked for special terms, gently let them know you’re not in the banking business, but you know a few banks who might be able to help.

Much of the advice I give is in keeping focused on your end game, what I call the Big Picture Goal (BPG). It’s this focus, I believe, that will keep you busy doing the right things, those things that lead you to business success. It’s classic ‘Begin with the end in mind” strategy a la Covey, Collins, and Kiyosaki. But what happens when you finally get there?

Here’s what:

1. Set a new Big Picture Goal. Maybe your BPG was to get to $1,000,000 in sales and you made it. Now, you might set a new BPG of $10,000,000 or a second location doing the $1M. Alternatively, your BPG might have been more short term in order to ensure survival, and now you’re ready to look even bigger!
2. Sell the Business. An admirable end for any business is to sell it and retire financially independent. If that is what you have in mind, then start researching how a business in your industry is valued (multiple of sales, multiple of profits, value of assets, etc.) Then, you can start planning for the Big Sale!
3. The Succession Plan. You might want to step aside and have a new leader manage your business. Just as Bill Gates stepped aside and allowed a ‘real’ CEO to run his company, you might want to set up a plan of succession for a manager/CEO to take over the day-to-day operations of the business. That new manager can SMS text you the good news while you’re fishing!
4. Close the Doors. Sometimes, the owner is the talent of a micro-business, a talent that just can’t be passed on or sold. If this is the case, then a plan of creating investment savings from profits might be the end game. Yo u still want to leave this with financial security. However, I would still recommend you look for ways to replicate yourself (licensing, website, write a book, etc.).

So, what’s your end game?

First of all, don’t tell any advertising sales people about this blog, or they’ll know that we’ve got ‘em figured out. We’ve figured out a simple way to separate the good ones from the not-so-good ones. When you talk to a publication’s sales person, the first question they should ask is, “What are your objectives?” Unfortunately, the first question many of them ask is, “What’s your budget?”

Assuming we’re talking to the right ad rep, we need to have a good answer to the ‘What are your objectives’ question. Have you thought this through? Most of us haven’t when confronted with this insightful question. So, what are your objectives when it comes to advertising/marketing/promotions?

Consider these possibilities:

1. X number of new customers (say, 100 or 100,000 or 5)
2. A sold out event (example: 100 tickets sold)
3. X units sold on your online store (10,000)
4. Entry into a new market (a new city, state, or age bracket)
5. Introduce a new product/service (Introducing!)
6. Create a brand or identity (not a typical small business objective)
7. Increase traffic on the website (increase traffic by 50%)
8. Return on Advertising (NOT to pay for itself, but to return 10:1 Sales:Ad expense)

When defining an objective, it is important that it be clear, measurable, and realistic.

I read a John Ruskin quote that got me thinking: “There is scarcely anything in the world that some man cannot make a little worse, and sell a little more cheaply. The person who buys on price alone is this man’s lawful prey.”

I think the goal of any small business owner is to make their products a little BETTER and still a little CHEAPER to their customers.  We talk of customer service being the central strategy for small business owners, and we think of that in terms of interaction with our customers: problem resolution, building a relationship, personal attention.  However, when boiled down, customer service, serving the customers, can also be tied directly to the product: give them what they want at the best price.  That! is what will get them to buy from you.

As we get more efficient in producing and delivering our products; as we hammer our suppliers for better pricing; as we get more niche focused, we will have savings to pass along on products that are ever improving.  It’s a marketing evolution that will help a small business owner increase sales, market share, and happy customers.

As part of my consulting program and the Dashboard, I ask business owners, “What will it take for you to reach your Big Picture Goal?”  One of the key areas in answering this question is Finances, and invariably an answer is either ‘I need a loan’ or ‘I need a line of credit.’  I follow that one up with, do you know your banker?  One client answered, ‘My banker is whoever’s at the drive-through teller!’  That can’t be your answer.

Once, I was sitting in a meeting with a client when his phone rang.  He saw the Caller ID number and had to answer it.  “Okay…okay…yes…alright…thank you!”  It was his banker, calling to tell him he was about to bounce a big check.  He looked at me, apologized for having to run, and headed out to collect a receivable to cover the check.  Now, proper bookkeeping might have prevented this, but the point is this person knew his banker well enough for his banker to make that call and save him an overdraft charge, if not something more embarrassing.

There is a good article at sba.gov about this topic.  I’d recommend reading over it and then heading straight out to your bank and start building a relationship with your banker.

Every time I talk to a working musician, I tell them about Dick Dale’s video on YouTube. After a few more views, I realized that it’s a good lesson for any business owner, not just musicians. What are the lessons?

1. Start small and build your marketing budget/campaign as you grow. This way, you don’t spend away your much-needed cash.
2. Give away free samples. Let your market sample your work so they come back for more in the form of sales.
3. Create a great product. Marketing is asking people what they want and then offering it to them. Make sure they want what you’re selling!
4. Maintain control. I bet one of the reasons you started your business is that you have some ‘control freak’ in you. Well, that’s a good thing. Make sure you control your product, the rights to your product, and the messages around your product.

Check out the video:

As small business owners, we often are asked, “How’s business?”  It can be a tough question to answer because there are so many elements, some of which can be good and some not so good at the same time.  Sales might be up, but an employee is having problems.  Profits may be climbing, but a supplier is really dropping the ball on us.  So, while this question might be hard to answer when asked directly, I bet in your own mind, you are constantly answering the question based on one or two key observations of your business, or ‘metrics.’

I’ve gotten to know the owners of a certain local business over the past year or so.  Every time I get off the highway and drive home, I pass their shop.  And every time I do, I glance over to see how many cars are parked out front.  It’s an instant indicator of how business is doing.  I had a client a while back who measured her daily success by how often the phone rang.  To her, the ringing phone was orders calling in, business getting done.

While I try to get business owners to identify key metrics for their Dashboard (well-defined, measurable numbers), it is these less formal indicators that many of us look to to see how business is doing.  What are yours?  Here are a few more I’ve heard:

1. Cars in the parking lot
2. Phones ringing
3. Deliveries
4. Butts in seats
5. Presses running
6. Invoices printed
7. Email inquiries
8. Website visits

Take a moment to sit back and observe your business.  Look at the operations.  What stands out as an indicator of a busy day, a profitable day, a day that you would say, “Since you asked, business is doing quite well!”

Now that we’re positioned to take advantage of a slowing market, let’s get a few things ready to go for this wave that’s going to take away our competition.

1. Think about creating a ‘package’ of your product or service that moves from the ‘luxury’ end of the spectrum over towards the ‘needs’ end.  People are looking to cut back and reduce their budgets.  How can your business help them with that?
2. Customer Service.  Maybe now is time to offer that amazing “100% Money-back Guarantee!”  If your customers are going to hand over their hard-earned dough, they will be more likely to do so with such a performance guarantee.
3. Cash.  Now is time to get a line of credit.  Banks only give money to people who can prove they don’t need it, right?  Even though we’re getting prepared for this wave, there are likely going to be a few tough months or weeks ahead.  In order to get through them as best as possible, it would be great to have a little rainy-day fund available.
4. Marketing.  Keep it going.  Don’t cut back.  This would be a great time to analyze your past marketing efforts and see what’s working and what isn’t.  Start reallocating your money to those avenues that have the greatest payoff.
5. Expenses.  Look over your expenses and identify places that you can cut back.  I  challenge you to find three categories of expenses that you can reduce by at leat 25%.  I know you can do it.  Heck, just start refilling your printer/toner cartridges rather than buying new ones.  There, that’s one.

In football terms, it’s time to hunker down with a good power running game.  Protect the ball and run out the clock.  When all is said and done, you will be in a great position.

We’re hearing more and more bad news about the economy. Ed McCartney of the Arizona Minority Business Enterprise Center sent me an article from the Phoenix Business Gazette which summarizes survey results by the Small Business Research Board. Basically, small businesses say they are pessimistic about the economy, are slowing hiring, and project slower growth. In fact, less than half (48%) predict any growth at all (in sales)!

Great news! You are one of the lucky ones. You see it coming, and you are making adjustments. You have secured your line of credit for cash flows and have designed special products or packages just for a recession. You have also identified places in your business that you could be more efficient, saving you time and money. The better news is that your competitors have NOT made these moves. In the end, this economy is going to be a wave that washes away the weaker competition, leaving companies like yours around to reap the benefits.

It’s not going to be easy, and it might not be fun either; but, it’s going to benefit your business. When good times come back around, your business is going to see a much-deserved growth spurt from your increased market share.

So, cheers to the economy!