Engine Room Blog

2013 seems to have got off to a roaring start, particularly now everyone is back from the beach.  It never ceases to amaze me how quick those first 6 weeks go.

At this time of year we really like to bed in our plans for the next 12 months.  While we know we won’t always stick to them to the letter; setting our overall goals, quarterly targets and our annual budgets gives us a good basis for the year.

We do this in a series of steps:

1.   We start by reviewing our business plan – this was given a good review three years ago and now gets a yearly dust off to make sure we still want to achieve the same things and how we are going – are we still working with the same end in mind? 

2.   Then we pull together the plan for the year.  This fits on one A3 piece of paper, with one big goal for the year.  We then identify the three things needed to achieve to reach that goal with specific targets – for example in your business that might be how many new customers your want, what their average spend might be, and your gross margin target. 

3.   What are we going to achieve in the first quarter?  On that same piece of paper we identify the first quarter goals – 90 days of action.  How will we know we are on track?  What do we need to do to hit the ground running?  What does each team member need to focus on? What is the theme for the quarter? One of our clients is targeting to have 80% of their customers rebooked for their next appointment each month. 

4.   Put together the budget – as accountants we know that it is the numbers that tell you how you are doing – and when you are off track.  Quantifying strategic plans into a budget enables you to identify whether you are on track throughout the year, what impact growth will have on cash flow, where costs are going to increase and what extra resources you need to fund growth. 

5.   Finally, the marketing plan – the key to driving growth.  We identify our annual marketing plan and a detailed plan for the next 90 days, what events we are running and where will we advertise.  By tying this back to the overall plan you can identify what you want to achieve from each campaign and how you will measure it. 

We are fortunate to have a lot of wall space and white boards in our offices, so this is a very visual process.  As we get in to the more detailed planning we get key team members involved.  

For us one of the key outcomes from last years plan was employing a marketing person.  Like many business owners we always thought it was something an admin person could do and that we could manage it ourselves.  With the philosophy of what you focus on drives success, having someone focusing on marketing has proved to be a real difference to our business. 

So do you have a plan? And what are you focusing on? 

We have a strategic planning process for businesses like yours – if you are interested in finding our more give Margaret or Philippa a call on 0800 2ENGINE (Approved for NZTE funding of up to 50% for qualifying businesses).

As business owners in these rapidly changing times, we constantly need to be reviewing our position and looking to update and refresh what we do.

In many industries, and particularly service businesses, there is now a low cost of entry.  This can mean that you have new competition popping up all around you.  Fortunately for you, though unfortunately for customers, they can be here today and gone tomorrow. 

To counter the threat that these new businesses bring there are  things you need to focus on:

1. Being “top of mind” with your customers
   How often do you communicate with your customers?  If you are not contacting your customers at least every 90 days whether it be by email, telephone, a newsletter or in person, it becomes very easy for a new business to woo their attention. 
2. Make your core business really efficient
   There are always little things that your business can do better and technology often gives key efficiency gains.  Lean manufacturing or service principles are a great way to start.  Take the time to map out your processes and ask your team why you do something. It’s a great way to identify unnecessary processes.
3. Be open to new ideas
   Have you looked at your industry trends lately? Are there new ways of doing what you have always done? What stage of the cycle is your business in?  Is it still growing or is it mature or in decline?  (More about this in our next blog)
4. Try something different
   If you keep doing what you have always done you might get the same answer (if you are lucky).  Have a plan and try something new, measure results, if it works keep going, if not try something else.
5. Stand out from the crowd
   If no one knows you exist it is pretty hard to get new customers, - join a network, support a community event, be proud and talk about your successes.

A business plan is a vital part of any successful business. After all, if you don’t know where you’re going, how do you know when you’ve got there?

Your company’s business plan should outline where your business is going and what steps you’re going to take to achieve that goal. It can be anything from a 20 page document to a double-sided “Action Plan”, whatever works for you. The important part is that you’ve thought about what you want from your business and how you’re going to get it.

A good business plan is an essential tool for keeping your business on track. It will help you:

• Minimize risk
• Retaining control.
• Think critically
• Make better business decisions
• Achieve your financial and management goals sooner
• Gain credibility and support among business advisors (banks, accountants, lawyers) and potential investors

The best part is, we’ve developed a range of free resources that will get you started with your business plan.  They’re free to download and available on our website any time.

Quick Start Business Plan –  If you’re just starting a business, this step-by-step online lesson will help you turn your idea into reality. The program guides you through a series of questions and activities that result in a customised business plan that you can download and use in your business.

Business Planning Guide – For those already in business (but just missing the planning part) we’ve designed a simple guide to get you started on your business plan. It will take you through the benefits of a business plan, how to write one and what to expect.

If you don’t think you’ve got the time or you’d prefer to talk to someone face-to-face, give us a call. We’d be happy to arrange a free consultation with one of our experienced business coaches.

First day back from the long Labour Weekend, hopefully you’re feeling refreshed, revived and ready for the short week ahead. If only it would stay that way for the rest of the week! No doubt by Friday you will have encountered numerous challenges and little headaches that will test your patience and increase your stress levels.

To keep working efficiently, thinking clearly and making smart decisions we all need to take steps to manage our stress.

This little story turned up on my desk the other day and it got me thinking about how to manage my workload more effectively. It’s taken from a recent issue of the Parkinson’s Society Magazine.

“A young lady confidently walked around the room while explaining stress management to an audience with a raised glass of water. Everyone knew she was going to ask the ultimate question “half empty or half full?”, but she fooled them all. ”How heavy is this glass of water?” she inquired with a smile.

Answers called out ranged from 250 to 600grams. She replied “the absolute weight doesn’t matter, it depends on how long I hold it.

If I hold it for a minute, that’s not a problem.

If I hold it for an hour, I’ll have an ache in my right arm.

If I hold it for a day, you’ll have to call an ambulance.

In each case it’s the same weight, but the longer I hold it the heavier it becomes.”

“That’s the way it is with stress. If we carry our burdens all the time, sooner or later as the burden becomes increasingly heavy, we won’t be able to carry on. As with the glass of water, you have to put it down for a while and rest before holding it again. When we’re refreshed we can carry on with the burden – holding stress longer and better each time practiced.”

So, the story concludes, when you finish work each day try to put all of your burdens down as soon as you can and let yourself properly relax. Resting your body and mind well during the evening will mean you have more energy and focus with which to tackle your challenges again the next day.  

Using a de-stressing trigger may help the relaxing process: try writing down the problem that’s causing you stress on a clean sheet of paper and then the first action you’ll take the next day towards resolving it. Then relax, knowing that you’ve done all that you can for the evening and have a starting point for the next day.

Whatever works for you, take the time to distress after work this week. At least you've only got four days to contend with! 

Understanding why you are in business is often the hardest thing to define. Why should your customers do business with you? Very often we spend time telling our customers how we do things or what we do but to turn our customers into raving fans we need to explain why we are in business.

Your “why” is how customers and prospects know to choose you.  Often finding a discernable point of difference in the market is difficult; having an inspiring reason for doing what you do can win the hearts and minds of your customers.

At the Engine Room, we aim to improve the performance of New Zealand businesses. We believe that when we positively impact the performance of a business, we improve the lives of business owners and their families.  If we can impact enough businesses we also impact those that live in our community and ultimately, the nation.

With 69% of New Zealand businesses having no employees, a further 28% employing fewer than 20 growing these businesses is fundamental to New Zealand’s success.

Apple is a great example of a business that truly understands its “why” – Simon Sinek explains this here.  In reality all computers do the same thing, yet Apple has a cult-like following.  In his book Sinek suggests that many Apple fans can’t explain why. Apple has won their hearts and minds (mine included).

 

Imagine this…

You’re ‘in’ your business. Literally you’re standing in your premises. You’re answering phones, talking with staff, fighting fires, juggling all the elements of your business at once—marketing, sales, management, operations, staff, finances, cash flow, debtors, creditors, suppliers, and more. You’re extremely busy. You’ve just realised that you forgot to eat lunch again, and someone unexpected has just walked in the door. Unfortunately, that means you’re going to have to spend time with them, instead of doing the salaries or completing that paperwork you really wanted to finish. Oh well, you’ll take it home and do it into the night. And so it goes.

This is working ‘in’ your business.

You’re in the midst of it, fighting fires, handling everything there is to handle and more—IN your business.

Now picture this instead…

You’ve taken 4 steps back from your business and you’re looking at it objectively, saying ‘OK, that’s my business over there, now what do I want to do with it?’

‘Apart from me, what will this business do? How will it be? What do I want it to be like? What does it need to do to give me my life, to free me up from working in it all the time?’

This is working ON your business.

Just thinking about it, you can sense the huge difference this could make. Imagine taking some time away from day-to-day tasks and looking at your business in the long term. Imagine the ideas or opportunities you might spot!

So why do you need to Work On your business?

• Working ‘on’ your business is the difference between your business providing you with a job OR immense wealth and satisfaction.
• In the words of Albert Einstein – “the significant problems in our life cannot be solved with the same level of thinking with which we created them”
• Taking the time to think about your business allows you to identify opportunities in your business and finds ways to maximise them
• Systemising your business frees you from the daily grind to enjoy the life you always wanted.

To find out more download our whitepaper…  Working on Your Business – An Essential Habit for Growth.

Contrarian - a person who takes up a position opposed to that of the majority, no matter how unpopular.

We all need a contrarian – a person to challenge our thinking, a devil’s advocate to propose a different point of view.   They may be older or younger, more experience or naïve, their job is to make you think.

A contrarian is not the well-meaning person who tells you it won’t work or your own “lizard brain” telling you it will fail.  They are the person who asks the questions that make you think it through and extend your thinking or open your eyes to even more possibilities.

To often we fail to challenge the status quo assuming the way we have always done it is OK, whereas we need to constantly be reviewing our thoughts and processes to see whether there is a better way.

Some years ago at the Engine Room we made the leap to becoming a “cloud based” accounting firm – this was a significant change in the way we worked ourselves and they way we worked with our clients.  We consider it to be a better way to work with our clients.  It hasn’t always been easy, but it has given us many other benefits in data security and access,  and ultimately lead us to having a “less paper” office.  We are now focused on opportunities to leverage the changes we have already made.

What changes have you made recently?  The change going on around us is one constant in our lives, and in this technological age, it is moving even faster.

So back to my original question – who do you use to challenge your thinking?

Many business owners are technicians who go out to work for themselves… When does it become a real business?

In the words of Michael Gerber – Business owners have an “entrepreneurial seizure”.  They look at their boss and think if he (or she) can do it then so can I.  What they don’t think about is the investment in plant, premises and staff that the Boss has made, or all the other work they do outside of the technical stuff – payroll, sales, marketing, debt collection, accounts payable….

In a small business the owner becomes a “Jack of all trades” and often at little recompense for those extra hours they have to spend doing the “administrivia” for the business.  If you take the income you earn and divide it by the real hours you work in your business – what is your hourly rate?  I have seen some owners where this calculation has them earning less than the minimum wage – often their employees are earning more than they are.

So is it a business or a job?

A business is something that earns you a return on investment over and above fair recompense for the hours you work.  The business makes a profit of $150,000 before owner’s earnings, a fair salary is $120,000, you have a business.  

It should also allow you to live the life you want – taking the leisure time you would like, doing the work you want to do.  Otherwise you have a job – and probably a poorly paid one at that.

How do you turn it in to a business?

Have a really good look at what you are doing - talk to your accountant about how you can improve the performance of your business. 

Be brutally honest about whether you can grow your business to generate the profits and cash flow to allow you to live the life you want to lead.

Then make sure you have the right team to achieve what you want, up-skill yourself and your team, create an action plan and go for it.. or make the hard decision – sell or close your business, get a job and live the life you want.

                                                  

There are a few principles small business owners need to understand if they want their business to last:

1.  It is not what you make it is what you keep (cash is king).

80% of businesses fail in the first 5 years - most of these are profitable, they just run out of cash.  No matter how good your sales are it is the profit that counts most - and more importantly the the cash you retain.

A sale is not a sale until the cash is in your hands - whether you sell furniture, property or time it is not a sale until you get paid.

And the cash that is left after you have paid manufacturing costs, overheads and taxes is yours to live on or re-invest in your business.

2. Borrow only to buy assets.

As our grandparents and parents who lived through the 1930's depression will tell you, never spend money you don't have.

An asset is something that either generates income over a period of time or goes up in value.  A car is an asset if the person driving it is earning you an income or saving you money. Stock is an assets if you turn it over regularly otherwise it is  a liability

A holiday is not an asset, neither is furniture or shoes or a computer,.

3. Reduce debt as quickly possible.

They only personal who benefits from long term borrowing is the lender.  To understand this calculate the total payments over the life of your loan and deduct the principal.  Banks want you to extend your loan, and add to it if possible.

4. Always understand your financial position.

Seeing your accountant once a year to see how much tax to pay is not enough financial information to run a  successful  business.  A good business owner knows what their monthly operating costs are and checks each month to ensure they are not exceeded.  They also know what sales they have to do to meet their costs and monitor this throughout the month.  

Poor debt collection and stock management is the downfall of many businesses. If your cash is tied up in stock and debtors careful management is required.

5.  Know what you are good at (and what you are not)

Nobody is good at everything - well not many of us - and limited time generally means you cannot do them all.

Focus on the few things that you do best for the business and employ or contract out the rest. Never abrogate responsibility - you may not be good at finance but you still need know that the job is being done right and what the results are to use that information for decision making. (Your accountant should be able to tell you the key numbers to watch in your business)

6.  Put something away for a rainy day..

There are two types of business - those you can sell and those you can't.

A business that sells well doesn't need the owner working in it every day and generally has physical assets and/or stock or a process to sell. Everything else is just a job by another name.

If your business falls into the former category to maximise your sell price your emphasis needs to be on having a well run systemised business in a good market.

If you really just have a job by another name - for example you are a self employed contractor, your only asset is really your customer base and this is likely to have a limited value to anyone else.  Your earnings are generally restricted to e number of hours you are available to work.  The secret with this type of business is to maximize your earnings and invest those in assets that generate passive income such as dividends, interest and rent.

I have just returned from India, one of the fastest growing economies in the world.  Since the my last visit two years ago the increase in infrastructure development has been huge.  As we left Agra and hit the first of the road toll booths our Guide explained that they were happy to pay as the new highway had reduced the travel time to Jaipur by three hours. The people of India clearly see development from a much more positive perspective than us and realize that their Government cannot afford to pay for everything.

Development is not hampered by the complex regulation of the west - some of which is a bad thing as there isn't even a minimum health and safety standard. But it also means things happen much quicker.  In the last 20 years the living standards for the lowest classes has moved to where the middle class were, and it is moving faster all the time.

Unemployed are offered work on a day by day basis.  If they register as unemployed and turn up at their local meeting place they are guaranteed a miminum wage of 220 rupees ($5.10) per day. If they are not offered a job as a day labourer at a better rate they are assigned jobs for the council working on roads, gardens and other developments.  

Much of the economy runs on cottage industry but as they become more urbanized the biggest problem will be managing demand for higher wages.

There is a significant emphasis on education and health with new educational facilities being built everywhere to cater for the needs of the lower and middle classes.

Sadly in New Zealand we no longer seem hungry to improve ourselves - now we think it is someone else's job to do it for us.  For all our talk of being entrepreneurial and number 8 fencing wire, we would rather go to the beach an earn the minimum we can for the maximum lifestyle.  It is time we raised our goals before we are taken over by the ambitions of countries like India.