Take a moment to do a quick self diagnosis. Are you INSANE?
I often ask this question at the beginning of a speaking engagement. I ask everyone to stand up. Usual groans, I can here them thinking: “Great, one of these speakers that want me to actually engage.” Then I say, please sit down if you are NOT insane. Unsurprisingly, most people sit down, however, I always have one or two that stay standing. Not sure if they have self diagnosed or think that there is some sort of prize. I then put to the group Einstein’s definition of insanity: “doing the same thing over and over again and expecting a different result.”
It amazes me how businesses continue to keep doing the same things over and over again, and wonder why they keep getting the same results. It’s because the business owners are INSANE. They don’t look to the core activities that fundamentally produce the same results and change them. Sometimes the change required is only slight, but it can achieve an amazing result.
Take for example a business that is tight with cash flow. There are a number of reason that may cause this, including:
- Not enough sales
- Low gross margin
- Too many overheads
- Slow paying account receivables
- Too much stock or work in progress
Here’s some ideas to bring back your sanity:
- Develop a sales plan to increase your transaction frequency and average sale to existing clients. These clients are already engaged with your business and will have unmet needs that you can meet. Most of your clients won’t know what ALL of your products and services are until you tell them
- Put your prices up. By improving your gross margin you improve your profitability. It is easier to improve your profitability by a price increase with reduced volume, than it is to discount your price to win work and increase your volume to compensate. To achieve the same profit at a current 50% gross margin, if you drop your price by 10% you need to increase your sales volume by 25%. Alternatively, if you increase your price by 10%, you can afford to reduce your sales volume by 17% for the sales result. However is will most likely result in increased $ margin.
- Cut your costs. This will often be in the indirect labour cost. Cut some costs, so long as it doesn’t imact on quality and client service, it will fall straight to the bottom line.
- Engage all clients and have them sign off on every order, job or matter before you start to supply. No sign off, no sale, no work or delivery. That means signing off on your terms as well. Then build a system to follow up outstandings as soon as they are overdue and continue to do so until paid. Afterall, they agreed at the front end to do this. Remember that saying, the squeaky wheel gets the most oil. After a while, they pay you on time because they know you are relentless and organised.
- Clear out your stock and WIP regularly. Set a maximum limit and constantly focus on maintaining that limit as a number one priority. Once it’s out of stock or WIP, it becomes a sale and can only then turn into cash.
You don’t have to do all these things. Just work out which one is going to have the biggest impact and make a change to achieve the results you want. Be relentless about your implementation. Remember, it’s your business, your clients need to play by your rules.
Stop being INSANE and do something different.