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Seven Dirty Little Sins That Stop Owners from Getting Their Business to the Next Level

Are you guilty of the 7 sins that hold your business back?  Many business owners are!  Read on to see if you are avoiding these pitfalls…

Sin #1 – Working “in” your business instead of “on” your business

Many business owners are consumed by the phone ringing or the next crisis, and worse than that, many owners feel lost or not in control unless they are “handling things”.  If you analyze the things you do in an average day, are you working in your business?  Are you spending all your time handling the next crisis?  Do employees line up at your door to get your decision on things?

Sin #2 – Failing to create a marketing plan

Many business owners send their sales people off to generate sales, without focusing or controlling their efforts.  The result?  Sales people are inefficient and will “spin their wheels” on customers or projects where there is little hope of success.  Look at the market and types of customers you have now, and then define the markets and type of customers that would like to have in the future.  Now support the sales people with training specific to the customers and markets, do advertising focused on those areas and watch the business grow!

Sin #3 – Failing to differentiate yourself in the market

It has been said there are really only two competitive strategies; low cost and differentiated.  Most small businesses will not be able to achieve the lowest costs in the market, so that leaves only one strategy for the vast percentage of small business owner…differentiate or die.  Of course having a bunch of unique differentiators for the business doesn’t do you any good if those benefits are no communicated clearly and concisely to potential customers.

Sin #4 – Failing to implement systems

Businesses as they grow require defined system in order that the outcomes are controlled and predictable.  Unfortunately many small business owners do not take the time to systemize their business.  The results?  First of all, see sin #1…they are consumed by the business and the people cannot make decisions without them.  Second, the results can be haphazard or unpredictable, service level may vary widely depending on who is answering the phone.  Consider the acronym S-Y-S-T-E-M (Save Yourself, Stress, Time, Energy and Money) to understand the benefits of systems.

Sin #5 – Failing to measure results

A wise person once said, “What gets measured gets done”.  Make sure you are measuring the results as objectively as possible.

Sin #6 – Failing to delegate effectively

Many owners and managers like to control things.  In fact, this can be one of the major reasons the owner went into business in the first place, to control his own destiny.  However, many times control results in the owner failing to delegate.  The result?  You get busier and busier.  Soon you are working 60 hours per week and there is never enough time to get everything done.

Sin #7 – Failing to hold people responsible

In order to effectively hold people accountable for their results, it is extremely important that you set the proper expectations in a clear and concise manner.  Of course this requires that you avoid the two sins above!  It is then important to have periodic reviews of the results and communicate with the employee about their effectiveness.  This is best accomplished by asking the empoyee to report on their progress, and identify the areas where they are having difficulty or need assistance.

Conclusion

Stay focused and make progress every day on something that moves you forward on a sustainable path.  Do these changes come easy?  Of course not.  If it were easy, you would have done it already.  However, once your plan gains some momentum you will be amazed at the results.

A Word About Using This Report

In order to get value from this report you will need to do the action items and implement the strategies in your business environment, and sometimes this can be challenging.  You will need to be persistent and diligent in your follow-up.  You won’t get any positive results unless you take action on the information and strategies outlined!

About the Author

Mr. Ray Smalley is a veteran CEO who works with owners and managers who are frustrated with their business performance.   He is a specialist in business troubleshooting and strategy.

He has led the management team for companies that include manufacturing, technology, service and construction, from $3 to $50 million in sales.  In each case, he achieved outstanding increases in sales and profits in very mature or declining markets, including turnaround situations.  He is able to provide leadership for all levels of the organization and effectively manage change.

Mr. Smalley graduated with the top award in his engineering class and graduated from Honeywell’s internal Executive Management Program presented by Harvard Business School.

(c) 2013 Ray Smalley, VenPlan LLC  All rights reserved.

The contents of this paper are copyrighted and, as such, may be used for personal use only.  Duplication and/or commercial use of this material is expressly prohibited without written permission of the author.

 

 

 

How One Business Owner got $1 Million More for his Business

This case study reviews how one owner got an extra $1 million on the sale of a business.  The business name and details have been omitted to protect the confidentiality of the owner and purchaser.

The Situation

A small business owner was nearing retirement and was interested in selling his business. The business was very profitable, with a bottom line of about $400,000 on sales of $2.5 million.  The business had grown about 5% per year over the past 3 years.

The Problem with Brokers

Several business brokers had approached the owner.  They wanted fees to prepare a business profile so they could market the business.  And they attached an asking price of about $2.5 million, and figured the business would sell for $2 million.

While this is a respectable amount of money, the owner felt he would go to a professional, independent person to do a business plan.  The owner recognized that the broker was really interested in doing the transaction, not in maximizing the selling price.

Step 1 – Business Analysis

In order to maximize the value of the business, it is necessary to understand the business, how it goes to market, what the costs are, and what the future potential is for the business.  All this was documented in a business plan format.  In addition, we documented the future plans for the business, which included ISO9000 certification and implementation of a computerized manufacturing system.

Step 2 – Restate the Financials

The next step was to restate the financials, so the owner related expenses were removed from the costs including car expenses, owner salary and bonuses, payments made to family members and so on.  The financials were adjusted going back 5 years.  Then the salary for a general manager was added.  The profit now truly reflects the return on investment that an outside investor would expect to receive from owning the business.

Step 3 – Develop the Business Case

The next step was to build the business case for the future.  The owner purposely restricted the business growth to 5% per year, so the business would not grow beyond his ability to manage it.  .  It was determined the business was constrained by limiting inventory, and by limiting the sales efforts.

By removing these limitations and injecting the cash required to execute a more aggressive plan, the projections showed a growth rate of 20% for 5 years.  This would double the business over that period.  The business plan was completed on this basis.

This business case showed the present value of this business was now $4 million.

Step 4 – Prove the Business Case

Once this new business plan was presented to the brokers, they immediately said they could get $3 million for the business.  Of course everyone discounted the projections, saying they were theoretical.

But we decided to go one step further.  What if we took one year and ran the business the way the plan outlined?  What if we could grow the business 20% doing the things laid out in the plan?

We did just that.  The business grew 20%, right on the target numbers.  The ISO9000 system was completed and the computerized manufacturing system was operational.

We had proven the business case, and shown the business could grow at 20% per year using the tactics laid out in the plan.  This greatly increased the value of the business!

The Results

The owner was able to sell the business for $4 million, and with better terms than first proposed by the business brokers.

Lessons Learned

It pays to prove your point.

Conclusion

Stay focused and make progress every day on something that moves you forward on a sustainable path.  Do these changes come easy?  Of course not.  If it were easy, you would have done it already.  However, once your plan gains some momentum you will be amazed at the results.

A Word About Using This Report

In order to get value from this report you will need to do the action items and implement the strategies in your business environment, and sometimes this can be challenging.  You will need to be persistent and diligent in your follow-up.  You won’t get any positive results unless you take action on the information and strategies outlined!

About the Author

Mr. Ray Smalley is a veteran CEO who works with owners and managers who are frustrated with their business performance.   He is a specialist in business troubleshooting and strategy.

He has led the management team for companies that include manufacturing, technology, service and construction, from $3 to $50 million in sales.  In each case, he achieved outstanding increases in sales and profits in very mature or declining markets, including turnaround situations.  He is able to provide leadership for all levels of the organization and effectively manage change.

Mr. Smalley graduated with the top award in his engineering class and graduated from Honeywell’s internal Executive Management Program presented by Harvard Business School.

(c) 2013 Ray Smalley, VenPlan Inc.  All rights reserved.

The contents of this paper are copyrighted and, as such, may be used for personal use only.  Duplication and/or commercial use of this material is expressly prohibited without written permission of the author.

 

 

 

How to get more done in less time

Do you feel that you need to be getting more done in less time?  Many times we all feel overwhelmed with the tasks at hand.  It is a full-time job to handle the day-to-day problems and issues and there is no time to think about tomorrow, investigate improvements or move the business forward significantly.

The keys to productivity:

  1. Be organized.
  2. Plan things in advance.
  3. Focus on one thing at a time.
  4. Get one thing done completely.

Easy to say…a little harder to do.  The key to change is to break old habits and replace them with new habits.  Outlined below are various techniques designed to help you develop these new habits for better efficiency.

Ready, Aim, File

Just as you wouldn’t tolerate a shop floor where things are all over the place and disorganized, likewise office workplaces should not be disorganized and cluttered.

In Tray System

First, go to your in/out tray.  This tray system should be organized as follows:

IN:                   Items never touched.  Do not put things back in here!

PENDING:      Short term items to be waiting for information from others.

OUT:               Items to be forwarded to another person.

READING:      Reading material to be blocked together at another time.

Þ    Action Item:  Organize your trays

Files

Next move to your files.  We break files into work files, project files and reference files.

Work File:

  1. Basic Information
    1. Phone list
    2. Etc.
  2. Tickler
    1. Week 1
    2. Week 2
    3. Week 3
    4. Week 4
    5. Jan
    6. Feb
    7. Etc.
  3. Meetings
    1. Manufacturing Meeting
    2. Staff Meeting
    3. Etc.
  4. Follow-up
    1. Person 1
    2. Person 2
    3. Etc.
  5. Work Specific Files
    1. File 1
    2. File 2
    3. Etc.

The basic information section of your work files should include files of items that you need for reference on a daily basis.  These files must be close at hand!

The tickler file system should include tabs for the weeks (or days) of a month, and files for each month.  Information that is needed for a specific month can be placed in the particular months while an entry is made in your schedule to remind you.

The meeting files are designed to document items to be handled at the next meeting.  Write the item on a sheet of paper and throw it in the appropriate meeting file.  When you are preparing for the meeting you will be reminded of all the items that you need to cover.

The follow-up files allow you to place items to discuss with each person in their file.  The next time you meet with them open the file and you will be reminded of all the items to be discussed and dealt with.

The work specific files are those things that you work on a daily or weekly basis and are required for your normal routine.

Þ    Action Item:  Set up your work files.

Current Project Files:

  1. Project 1
  2. Project 2
  3. etc

Current project files should be kept separate from your routine files.  File everything to do with the project in the particular file.  Keep follow-up notes in your schedule.

If a project has a lot of bulk associated with it file a spot that allows you to pile al the related material together.

Þ    Action Item:  Set up your project files.

Reference Files

  1. Reference file 1
  2. Reference file 2
  3. etc

Reference files are those that may be required from time to time for reference but are not used in the regular routine of your job.

Þ    Action Item:  Set up your reference files.

Desktop

Now tackle your desktop.  It should be cleaned up!  Get project things into project files, follow-up things into follow-up files.  Throw out junk!  All of it!  You are not finished until everything is filed and your desk is clean.

Þ    Action Item:  Clean your desktop.

Þ    Plan, Plan, Plan

It is essential to plan things out, otherwise there is a tendency to run from thing to thing and accomplish little or get little actually completed.  We all know it is better to finish a project once we’re into it, rather than go back and forth 16 times.  Each time we open the file we have to remember where we were and what we were doing.

Planning is not that difficult, but it does take some discipline.  Planning also give you a visual representation of the work to be done.

Weekly Planner

I prefer to plan using a dairy that has scheduled events on one side and items to accomplish for the week on the other side.

 

Monday

9-10:  Staff meeting

 

Tuesday

 

Wednesday

2-5:  Project work

 

Thursday

 

Friday

Things to do

  • Item 1
  • Item 2
  • Item 3
  • Etc

 

Some people may prefer to use a daily planner but I would advise against this approach.  A daily planner does not provide you enough visibility.

Þ    Action Item:  Set up your weekly planner.

What to Plan?

Schedule things that will take some time to accomplish.  Leave open time blocks for other more routine items.

Project Planning

Most projects will require there our project plan, however the approach here is slightly different.  In this case we want to see the progress of the project and the responsibilities.  The individuals involved should schedule their responsibilities in their weekly planner.

 Project:  Implement Manufacturing Software                                                   Target Date:  April 1

 

Project Details:  Implement the sales order entry and shipping system in the manufacturing software. 
Action Item Person Target Date Date Complete
1.  Collect customer list John 1-Mar
2.  Input customer list John 5-Mar
3.  Enter parts lists and prices George 1-Mar
4.  Test system George 7-Mar
5.  Review with manager for approval to proceed Manager 9-Mar
6.  Enter all new orders on system as they arrive John 10-Mar
7.  Enter all outstanding orders George 15-Mar

Handle Things At Once and Only Once

People can only do one thing at a time, but you wouldn’t know it by the way some people operate in the office.  You can’t run from thing to thing and expect to be effective.

What is the sense of going through an in-box and then putting everything back?  Then going through it all again later?  But many people do it.  They think it helps then to stay organized.  But is doesn’t!  To be efficient you need to handle things at once and only once.

For instance, take the top item in your in-box.  Deal with it right away.  File it, respond to it or otherwise deal with it.  In some cases it make take 2 hours to deal with an item, so in this case schedule it and then file it in your tickle file for the appropriate date.

Block Your Time

Many times work of similar types can be grouped together and handled in a block.  This is more efficient.  For instance, reviewing the items in your inbox at one time, returning phone calls at one time, or responding to your email are all handled more efficiently when they are grouped together.

Interruptions are one of the most serious productivity drains on business.  They occur for several main reasons:

  1. You haven’t finished something on time and now you’re dealing with the consequences.
  2. Other people are disorganized.
  3. There has been poor communication.
  4. The phone rings.

Control interruptions.  Have people schedule meetings for non-urgent things.  Remember at those meeting block everything together than needs to be discussed with that person and deal with it all.

Follow-up

Just as you need to ensure that you get your tasks done properly and on time, you need to ensure that other people follow-up and return information to you on a timely basis.  Your follow-up system needs to be streamlined and relentless.  Your people need to understand that when they commit to doing something by a certain date that it must be done, or they need to report back to you that they are having trouble and would like to defer the date.

It’s All About Systems

Are there routine things that you need to do, or have done, that require a lot of effort and concentration to prepare?  These things need to be moved into smoothly operating systems.  Things that should be done using documented systems include:

  1. Sales order entry system
  2. Estimating systems
  3. Shop release systems
  4. Quality systems
  5. etc

 

Other things that should be systemized:

  1. Month end sales and bookings reports
  2. Standard cost analysis
  3. Financial reports
  4. Productivity measurement systems
  5. etc

In other words, information critical to the operation of your business should be generated monthly and automatically without people having to chase it down or ask for it.

Conclusion

Stay focused and make progress every day on something that moves you forward on a sustainable path.  Do these changes come easy?  Of course not.  If it were easy, you would have done it already.  However, once your plan gains some momentum you will be amazed at the results.

A Word About Using This Report

In order to get value from this report you will need to do the action items and implement the strategies in your business environment, and sometimes this can be challenging.  You will need to be persistent and diligent in your follow-up.  You won’t get any positive results unless you take action on the information and strategies outlined!

About the Author

Mr. Ray Smalley is a veteran CEO who works with owners and managers who are frustrated with their business performance.   He is a specialist in business troubleshooting and strategy.

He has led the management team for companies that include manufacturing, technology, service and construction, from $3 to $50 million in sales.  In each case, he achieved outstanding increases in sales and profits in very mature or declining markets, including turnaround situations.  He is able to provide leadership for all levels of the organization and effectively manage change.

Mr. Smalley graduated with the top award in his engineering class and graduated from Honeywell’s internal Executive Management Program presented by Harvard Business School.

For a free phone consultation, Ray Smalley can be reached at 1-800-596-0351

(c) 2013 Ray Smalley, VenPlan Inc.  All rights reserved.

The contents of this paper are copyrighted and, as such, may be used for personal use only.  Duplication and/or commercial use of this material is expressly prohibited without written permission of the author.

 

 

 

How to Define and Measure Progress

When was the last time that you made a declaration?

“We have to ship everything on time!”

“We need better customer service.”

“We must increase sales.”

Goals vs. Declarations

We all do it…but to be effective you need to define your targets in terms of SMART goals.  A SMART goal is:

  1. Specific
  2. Measurable
  3. Actionable
  4. Realistic
  5. Time Frame

In this paper we will focus on the measurements of critical goals that represent the health and well being of the organization.  These Key Performance Indicators or KPI’s help an organization define and measure its progress towards it critical goals.  An example of a SMART goal:

Target:  Increase sales by 5% this year as measured on a year-to-date comparison basis with last year.

This goal is specific and measurable.  It is actionable by the people whose performance is being measured.  And it is realistic and has a time frame attached to it.

Key Performance Indicators Measure the Critical Goals

The Key Performance Indicators must be chosen carefully and must reflect the key targets and goals of the organization.  For instance, if your organization is determined to deliver products within one week of order placement, then you might measure the percentage of order shipped within one week.  If your key target is quality, then you might measure the percentage of customer complaints or returns.

Be Careful What You Measure – You Might Get It

In setting targets to measure you need to be very careful that you are measuring and controlling the right elements in the business.  Sometime a target that sounds simple at the beginning ends up being a disaster.  For example, if you measure the number of units shipped per month you may encourage employees to push things out the door faster, however they may not be careful with the quality issues and the increased volume may end up increasing customer returns to the point that you are actually worse off than before you started.

Use KPI’s as a Management Tool

Once you have decided on all the KPI’s that you would like to focus on, what could you do with them?  You use these KPI’s as a way to create visibility for the corporate goals.  Post them on the wall, in the lunchroom, at workstations…wherever the affected employees will see them.  People will ask questions and get interested.  And interested employees can be very productive and effective employees.

Selecting Key Performance Indicators

In setting up your KPI system start with a few basic financial indicators.  For instance, this may include:

Financial Indicators

  1. Sales vs. last year
  2. Sales vs. target
  3. Gross margin percentage vs. target
  4. Profit vs. target
  5. Cash balance vs. target
  6. Days Receivable
  7. Days Payable

From there you want to determine the key drivers in your business and set up systems to measure the performance in these areas.

What are key drivers?  These are the items that are critical to your success.  Some examples of key drivers in the manufacturing business are:

Cost Indicators

  1. Machine run time
  2. Emergency breakdowns rate
  3. Labor vs. Standard
  4. Scrap percentage vs. standard
  5. Rework
  6. Defective parts rate
  7. Supplier delivery performance
  8. Supplier quality acceptance rating
  9. Staff turnover
  10. Production floor dwell time
  11. Sales per employee
  12. Inventory turns
  13. Days of finished good inventory
  14. Days of raw material inventory
  15. Delivery to promise percentage
  16. Number of customer complaints
  17. Number of product returns
  18. Order to ship time
  19. Number of sales leads
  20. Quote rate
  21. Ratio of sales to leads
  22. Backlog

Inventory Indicators

Customer Service Indicators

Sales Indicators

Presentation of Key Performance Indicators

Many people have their preferences for presenting performance information, however in cases where the data is historical or where you need a trend shown it is often best to present the data in a graphical format.

Key Performance Indicators

The type of presentation shown above combines the need for visual trends with the need for numbers.  You will notice that the target is shown as well as the actual performance.

Action

It’s not what you measure, but what you do about what you measure that counts.  All this focus on Key Performance Indicators will be lost if you fail to take action.

Action Planning

The first thing the KPI system will do is to create visibility, and then you will have to analyze the situation to determine the correct course of action.

How Many Key Performance Indicators Do You Need?

Some businesses evolve to the point where they have 30 to 40 Key Performance Indicators showing all aspects of the business, from financial to shop floor and customer service.  It is important however to start with a few simple KPI’s.  Remember the key is to manage the outcomes, and at the beginning it is impossible to focus on 30 indicators.

Conclusion

Stay focused and make progress every day on something that moves you forward on a sustainable path.  Do these changes come easy?  Of course not.  If it were easy, you would have done it already.  However, once your plan gains some momentum you will be amazed at the results.

A Word About Using This Report

In order to get value from this report you will need to do the action items and implement the strategies in your business environment, and sometimes this can be challenging.  You will need to be persistent and diligent in your follow-up.  You won’t get any positive results unless you take action on the information and strategies outlined!

About the Author

Mr. Ray Smalley is a veteran CEO who works with owners and managers who are frustrated with their business performance.   He is a specialist in business troubleshooting and strategy.

He has led the management team for companies that include manufacturing, technology, service and construction, from $3 to $50 million in sales.  In each case, he achieved outstanding increases in sales and profits in very mature or declining markets, including turnaround situations.  He is able to provide leadership for all levels of the organization and effectively manage change.

Mr. Smalley graduated with the top award in his engineering class and graduated from Honeywell’s internal Executive Management Program presented by Harvard Business School.

For a free phone consultation, Ray Smalley can be reached at 1-800-596-0351

(c) 2004 Ray Smalley, VenPlan Inc.  All rights reserved.

The contents of this paper are copyrighted and, as such, may be used for personal use only.  Duplication and/or commercial use of this material is expressly prohibited without written permission of the author.

 

 

10 Step to Successful Management Meetings

We’ve all been to them.  You know.  Those meetings where a half-hour of content is packed into an 8-hour meeting.  Don’t let your business suffer from meaningless meetings.  To be successful meetings are like any other business activity…it takes work and effort to get it right.  After all, if it were easy none of us would have ever attended a bad meeting.

#1 – Circulate Information Before the Meeting

Have information to be discussed at the meeting circulated before the meeting.  This includes the department manager’s monthly reports, financial information and key performance indicators.  Insist that people review the information and think about any concerns or discussion points.  The result will be a discussion of exceptions rather then people reading through reports during the meeting.

#2 – Have an Agenda

A meeting without an agenda is like a trip without a map.  If you don’t have a destination and a route planned, then there will be lots of stops along the way and you will tend to go in circles. I like to follow this general outline for management meetings:

  • Review of previous meeting action items
  • Review & discussion of financial info (monthly)
  • Review & discussion of key performance indicators (monthly)
  • Review of department reports (monthly)
  • Review progress on strategic initiatives (monthly)
  • New items, issues and opportunities.
  • Specific topics to be discussed (list them)
  • Date/time for next meeting

#3 – Start on Time

If your meeting is scheduled to start at 8 AM, then start promptly at 8:00, not 8:05 or 8:15.  There is nothing worse than 10 people waiting for 1 person so the meeting can start.  Don’t let this happen.  Start the meeting without the late person, and then abruptly stop the meeting when the late person arrives.  Remind them that meetings start promptly at the specified time.  If they persist, handle it off-line in a private discussion.

#4 – Keep It Short

The purpose of management meetings is to update everyone on actions being taken, issues to handle, and so on.  Keep them short.  I suggest 30-60 minutes once per week and 2 hours once per month

#5 – Keep the Meeting on Track

Have a timeline for the meeting agenda and stick to it.  Do not allow long-winded explanations…gracefully force people to be brief and to the point.  Don’t let people take the meeting off track with unrelated topics.  Politely stop these digestions quickly and get everyone focused on the topic at hand.

#6 – Do Not Allow Interruptions

Short of the building burning down, or a medical emergency, other things can wait the 30-60 minute duration of the meeting.  An interruption by one person running off to take a phone call will be a time waster for everyone in attendance.

#7 – End on Time

A meeting without an end time is like a trip without an end.  Ending the meeting on time creates a sense of urgency during the meeting.  Topics will be handled faster and more to the point.

#8 – Handle Bigger Issues Off-line

Have a problem with the production department, or need to launch a new marketing initiative?  Then plan a separate meeting to deal with that topic, and only invite the people necessary.

#9 – Produce Minutes Quickly

There is nothing dumber than producing minutes for a weekly meeting 3 or 4 days after the meeting.  If you want people to have the action items done and operate effectively, the minutes have to be done as quickly as possible after the meeting.  One manager I worked with had the minutes distributed to everyone with 30 minutes of a meeting finish.  Why not?  It doesn’t take any more effort.  He told me “If you want people to work on the assigned items, you have to produce the list.”  Makes sense to me.

#10 – Do Rigorous Follow Up

If someone says they will have something done by a certain date, make sure it is.  If it is critical, this should be done the day before the item is due.  If it’s not critical, then maybe it can wait until the next weekly management meeting.

Conclusion

Stay focused and make progress every day on something that moves you forward on a sustainable path.  Do these changes come easy?  Of course not.  If it were easy, you would have done it already.  However, once your plan gains some momentum you will be amazed at the results.

A Word About Using This Report

In order to get value from this report you will need to do the action items and implement the strategies in your business environment, and sometimes this can be challenging.  You will need to be persistent and diligent in your follow-up.  You won’t get any positive results unless you take action on the information and strategies outlined!

About the Author

Mr. Ray Smalley is a veteran CEO who works with owners and managers who are frustrated with their business performance.   He is a specialist in business troubleshooting and strategy.

He has led the management team for companies that include manufacturing, technology, service and construction, from $3 to $50 million in sales.  In each case, he achieved outstanding increases in sales and profits in very mature or declining markets, including turnaround situations.  He is able to provide leadership for all levels of the organization and effectively manage change.

Mr. Smalley graduated with the top award in his engineering class and graduated from Honeywell’s internal Executive Management Program presented by Harvard Business School.

(c) 2013 Ray Smalley, VenPlan Inc.  All rights reserved.

The contents of this paper are copyrighted and, as such, may be used for personal use only.  Duplication and/or commercial use of this material is expressly prohibited without written permission of the author.

How to Solve Problems Permanently

We all have them.  Those nagging business problems.  They are part of business life.  You can’t escape them, and no matter how many problems you solve, there always seems to be a new one you couldn’t have dreamed up in your wildest imagination.

But are you really solving your problems?  Or are you just fire fighting?  The problem with putting out small fires all the time is that they have a bad habit of re-occurring.  The result is that problems accumulate and multiply.  Then before you know it, the house is burning down.

Sometimes there is a tendency to solve the current problem without really solving the cause of the problem.  We all do it.  We solve the crisis of the moment.  Then we’re on to the next thing.  Is this bad?  Well yes and no.  Clearly there are not enough hours in the day to stop and solve all the problems in the business by going through a long problems solving exercise.  As much as you might like to solve all the problems, the fact is…it’s just not practical.

So the first point is balance.  You cannot solve all the problems at once.  In fact, you can only solve them one at a time.  You need to make them line up.

But I never have time…

The 10% rule

By definition everyone is always busy, there is never enough time.  This is true for employees and it is certainly true for owners and managers.

But if you are going to solve problems you have to start somewhere.

I took over a business a few years ago that was purchased out of bankruptcy.  The business was losing $100,000 per month with no end in sight!  Talk about being in firefighting mode.  And to top it off many of the key staff were working 50-60 hours a week.  Obviously not a good situation.  How can you implement change when your core staff is already working overtime?  They didn’t even want to think about going to a meeting to do problem solving.  And hiring additional people was out of the question.

I knew that if we didn’t get out of our cycle, the business would fail.  I got everybody into a meeting and explained our dilemma.  Then I asked everyone to commit to 4 hours per week, or 10% of our time, to work on solving problems and to work on longer-term strategies.  I asked them to do this for one month, and at the end of the month we would evaluate how we were doing and whether they wanted to continue committing 4 hours per week to longer-term problem solving.  In order to be effective I asked them to do this 4 hours of work in no more than 2 blocks of 2 hours and it had to be done “off hours” when the phone was not ringing.  They could schedule the time as they saw fit.  They agreed.

We all set aside 4 hours per week, or 10% of our time, to working on problems and issues…

Set Stretch Targets

At our first meeting, I set a target to “double the business with no additional overhead staff”.  We sent the sales managers went off to figure out how to do double the business, while the rest of us starting discussing operational issues.

The very first comment from one of the engineers was “How are we going to handle twice the business if we are already working overtime?!!”

“Well I guess you can’t do things the way you have been doing them.” I responded.

“But if we are working 50+ hours a week now and we double the business, we will be working 100 hours per week.”  But I look at this another way…jobs that took 16 hours to do in engineering would have to be done in about 4-5 hours.

Impossible?

Well there are some interesting dynamics to problem solving.  If you ask someone to improve things by 10% you will get a faster way of doing things the same way.  But if you ask them to do it in half or one-quarter the time, they have to rethink the entire process.  The old ways will simply not work anymore.

By the way, the person who voiced this comment ended up doing his “16 hours of work” in 2-3 hours, and the sales managers figured out how to double the business.

But it wasn’t done overnight…

Rome wasn’t built in a day.

One day a number of years ago I was driving into Boston.  Lost again in the maze of changing routes and construction caused by the “Big Dig”.  Drivers had been complaining for years about the mess, until one day there was a huge billboard that was erected:

“Rome wasn’t built in a day…if it was, we would have hired their contractor”.

Of course we want to solve all the problems, and we want to solve them all today.  But the truth is, it takes time and staying power.  You need a plan, then you need to chew away at it, one bite at a time, and you need to keep chewing.

If you are not prepared to stick with it, then there is no point in starting.  You will only add to your frustration level.

Get a Plan

You need to have a plan or strategy to deal with your problems and issues.  The more problems and more the serious the issues, the more you need to plan an attack.  I have developed a 7-point plan to deal with problems and issues of all sorts and sizes.

  1. Make problems line up
  2. Pick one to solve, and only one
  3. Find the underlying causes
  4. Set targets
  5. Think outside the box
  6. Execute
  7. Check the progress

#1 – Make problems line up

Psychologists have determined that the human minds works much more effectively when you get everything on a list.  The more you have going on, the harder it is to remember what you are supposed to be doing and before you know it, you get lost in the day to day clutter of activities.  Sure lots of these activities are important or even critical, but the longer-range pressing issues do not get addressed.

I recommend getting an “Issues List” together.  Get all your issues large and small on this list, however do not get your daily activities or “to-do” list mixed up with these items.  “Phone John Smith tomorrow about warranty problem” does NOT go on the issues list.

Now if you have identified warranty problems as a serious issue that you need to deal with, then by all means put “warranty problems” on the Issues List.

Issue

 

Impact

Person

Date Started

Date Completed

Warranty problems

Low

Self

Cash flow problems

High

Self

Returns procedure

Low

Joe

Mar 21

Þ Action Item:  Make an issue list.

#2 – Pick one problem to solve, and only one

People simply cannot focus on everything at once.  You have to pick what you consider your most pressing problem and start to work it.  You can have multiple problems solutions underway, however one person can only have one problem at a time.  If you assign multiple problems to most people they spend a lot of time jumping from issue to issue and become very ineffective.

Prioritize the issues list.  Note the items that will take a long time to solve and the items that can be done quickly.  You need a balance in your attack, a balance of long term items and short terms items.  Also note the items that are critical to solve.  And which ones will have the biggest impact on the business financially.

This is also true for your own problem solving.

Now other simpler problems may be identified and solved in one easy step, but the issues we are talking about are the more difficult ones.

Þ Action Item:  Decide on one key problem to solve.

#3 – Find Underlying Causes

In order to solve the problem permanently you MUST find the underlying causes.  Sometimes they will be simple silly issues, other times they will be difficult to understand and even more difficult to come up with a solution and implement it.

To find the underlying causes you MUST “Drill deep”.  Let’s go back to the example on cash flow problems and do some analysis.  To be effective you need to do this analysis on paper.

As I mentioned, you need to follow the problems to the root causes.  As you see in the example below, there are 3 possible reasons we have identified for our cash flow problems, low sales, high costs and poor margins.  You will notice that in this case we have decided that “high costs” is a major contributor to the problem.  You can see in the next line we have taken this item and expanded it further.  You want to do this following the chain of possible causes as far down as you can.  Explore everything that has a material effect on the problem.  Leave the low impact items for another time.

   

Impact

Low ——————– High

Problem Possible Cause

1

2

3

4

5

Cash flow problem Low sales

High costs

Poor margins

X

X

X

High costs High assembly costs

High material costs

X

X

High assembly costs High labor rates

Poor productivity

X

X

Poor productivity People wasting time

Poor designs

Poor fab shop accuracy

Parts not ready at job start

X

X

X

X

As you can see, in the above example we drilled 4 levels deep into the problem.  You keep drilling down until you find the root causes.  The more complex the problem, the more chains you have to follow and the more time it will take.

But this is the best time you can spend.  Clearly understanding the root causes will allow for a permanent fix that is much more likely to stay in place and not come back to haunt you again.

Þ Action Item:  Define the underlying issues for your problem.

#4 – Set Targets

You can only set targets once you completely understand the problem.  Targets need to be set at the lowest level in the “Underlying Causes” matrix shown previously.   Make sure that the targets you set are meaningful and will move the business forward.

It is also best to set targets that can be monitored or measured easily.  For instance, in the example above, if the fabrication department accuracy needs to be within 0.001” for certain parts or certain operations, then specify them so they are easily checked and measured.

As mentioned previously, when it is appropriate you need to set “stretch targets” so people need to rethink the process entirely.

Þ Action Item:  Set your own stretch target.

#5 – Think Outside The Box

After you set your targets, it is time to consider the various alternatives that may be available to solve the problem. However, it is important at this stage that you do not jump at the first available solution. You want to consider a number of alternatives. When you list the alternative solutions you will also want to note the cost, time and effort involved. Make sure your people don’t come up with a complex $1,000 solution to a simple $0.10 problem.

Sometimes listing the alternative solutions can be quite challenging. It is at this point in the process you want to ensure that people are thinking creatively. Remember, Rome wasn’t built in a day, so it may take some time to develop all the possible alternatives. Set deadlines by all means, but leave time for the people to think about and digest the problem and possible solutions.

#6 – Execute

The next step in the problem-solving process is the execution phase. In this phase you want to take the solution that you decided on in the previous step and implement it in such a way that you have a permanently solved problem. In other words, we want to avoid the “Boomerang effect”, where the problem reappears sometime in the future.

The best way to avoid the boomerang effect is to make sure that the fundamental process has been altered. This may mean that you need to update drawings, write new manufacturing procedures, update shop forms or order entry forms, etc. Attention to this kind of detail will have a huge impact on your ability to execute the solution permanently.

Depending on the complexity of the implementation there may also be an element of training that is required for the personnel.

The other key to a good implementation is to make sure that the people involved in the process to be altered are included in the problem solution stage. If you have support from all levels of the organization, the chances of a good implementation are much improved. People resist change, however it is well known that if they are included in the problem-solving step they are much more inclined to accept the change.

#7 – Check Progress

Most problem solving requires the implementation of some change to the people or the processes, and with all change, there is a chance that the people will resort to the old methods or systems. Therefore it is imperative that some kind of measurement or feedback is imbedded with the change. You need a way of monitoring that the changes still in place, and you need the people to understand that this change is important to you.

You need to consider the measurement or feedback system carefully. Do you need a permanent measurement or a temporary measurement just until you or certain that the solution has been permanently implemented?

Problems are Opportunities in Disguise

Problems can be an interesting way to energize your people.  Many times when I sit in on the meetings were the people are discussing the various reasons why something is impossible to solve, somebody will say something that will trigger a thought with someone else and all of a sudden, instead of “impossible” they accept the problem as a “challenge”.  They become energized and the creativity starts to flow.  It is always fun to watch people solve problems they thought were “impossible”.  The look on their faces is priceless.

Find the high leverage points and challenge the people to solve them.  And don’t let them off the hook.  Encourage them and support them.  Set a ridiculous objective and achieve it!

Conclusion

Stay focused and make progress every day on something that moves you forward on a sustainable path.  Do these changes come easy?  Of course not.  If it were easy, you would have done it already.  However, once your plan gains some momentum you will be amazed at the results.

A Word About Using This Report

In order to get value from this report you will need to do the action items and implement the strategies in your business environment, and sometimes this can be challenging.  You will need to be persistent and diligent in your follow-up.  You won’t get any positive results unless you take action on the information and strategies outlined!

About the Author

Mr. Ray Smalley is a veteran CEO who works with owners and managers who are frustrated with their business performance.

He has led the management team for companies that include manufacturing, technology, service and construction, from $3 to $50 million in sales.  In each case, he achieved outstanding increases in sales and profits in very mature or declining markets, including turnaround situations.  He is able to provide leadership for all levels of the organization and effectively manage change.

Mr. Smalley graduated with the top award in his engineering class and graduated from Honeywell’s internal Executive Management Program presented by Harvard Business School.

(c) 2013 Ray Smalley, VenPlan Inc.  All rights reserved.

The contents of this paper are copyrighted and, as such, may be used for personal use only.  Duplication and/or commercial use of this material is expressly prohibited without written permission of the author.

 

 

6 ways to solve cash flow problems in small and medium manufacturing companies

From time to time even the best businesses have cash flow problems. These shortages can be results of high growth, declining revenue, increasing costs, increasing receivables, increasing inventory, capital equipment purchases, and so on.

Of course before solving any problem, we must understand the root cause. The same is true for solving any cash flow problem. However experience shows that many cash flow problems are accumulation of small problems in many other areas. So when we’re trying to improve cash flow sometimes it is a challenge to know where to start.

As a result, I will try to outline some general approaches, however…

Profit is a Requirement

Unfortunately I get many calls from small and medium-sized businesses that say they have a cash flow problem, when in fact they really have a profit problem. None of the tips and pointers that are listed below will solve a cash flow problem were the underlying cause is really a profit problem.

If your business is not profitable, then the action plans listed below may help the cash flow situation to some extent, but they will not solve it. If you really have a profit problem then you should order our free report “How to solve problems in manufacturing companies”. This report will guide you through the process of clearly identifying your underlying problems and getting an action plan in place to deal with them.

Do a Cash Flow Forecast

In order to understand your cash flow each use need to do a proper cash flow forecast. If you find this type of exercise extremely challenging, then you need to get some assistance from your accountant or business advisor.

The cash flow forecasts will show you the effect of any proposed changes. For instance, if you’re successful in reducing the accounts receivable from 60 days to 45 days, then the financial model will show the resulting cash flow change. The value of working through these details is not to be underestimated.  Remember, you can’t solve a problem that you don’t understand!

Once you have built a proper cash flow model of the business, you can test various scenarios so you can clearly understand what is causing your cash shortage.

Now on to our list of tips…

#1 – Tighten Receivables

Your target for days receivable may be 45 days, 50 days, or more depending on the practices in your industry.  First decide what your target should be.  Then you need to have a system, train your people, and then stay on top of it.

When tackling the receivables problem DO NOT start with the old problem invoices.  If you start working on the old invoices, you will no sooner get them sorted out and then realize you have a new batch of problem invoices, so you feel that little progress is being made.

Instead, start with the current ones that are just going beyond the 30-day point.  Keep the current invoices current and don’t let them become problem invoices.  Work away at the problem receivables as time permits, but keep on top of the current invoices.

Suppliers to OEMs have one of the best tools available to keep their accounts current…don’t ship the next order!  In this case the customer needs the material and really cannot afford to have shipments delayed.  Of course you will want to handle this carefully with customers.  If necessary warn them on the first shipment that you need payment in 30 days, then hold tight on the next shipment.

Many times the squeaky wheel gets the grease!  Better that you get paid, than some other supplier.  So maintain the pressure on your customers.  If you relax, you will very quickly find yourself with receivables beyond 60+ days again.

Þ Action Item:  Set a target, and then keep new invoices current.

#2 – Reduce Inventory

Inventory can be a delicate balance.  In some businesses sales are very sensitive to inventory levels.  In this case you can’t sell it if you don’t have it, so it is better to have a little extra finished goods inventory. However, even in these cases there may be room to reduce the raw materials inventory.

Many times the materials manager is charged with the responsibility of maintaining the raw materials inventory levels. Many times a materials manager finds himself in trouble when he runs out of an item, however he never hears about it if he has too many items. The result is that the materials manager will always make sure work that he has he enough inventory “Just in case”. Of course this will ensure that you have the maximum amount of raw materials inventory.

It is just as important for the owner to ensure that raw material inventory is capped at minimal levels, as it is to ensure that there is enough for production. The key thing to understand is that the only person who can properly set inventory levels is the owner or senior manager.

You’ll want to set raw material safety stock levels considering the lead time, reliability of the supplier, and the shop turnaround time. You also want to carefully review the minimum order quantities and look for opportunities to combine requirements to the vendors.

Þ Action Item:  Review your inventory levels, safety stocks, reorder amounts on each item, and calculate your inventory turnover.

#3 – Finance Capital Equipment

There are a number of alternatives to financing capital equipment, from leases to bank loans.  Try not to finance major equipment from cash flow if at all possible.  Keep your cash as insurance.  Sometimes a minor market slowdown can cause major problems if cash is tight.

In some cases you will be able to refinance recently purchased equipment.  However, most lenders will not do this if your financial ratios do not meet their requirements. As with any financing or refinancing, it is best to approach the lender when you really don’t need the money.

Þ Action Item:  Review your capital purchases and look for opportunities to finance them.

#4 – Dump Bad Projects/Jobs/Customers

We all know them…customers that are more trouble than they are worth.  But the customer is always right!  Right?  Wrong.  The profitable customer is almost always right.  But, there are some customers that your competitors deserve.

Bad customers are insidious.  They absorb time, energy, and money.  Many times they cost much more than you realize.

Þ Action Item:  Make a list of problem customers/projects/jobs.  Evaluate their sales volume, margins and the overhead effort to keep them or service them.  Would some of them be better off absorbing your competitor’s time and money?

#5 – Raise Investment Funds

If your cash flow difficulties are really a result of high growth rates or high initial expenses in your business, then you need to seriously consider raising outside funding.  Of course the big downside to obtaining outside investment funds is that you will be giving away a piece of your business.

Þ Action Item:  Should you consider looking for outside investment?

#6 – Asset Based Lending

There other types of lending that may be suitable to your situation if you have a profitable high-margin business. For instance, you may want to consider accounts receivable or purchase order factoring. In these cases you sell your invoice to an outside lender who provides cash immediately and collects it later based on the terms of the invoice or purchase order.

Þ Action Item:  If appropriate, talk to an asset based lender.

Conclusion

Stay focused and make progress every day on something that moves you forward on a sustainable path.  Do these changes come easy?  Of course not.  If it were easy, you would have done it already.  However, once your plan gains some momentum you will be amazed at the results.

A Word About Using This Report

In order to get value from this report you will need to do the action items and implement the strategies in your business environment, and sometimes this can be challenging.  You will need to be persistent and diligent in your follow-up.  You won’t get any positive results unless you take action on the information and strategies outlined!

About the Author

Mr. Ray Smalley is a veteran CEO who works with owners and managers who are frustrated with their business performance.   He is a specialist in business troubleshooting and strategy.

He has led the management team for companies that include manufacturing, technology, service and construction, from $3 to $50 million in sales.  In each case, he achieved outstanding increases in sales and profits in very mature or declining markets, including turnaround situations.  He is able to provide leadership for all levels of the organization and effectively manage change.

Mr. Smalley graduated with the top award in his engineering class and graduated from Honeywell’s internal Executive Management Program presented by Harvard Business School.

For a free phone consultation, Ray Smalley can be reached at 1-800-596-0351

(c) 2004 Ray Smalley, VenPlan LLC.  All rights reserved.

The contents of this paper are copyrighted and, as such, may be used for personal use only.  Duplication and/or commercial use of this material is expressly prohibited without written permission of the author.

 

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