How to get important things done: Today.

Apr 6, 2020 | Change, Management

How to get important things done: Today.

No business succeeds in the absence of a concentrated application of resources to the most important problems and opportunities they face.

The Pareto principle, or the 80/20 rule. 80% of your profits come from 20% of your customers, so it is logical to focus on them.

The time frame differs, from the daily work, to the long term strategic thinking required for commercial sustainability, but the process does not.

You need to examine the questions and issues in an open ended manner, based on objectivity, creativity, and collaboration in order to have an agreed priority list. The absence of an agreed set of priorities results in less than ideal expenditure of resources.

There are always facts available about what has happened.

There will usually be a range of short term forecasts with a high degree of probability.

As we go longer the probabilities of certainty diminish, and in its place comes the opportunity to anticipate the situations that may emerge, or that you can create, to your strategic and competitive benefit.

The structure of the conversations, and that is what they should be, rather than being labelled ‘meetings’, which implies formality and influence based on hierarchical position, is similar.

What are we facing today? What needs to be done to succeed, today?
What do the metrics tell us? When you are looking at the few key numbers, every day, you will get to see the patterns and trends emerge, as they are doing so, which gives the time to address them.
What are the constraints, what are the questions and issues that are going to get in the way of performing, today?’

Such conversations have a daily, weekly, monthly cadence. The metrics and participants may alter in the differing conversations, but the agenda will not, and once embedded become a vital part of achieving results. However, they will deliver little if any benefit in the absence of specificity. Generality is the death knell, you must be specific, how much, which customer, what communication, by when, who is accountable, outcome expectations, and so on.

Need some assistance with this exercise, particularly in a time of crisis such as we are now? Give me a call, or go to the StrategyAudit blog for many hundreds of tips, templates, and idea starters. Assistance at your fingertips.

Cartoon header courtesy GapingVoid.com

Five essentials for SME’s to survive the Corona chaos.

Mar 25, 2020 | Governance, Management

Five essentials for SME’s to survive the Corona chaos.

It is too easy for those not at the front lines of a crisis to brush aside the practical difficulties of day to day survival, in favour of the fluffier, albeit no less important longer term questions and issues.

Currently there is a flurry of activity from political leaders, roused from their partisan politics by this virus, resulting in a raft of measures that is challenging for owners of SME’s to understand, and access. However, it is essential that your spend the time, in a rational way, to understand the measures that will impact your business, what the qualification guidelines are, and how the assistance is to be accessed.

Many businesses are fighting for survival in the face of that Black Corona Swan that flew in and crapped all over them.

The five things business owners should be doing today.

Cash flow forecast.

Cash is the oxygen of business, survival without it is impossible. Having a clear view of the cash coming in, and going out over the immediate future is vital to making informed decisions. I always favour a weekly rolling 13 week forecast in most circumstances, and certainly in this one. There are plenty of tools out there, but a simple spreadsheet, filled with the input of your debtors and creditors ledgers, along with the bank reconciliation and a sales forecast will give the answers you need.

Do it now!

Cash ‘runway’.

You need to know how long your cash reserves will last in the event that you are suddenly trading at a loss, which is broadly illegal. This calculation goes hand in hand with the cash flow forecast, but requires you to break costs up into fixed and variable components. Those who regularly review their Break Even will have this information to hand. The provisions in the Corporations Act that refer to the personal liability of Directors who allow trading at a loss to continue, will be altered to accommodate the Corona virus, according to the PM’s March 22 statement. As yet I have seen no detail about this change, so be wary.

Communicate, communicate, communicate. Talk to major customers and those prospects that were about to be converted, to understand how their businesses are being impacted, and what you might be able to do to assist them. Talk to your staff, include them in the decisions around how best to preserve the business so that there is a job there when things recover. Taking holiday leave, unpaid leave, long service, job sharing, all may play a role. When you as the boss are getting really tired of having the same conversation, over and over, you might just be getting to the point where you are being heard.

Government assistance.

Both state and federal governments are setting out, with it seems common dual objectives, for the measures put in place, which are still evolving.

Provide assistance to those whose employment dissolves. This includes a specific Corona income supplement, the ability to draw down on superannuation accounts, reduction of social security deeming rates, and direct payments to households.
Provide assistance to businesses to keep employees working. This is the crucial one, as it is businesses that will provide the impetus for recovery. From April 28, the government is providing up to a maximum of $100,000 to be used to cover overheads, and keep staff. There is also included in the second package, a payment equal to the withholding tax on wages and salaries, of up to $50,000. The government has also put in place a specific Corona virus assistance scheme to assist access to working capital, by guaranteeing 50% of new loans by banks to eligible SME’s. To fund this measure, the Reserve bank has announced a lending facility to the financial institutions that will reduce the costs to those institutions of lending to SME’s. The states and territories have all weighed in with measures that relate to businesses operating in their states. Ignoring the stupidity of the federated system that results in an inconsistent patchwork of regulations, resulting in complication and confusion, you should investigate the specifics, and understand how you will be effected. In NSW for example, the government has announced they will waive payroll tax, and will being forward planned reductions in that awful tax on employment.

Be of service.

These are tough times, that induce a sense of desperation, which too often ends up being seen by others as the ‘hard sell’. This is the wrong time to be seen that way. Instead, set out to be of service, to use your resources to help mitigate the impact on others. They will respond positively, and remember. This does not mean you do not sell, obviously, but it does mean you do so only with the best interests of the buyer at heart, not your own. And, for heavens sake, stop those silly brand managers sending out those patronising ‘Covid-19 measures for your safety’ emails to anyone and everyone whose email address they collected in some way over the last decade. We do not want to hear from you, but will remember you clogged up our inboxes at a vital time when things get better.

It is a lot, on top of the day to day battle for survival, but spending your time wisely, on the things that will make a difference, is the best investment you could make at this time.

Header photo credit: David Brim, davidbrim.com

Cash flow assistance for SME’s

Mar 22, 2020 | Governance, Management

Cash flow assistance for SME’s

Halleluiah

The Government has announced cash flow assistance for small businesses, turnover limit an arbitrary $50 million, impacted by the Corona virus.

Perhaps the precarious position many small businesses are finding themselves in has finally pricked the Canberra political bubble.

The assistance is intended to keep people at work, and therefore money flowing in the economy. Some of the details are in a fact sheet easily downloaded from the Treasury website. If unsure, speak to your accountant.

Industry organisations, particularly banks will play a role in ensuring the information gets out, and those eligible, are helped to make the appropriate applications.

Inevitably however, the devil will be in the detail. Governments being what they are, will without necessarily intending to do so, make it challenging to access the relief.

There will be layers of bureaucracy and miles of red tape to be navigated.

I have one piece of advice to give that might serve to reduce the disruption and stress any interaction with a government agency giving out money and assistance will create:

Start collecting the data you will need now!

Add a category to your ledgers, that captures each and every expense associated with the Corona virus. Direct costs are easily assembled, but put them in one place, and include a calculation that reflects the time people spend sorting through the debris of their employers caused by this blight. Use the total cost of employment X hours spent as the calculating base.

Assembling and reporting the numbers is something that will inevitably have to be done, so do it now, and do it in a disciplined manner, so that when the rush is on nothing gets missed, and having it organised will make the process of accessing the assistance less disruptive.

Header cartoon courtesy Tom Gauld.

The only commercial vaccine for COVID-19. Cash.

Mar 20, 2020 | Governance, Management

The only commercial vaccine for COVID-19. Cash.

When things suddenly get really tough, as we are now seeing, the priority is survival.

That simple word means many different things to different people, but the common denominator is that you need cash to do it.

If your processes do not include short term rolling cash flow forecasting, the best time to start was before the do do hit the fan. The second best time is right now. There are many templates out there, but the information required is simple:

A forecast of the cash coming in.

A forecast of the cash going out.

This is not a managed number like a profit and loss statement, it involves only what goes in and out of the bank account.

My preference for most circumstances is a 13 week rolling weekly forecast. It is long enough to give a good picture, short enough to be sensitive to the immediate challenges that arise.

As a sibling to cash flow forecasting and a little more complex, is an exercise to ‘stress test’ your business. It is in effect a model to enable you to test to see how long your cash will last given a variety of assumptions about the trading environment.

To do a stress test, you need 8 pieces of added information, some will be forecasts, others will be sourced from your trading history, captured in the P&L and ledger accounts. The importance of each will vary depending on the type of business you are in. For example, physical inventories in a service business do not exist, but there will be a work in progress number that can take its place.

Projected revenues

Margins

Fixed costs

Variable cost of goods sold

Accounts receivable

Accounts payable

Inventories.

Cash reserves and available lines of credit

You can make this a sophisticated and challenging exercise, and in a large business, it should be. However, in an SME, it should be simple enough that a competent bookkeeper will be able to create a simple spreadsheet that will reflect the impact on your cash reserves of changing assumptions about any of the variables. Even just the conversation about the weighting of variables going into the stress test model, and their underpinning assumptions, will be extremely valuable.

When you could do with an experienced outsiders input, give me a call.

Header cartoon courtesy Scott Adams and ‘Dilbert’

The critical key to reliable forecasting: Be less wrong.

Mar 18, 2020 | Change, Management, Uncategorized

The critical key to reliable forecasting: Be less wrong.

Thomas Bayes. 1701 – 1761

The key to good forecasting, that magic elixir most of us take, is not to be right, but to be increasingly less wrong.

We know the future will be different, being less wrong about that difference is better than consuming resources trying to be right, because you never will be.

For a decade, several decades ago, as marketing manager of a very significant business, I did a weekly sales record for about 50 SKU’s, by hand. It was in the late eighties, early nineties, the days before this was made easy.

Every Monday morning, I took about 15 minutes to record the sales on a sheet, with a 5 week rolling average, and a 5 week rolling forecast. Every month I did the same, but it took a little longer, as there were comparisons to the relevant quarter the year before, and budget, which took about 45 minutes.

In 10 years, I only ever got one forecast right, but was usually very close. Nobody took any notice at all of the forecasts of the sales force, despite them being part of the sales KPI’s. When manufacturing had choices to make about factory utilisation and what not to make, they came to me, and ignored the rest.

This was simply the building of a qualitative knowledge over time.

We routinely defer to ‘Bayesian’ statistics, a theorem proposed by English statistician Thomas Bayes in 1763, that dealt with the probability of a future event, and how that probability becomes more certain with the addition of information relevant to the outcome. We see Bayesian thinking all around us all the time. Every time we see an outcome to an action, and adjust before we repeat the action, we are using Bayesian thinking. Artillery is the obvious example. Use one cannon to get as close as you can, observe the degree to which you are long or short of the target, and adjust accordingly. When you land one on the target is when all the other cannons in the group adopt the same settings and blast away.

In business, we can spent inordinate amounts of time and energy trying to get the last 5% accuracy, when it would be far better to take a decision, and move ahead knowing that the chances are you will be wrong, but able to adjust and accommodate the degree of ‘wrongness’ with far less effort. This is the basis of continuous improvement, Plan, Do, Check, Act.

Bayesian theory at work, every day.

How to think about your business

Mar 2, 2020 | Governance, Leadership, Management

Business is simple, in principal.

Sell something for more than it cost you to produce or acquire it, recognising that the buyer needs to understand that the value they will derive from the product is greater than the cost they incur in buying it.

Simple.

Einstein said everything should be as simple as possible, no simpler, and his E=MC2 is the simplest equation that explains (somehow) masses of complicated stuff. It is the best example ever of Occam’s Razor, named after William of Ockham, a 13th century philosopher which encourages decision making to the broken down by progressively removing those outcomes that are based on beliefs and ideas rather than facts. When you have all the beliefs removed, you are left with the facts.

Often however, not so simple after you go one or two levels down the burrow to figure out just how you go about that process of removing all the biases and beliefs that masquerade as facts.

Charlie Munger, offsider to Warren Buffett in creating billions of value for Berkshire Hathaway shareholders over 50 years spoke about Mental Models in a speech in 1994. His premise was that you need a ‘lattice’ of mental models that apply to the different perspectives that apply to any question being faced in order to distil the ideas and wisdom that applies to your situation.

I agree absolutely with the idea.

It is simple, but as complex as you choose to make it.

As someone who helps small and medium manufacturing businesses improve the economic performance, there are numerous mental models at work simultaneously.

Strategic models: There are many strategic frameworks or models for business planning. Porters 5 forces, Boston consulting’s 4 quadrant, game theory, the old favourite SWOT, and many others. Profoundly important and often missed at this point, is consideration of the business model being employed.

Operational models: Lean thinking, 6 sigma, shift sequencing, the mix of technical, support and operational staff, deployment of technology, interaction of technology and those at the work face, on and on, you have the opportunity to use the wisdom of others to sort the relevant from the not so relevant.

Financial models: the standard accounting forms of cash flow, P&L, and balance sheet, together with a break even analysis, and decisions about the type of costing models to be used, ratios to be calculated, and formats in which the information will be communicated. To properly understand the operational mechanics of a business, you need more than the standard financial reporting. Their limits are a view of what has happened to the money, little about why and how it happened, and certainly very little about what may happen in the future.

Marketing and sales models: where do I start? Ideal customer profiles, value proposition, digital Vs analogue, differentiators, marketing toolbox and the multiplicity of tools to deliver leverage, ROI of marketing investment, Account based selling, selling models such as BANT, sales funnel, conversion rates, anchoring a negotiation, and thousands more.

How do you sort all these options into a few that will deliver results that are worth the investment?

You start with the end in mind, the strategic and commercial objectives, the why. I call this process ‘hindsight planning’
You break down the challenges into sequential ‘chewable chunks’

You focus on the important more than the urgent.

Behavioural models: These usually emerge as a group of expected behaviours, collectively called ‘Culture’. The best example I can think of is the 10 commandments, common to the 3 Abrahamic religions (Islam, Christian and Jewish) that sets a wide framework of the few things you must not do, leaving the rest up to you. Together, in their own environment, they provide a ,macro framework for behaviour, which we then break down further into the components that we seek to live by in a community.

When you need some help sorting this out, call me.