Slow Payment

In an article in today’s Wall Street Journal called “Slow Payments Squeeze Small-Business Owners”, Kelly Spors documents what most small business owners already know: customers are delaying payments.

I have to agree with her assessment that big companies are especially negligent in paying small companies on time. After all, who has the leverage? This, by the way, is not just the result of the credit crunch. For the past several years I have seen a growing trend of large companies backing their payments up 30, 60, even 90 days. The problem is just worsening.

Unfortunately, Kelly only documents the problem – she does not offer suggestions for how small businesses can get any relief. The reality is that there is no one simple answer.

Some things I recommend to my clients are:

1. Press for an advance deposit. Especially when custom work is done or material must be procured, a fifty percent deposit is not unreasonable. Then, don’t start work until the cash is in hand.

2. Always ask for the most favorable terms – you may not get them, but you never know what may happen when you ask.

3. Make sure you have fully met your end of the contract by delivering what the customer wants and when you promised to deliver.

4. Be aggressive about collection. This does not mean being nasty or sicking a collection agent or attorney on the customer before it is appropriate to do so. I tell clients that the sqeeaking wheel gets the oil. So, start with phone calls a few days before the invoice is due to politely ask on what date the check will be written. If the check is not received when expected, follow up with another call. Keep calling until payment is made. Document each communication with the customer.

Will Limkemann

Legal Advice

No, I’m not giving legal advice (I’m not a lawyer, don’t even play one on TV!). But I am constantly amazed at how often small business owners ask me for legal forms or advice that should only be given by an attorney. I think many folks are intimidated by lawyers and are afraid of stiff legal fees. I can understand how this may be the case for a small business person who contemplates dealing with a mega law firm. But I have met countless private practice lawyers and small firm attorneys who not only specialize in working with small businesses, but understand the economics of running a small business.

I was approached just this morning, asking if I could provide  “solid Employer and Employee Non-Compete Non-Disclosure Agreement”. Naturally, my response was a referral to an attorney who will be able to provide an agreement that will protect the rights of the specific employer, and which will ensure compliance with Ohio and US law.

There is a tendency of business owners to not go to their attorneys until there is trouble. Attorneys should be used the way doctors should be used – for prevention of problems.

Will Limkemann

Action Items

At the COSE Small Business Conference last week I sat in on a workshop dealing with effective meetings and time management. One of the significant “take aways” from the workshop is to always end each meeting with specific action items.

“Let’s think about it” is not an action item.

“Buy a new computer” is not an action item – it is a decision, or perhaps a project. A project consists of many action items. Decide on the first action item and it will get done. Additional action items will fall into place.

“Call Dell on Thursday for pricing on a laptop computer for Joe” is an action item.

This is good personal as well as business advice.

Will Limkemann

Planning

Over the weekend I went to my daughter’s home to check on the progress of the remodeling going on. She and her husband contracted with the local design/build firm called DesignTech to refurbish their house by redoing the kitchen and adding the equivalent of three bedrooms and a bath. This is a major project which is almost doubling the size of their home.

Demolition began about four weeks ago. Since then, the old garage has been torn down, new footers poured, framing has been completed, roofing done, plumbing installed, and electrical wires run. So, understand my amazement, when I saw all of this progress in under four weeks! I have heard so many horror stories of construction delays and mistakes, that seeing this was a breath of fresh air. Think of the co-ordination between and among all of the various trades – masons, carpenters, roofers, electricians, plumbers, sheet metal works, and more.

This kind of harmony can come about only through careful planning and project management. It is because my son-in-law was so impressed by the project management methodology used by DesignTech that they decided on this firm. Turns out to be a good call!

I can’t help but contrast this with lack of scheduling and planning I so often see in small manufacturing companies. They run in chaos. They are often late. They have upset customers. It is no wonder so many small companies fail – they fail to plan.

Kudos to DesignTech, run by Rich Hobar, and other companies like them.

Will Limkemann
Limkemann Business Advisors
440-871-0976

Increasing Prices

Many small business are caught between increasing costs and fear of raising prices. The reality is that, as most costs simply can’t be absorbed by the business, the only real alternative is to find innovative ways of increasing prices.

A study of one profitable business revealed that if they were to decrease prices by 10%, the result would be a loss. If, however, they were to increase prices by 10%, their profit would rise by 100%.

An article by Anne Field in the current issue of Businessweek Smallbiz magazine suggests four ways of raising prices without scaring off business:

1. Pass along the cost of fuel and delivery costs. Everyone feels the fuel pinch and can empathize with others who have to cope with the same problem. (Of course, right now the cost of fuel is not the issue it was even three weeks ago).

2. Implement “selective inflation”, by not raising the price equally to everyone. You may want to maintain current pricing on bigger and better customers, while raising prices for marginal customers and new customers.

3. Communicate what your are doing – especially to your larger customers. If you need to raise prices due to increased fuel and delivery costs, send letters to your customers explaining the tactic before the increase goes into effect.

4. Be creative in your pricing. For example, if you charge by the hour, perhaps you could move to a flat fee, and encourage greater employee productivity. You could also do what many packaged food companies are now doing – reduce the size of the product while charging the same price. Look at opportunities to keep your business running at between 80% and 90% of capacity. The article points out that running less than 80% increases overhead, while running more than 90% decreases productivity.

Will Limkemann
Limkemann Business Advisors
440-871-0976
www.neobizadvisor.com
will@limkemann.net

Passion

Well, I’ve just returned, exhausted, from the last day of the COSE (Council for Smaller Enterprizes) Small Business Conference. I was proud to be the honorary chairman of this, the third annual, successful conference which brought together over 1200 small business owners.

The outstanding keynote speakers were Michael Symon (The Iron Chef), John Moore the marketing mastermind behind Starbucks and Whole Foods, and Debbie Fields of Mrs. Fields Cookies.

Aside from the common theme of food, the permeating message in all three addresses was passion. Passion is the entrepreneur’s capital. Passion for the business/product/service/customers/employees is the entrepreneur’s driving force. Passion makes anything possible. All three speakers said, in their own way, that a business started with the primary goal of making money is set up for failure. A business founded on passion and determination is set up for success.

How passionate are you?

Will Limkemann
Limkemann Business Advisors
440-871-0976
www.neobizadvisor.com

Employees

I have just come back from the first day of the COSE (Council for Smaller Enterprises) third annual small business conference, which I had the privilege of chairing this year. Over 1200 people have registered. the second and final day is Thursday.

This was a great day with keynote addresses by Michael Symon (the Iron Chef), and John Moore, the marketing guru behind Starbucks and the Whole Foods Market.

Both Micael and John stressed the importance of employees to an organization. Michael said that “Employees are the best reflection of your business there is”. Train employees and treat them they way you would want to be treated. John Moore echoed this by saying “Make employees happy and you will make customers happy”.

Well, they said a lot more than that! But I found these tidbits about employees refreshing.

Thursday will be kicked off by a keynote talk by Debbie Fields (of Mrs. Fields Cookies).

The Economy

I had lunch yesterday with a group of about 20 other business owners at the Federal Reserve Bank in Cleveland. Through COSE, the Federal Reserve had gathered us to talk to us briefly about where they see the economy, but more important, they wanted to get a snapshot of the economy through the eyes of small business owners. I commend them for the initiative. I was honored to be included.

The Fed’s presentation was  a series of graphs, with commentaries on the graphs, the gist of which was that an economic recovery is anticipated half-way through next year. Honestly, I really do not think the experts have any better crystal balls than the rest of us do!

Some of the owners present indicated that their businesses had not yet seen a negative turn due to the current crisis. Many, however, did relate real concern for their businesses. Concerns about getting new credit, and even keeping existing credit lines with banks, was mentioned a number of times. One person pointed out that the fine print in credit line agreements allows the bank to change the terms or even terminate the line at any time.

A commercial builder was distraught because his lumber supplier, a third generation company, has just closed due to lack of credit and falling lumber prices. The builder is also concerned that tight credit will also either delay or cancel future projects.

A large candy maker is solving her credit concerns by requiring a 50% deposit with all orders.

On the positive side, a software developer who helps larger companies with document management systems, said her company is doing very well, although payments are getting slower. I do believe that businesses, like hers, which improve productivity should be quite recession-proof.

I give the Feds credit for listening to small business owners. I hope they, and other government agencies, do much more listening in the future.

Will Limkemann
Limkemann Business Advisors
440-871-0976
www.neobizadvisor.com

Annual Performance Reviews

I have always dreaded the annual performance review – as a boss and an employee. As an employee I always wondered what shoe was going to drop that might preclude the raise that I was expecting. As a boss I always felt that that no matter how well an employee performed, the review needed to show areas where improvement was needed. Consequently, as do many small business people, annual reviews were not at all annual – often not happening at all.

I know I am not alone. Yet the corporate ritual persists!

So I was delighted to see the refreshing article in today’s Wall Street Journal by Samuel A. Culbert titled Get Rid of the Performance Review.

After discussing all of the reasons why the performance review does not work, Mr. Culbert suggests an alternative. His advice is to replace the boss-administered performance review with a collaborative performance preview. The preview would enable boss and employee to mutually discuss both their performances and negotiate ways for both to improve. For example, where an employee who might be deficient in some aspect of the job performance, the employee and boss would agree upon a plan where the boss would provide additional mentoring and support.

Mr. Culbert says, “Holding performance previews eliminates the need for the boss to spout self-serving interpretations about what already has taken place and can’t be fixed. Previews are problem-solving, not problem-creating, discussions about how we, as teammates, are going to work together even more effectively and efficiently than we’ve done in the past. They feature descriptive conversations about how each person is inclined to operate, using past events for illustrative purposes, and how we worked or did not work well inidvidually and together.” Rather than being annual, the performance preview would be held whenever the need might arise.

A preview would require a change in attitude by the boss. Rather than being one to mandate, the boss would need to learn to to inquire and to listen! It requires discussion about how boss and employee can work best together as a team. This does not remove authority; it removes intimidation. But the potential for improved productivity is immense.

Mr. Culbert concludes: “Keep in mind, of course, that improvement is each individual’s own responsibility. You can only make yourself better. The best you can do for others is to develop a trusting relationship where they can ask for feedback and help when they see the need and feel sufficiently valued to take it. Getting rid of the performance review is a necessary, and affirming, step in the direction”.

How innovative.

Will Limkemann
Limkemann Business Advisors
440-871-0976

Extending Credit

So often I have had clients complain about getting paid (or worse not getting paid at all) by customers to whom they have extended credit. I know how exciting it is to sign up a new customer and, with the intent of doing the right thing for the customer, immediately shipping goods along with a net 30 invoice. Big mistake!

Never, ever, extend credit terms until you can get a solid sense that the customer is credit worthy – especially when the business is a small privately held company.

Your process for extending credit needs to include a credit reference form. After signing on the customer, fax your credit form and ask for it to be filled out and faxed back. (There are a number of web sites and office supply stores that can provide standard forms). The information should include: complete contact information of the company owners as well as the accounts receivable manager; a Dun and Bradstreet DUNS number; banking information including bank address, phone number, manager name, account number; and trade references for at least three suppliers. Call the suppliers and ask how promptly the customer pays, and whether they have ever had problems collecting. If possible run a D&B report and carefully review it.

If the customer appears to be solvent and credit worthy, go ahead and extend credit. Track payment history on the first shipment before deciding to sell additional product on credit.

If the customer does not appear to be credit worthy, or you are otherwise concerned about their ability to meet your terms, suggest either: a) shipping COD, getting advance payment, or getting paid by credit card.

If you lose a customer because you will not offer credit – you have probably won! You most likely would have eventually either received payment very late, received partial payment, or not gotten a red cent!

Will Limkemann
Limkemann Business Advisors
440-871-0976
www.neobizadvisor.com