For Business Success, Stick with the Basics!

Sales Must Exceed Expenses; Collect On Accounts; Take Care Of Customers; Take Care Of Employees

When my wife Marjorie and I started Blanchard Training and Development Inc. some 12 years ago, a top manager from Melbourne, Australia, Richard Pratt, gave us invaluable advice. He said that if we wanted to have a successful small business there were only four things we needed to worry about. The first two points Dick shared with us have to do with financial management; the last two focus on people management.

1. Sales must exceed expenses.

One of the things that kill a lot of small businesses is that the owners and managers lose sight of this simple fundamental. They overspend on nice offices, unnecessary equipment, cars, etc., when they don’t yet have enough customers to support the expenses on an ongoing basis. Too often, at the first business downturn the party’s over.

Dick said to keep your office and staff small until you have so many customers that you have to expand. That is, before you act as if you already have a customer base, wait until you have proven you can get and hold one. This is true whether you are talking about restaurants or a high-technology business. You need to minimize your up front risk prior to having a steady revenue stream. Along the way be careful to build fixed costs and overhead expenses according to actual — rather than forecasted — sales.

My friend Sheldon Bowles, a highly successful entrepreneur in Toronto, Canada, adds an interesting twist to the simple formula: Profit equals Sales minus Expenses. Sheldon claims that as companies mature, rather than seeking new ways to increase sales they may tend to focus too heavily on cutting expenses. For many business people, it seems easier to control how money is spent rather than to come up with new ways to increase revenues.

Unfortunately, as a strategy for building a business, strict cost cutting is often both ineffective and demoralizing. For example, in one company we know, when management imposed strict cost cutting guidelines it led to the elimination of all celebrations including birthdays, company picnics and the like. Almost overnight the company lost its atmosphere and reputation for being a fun place to work. Morale soon plummeted, the company lost a wave of key employees and has had difficulty attracting new people ever since.

Bowles feels it is far more productive to focus energy on how to obtain new business or how to expand the business you have with existing customers. Reserve severe cost cutting for crisis situations.

2. Collect your bills.

A lot of small businesses shut down even though “on paper” they seem to be doing very well. The problem is that their earnings are owed to them by their customers. Such companies, in simply trying to meet their current operating costs, can get into a cash flow squeeze.

If possible, when you first start your company try to operate a cash business. You’ll find it is a lot better to get paid as you deliver goods and services. Even as our company has grown, periodically we’ve found it necessary to recommit our efforts to keeping our collectibles at a manageable level in both total dollar volume and average collection days.

3. Take care of your customers.

It is easy for any business to take its customers for granted — to assume they’ll always be there. At that point a company is most apt to lose customers. Customers are the reason you are in business and thus customer input and customer preferences should shape most or all aspects of your business from your service policies to the selection of new products you develop.

Besides being practical, taking care of customers can be a growth strategy as well. It is easier and less expensive to try to sell current customers who have already bought from you than it is to convert a new customer who has never heard of your company.

4. Take care of your employees.

The fourth point is to take care of your employees. The best way of doing this is to create an environment where there are clear goals, and where all employees, through coaching and the help of their managers, have a chance to succeed.

The One-Minute Manager philosophy was based on the fact that people who produce good results feel good about themselves. Employees who feel good about themselves are more likely to treat customers the way they need to be treated. If you don’t take care of your people, they’re not likely to be very motivated to take care of customers.

Although Pratt’s four points may all seem obvious, Margie and I have found his advice refreshing for focusing our attention on running our business. His points continue to help make our business a success.