Your business just had a bad quarter and you need to figure out how to improve cash flow. Hopefully it’s the first time that’s happened in a while. Either way, you still need to hit your year-end sales goals, and you need a plan to make that happen.
I often find that a bad quarter doesn’t just “sneak up” on you. There are some things that started happening months ago that lead to the bad quarter that just happened.
The bad news is it’s on you to fix it. The good news is you’re still in business.
I’ve laid out my 9 step process for hitting your year-end business goals after having a bad quarter.
Let’s get to work…
Own The Problem
Great leaders own the problem…
When you’re trying to fix a business problem it takes a team. The first step toward getting the team to function as a cohesive unit is for you to own the problem. You’re the one steering the ship. If the ship isn’t going in the right direction then it’s the Captain’s fault.
Remember this; Great Kings, Rulers, and Generals have always been in the battle with their troops. They lead from the front.
Don’t be afraid to discuss the problem publicly either. Too many leaders are afraid to do this because they think it will cause employees to leave. But if your company fails you’ll lose them anyway, so give them a chance to help you.
You have to own the problem in a timely fashion too. Don’t wait until Q4 to own the Q1 results. Do it early; as soon as you have the results.
Being humble is a huge part of success…
On the backside, when your company is back to positive cash flow you must remember to give the credit to your team. I can tell you from personal experience that even though you’ll be giving them the credit, your team will thank you and reflect it back to you.
Everybody will win.
Start With the Cash Flow
In a small business cash flow is King, Queen, Prince, and Joker. If you’re coming off a bad quarter I’m guessing you’re thinking Joker right now.
Here’s what you do…
Print out the list of expenses that you’ve had for the last year. You should include all amounts that you’ve paid along with any outstanding amounts you owe.
You’re going to be ruthless here. It’s time to cut the fat. We’re going to do a cut-throat cash flow analysis.
Going line by line scrutinize every dime you’re spending. What’s it being spent on? Do you really need that thing or that service? If not, get rid of it. Period. No discussion.
On every service that you’re paying for ask yourself what cost reductions you can get. Don’t be shy. This isn’t the time for that. Back when I was a Buyer I found that just by calling and asking for a reduction I could get something.
Everything that you’re spending $500.00 a year on is up for renegotiation. Ask. If they don’t give you a lower price, reach out to their competitors.
Anything you’re spending less than $500.00 a year on, think about cancelling it.
Next piece; how much revenue is coming in over the next 6 months? We need a real solid number here. This is no time for wildly hopeful guesses. So for this exercise don’t be pessimistic, and don’t be hopeful. You can write down anything you have solid confidence in based on firm commitments, and long-term business relationships.
Third step; build out your expected monthly fixed costs. This is your rent, insurance, labor, all the stuff that doesn’t depend on the volume of business you do. Then you can add in a line for variable costs.
Lastly; let’s identify where the cash flow shortfalls are going to be in the next 6 months by subtracting your fixed and variable costs from your projected sales in each month.
In any month where you have negative cash flow you need to investigate. What can be done to fix it? Can you push an expense back? Can you pull sales forward? Is there a contract that’s pending but you have low confidence in it so it didn’t make it into your cash flow projection? If so, what can be done to win the contract? Start making phone calls.
This isn’t an exercise that you do once and then forget. You’ll do this at the beginning of every month to make sure that you know which months you need to improve your cash flow. This will help you spot the effects of losing or winning contracts. When I’ve needed to do this I’ve updated it weekly.
For some of you this will mean new discipline. You’ll be reviewing your prior month’s complete financials no later than the 10th day of every month.
Winners Set Goals and Objectives
Is your company a goal-setting company? If not, it’s time for it to become one…
If you are a goal-setting business it’s time to figure out where you missed and why.
Either way, here are the questions you need to ask to get your business on track:
First, what were your business goals for the last quarter? Were they written down and did your team know what they were? Did you talk about them often and work on them each day?
Those are some very important questions. You can’t just create a set of goals, hand them out to everyone, and hope your team delivers. You’ve got to talk about your goals every day and every week. And you’ve got to know where you stand relative to them.
Next question about goals, and this is a big one…
If you did set goals, which one of your employees didn’t buy in? Write their name down and we’ll come back to this one later on.
For each of the goals that you set in your company write down what they were, and where you finished relative to the goal.
For each goal that you missed you need to figure out why you missed it. Don’t accept the first level answer as the reason for why the goal was missed.
Have you ever seen a small child who relentlessly asks “why?” every time an adult answers their question? I want you to be that focused on figuring out why a goal was missed.
When someone gives you the first level answer, ask why. And then ask why when they answer that question. And then ask why again.
Find the first domino in the chain of events that caused your company or an employee to miss their goal. By doing this, you’ll be certain that you’re dealing with root causes instead of putting band aids on symptoms.
Now it’s time to revise your monthly goals for the rest of the year…
If you’re reading this at the end of the first quarter you’ll divide the difference between where you are today and where you need to be by the end of the year by 9. These are your new monthly targets. If you take the whole miss from Q1 and expect to get it back in Q2 you’ll likely end up with a morale problem.
I wrote a solid post on how to set goals for your team and you’ll want to read it too.
Once you’ve set your company goals you can then cascade them down to your team…
A couple things to consider about setting goals for your team…
- No one should have more than 5 key goals they’re working on. I like to set a range of 3-5 performance goals for each person. If you give a person 8 key goals to address each quarter then the effort applied to each goal is watered down. You’re also leaving them to decide which goal is the most important.
- Double-check that you aren’t causing different people inside your business to work against others. Creating competing goals will only slow your company down.
- Double-check the goals for alignment with what you’re trying to achieve. How do you do this? Read them from the bottom up and see if you come to the same conclusion with the same strategic goals you set out to accomplish. If you want to take this to the next level have each of your managers do the same exercise and see if they come to the same conclusion.
Now it’s time to go public with the final goals for the rest of the year…
Brand Your Goal Program and Go Public
And include employee incentives…
Have you ever noticed how military campaigns are branded? Operation Desert Shield, Eagle Claw, Team Spirit.
There’s a reason for that…
Most operations are given names that don’t really tell you what’s going on. However, in times where media propaganda is useful the military may chose a more marketable name. “Desert Storm” and “Desert Shield” are good examples of this. There wasn’t going to be any hiding of a military force that large so let’s call it what it is and get some mileage out of it.
There shouldn’t be any hiding what you’re trying to accomplish so feel free to brand your company’s goal program each year.
At Life is Good it’s common to see employees wearing t-shirts with slogans on them like “seas the day” or “Forecast: Mostly Sunny”.
Pepsico actually publishes their goals on the public side of their website for all to see.
Don’t be afraid to go public with your business goals. When your employees, clients, and vendors see and hear where you’re going they’ll want to get on board too. Go Big or Go Home.
Meet with each team and discuss their goals and objectives. Make sure every employee understands how their goal package ties in with the company goals and objectives for the year.
Finally, continue to discuss the goals at least weekly throughout the year. Add in a few fun contests to push the teams over the edge or up-level their performance. Promoting goals is like marketing which is like showering. It’s not a “one-and-done” kind of thing. You have to talk about them all the time. Your employee and company goals must be part of the fabric of who you are.
Pro Tip: Check in with your employees randomly in a private moment and ask them how they’re doing on their goals. Ask them if they have any roadblocks, and then do whatever you can to remove the roadblocks immediately.
And what about the employee incentives?
Here’s my firm suggestion: The business has to turn a profit. Without profit there’s no reason for you to be in business. Without a profit, no bank will seriously consider loaning you money to grow the business. Without profit you won’t be in a position to build a cushion and ride out future economic storms.
These are things your employee must understand and appreciate.
So set an after tax profit number that the business must make and keep. For discussion sake let’s go with ten percent. That’s what the business has to have left after taxes and operating costs.
Above that you can implement a profit sharing program.
The one rule you must follow in creating an employee bonus program is to keep it simple. If a fifth grader can’t understand it (seriously) then you’ve gotten way to detailed and uptight about it.
Complex bonus programs tend to make employees think that you aren’t really interested in paying out. That only damages your credibility as a leader. Keep it simple.
Your Team
When companies miss goals for internal reasons it’s because they failed to execute. Your company fails to execute because of the team. Either someone’s not on board with the plan or someone doesn’t have the skills or someone’s missing the details. Computers and machines do what they’re programmed to do. So that leaves people; the team (which does include their leader).
How’s your team?
Remember earlier when I asked you to make note of any employees who hadn’t bought into the previous set of goals?
It’s time for them to get on board.
It’s that important.
Business is too hard with a good team for you to have anyone on the team who isn’t willing to buy in and support your plan. And there are too many good people out there for you to have any poor performers on your team.
I’ve been to many business conferences and I can’t tell you how many times I’ve seen a speaker pose this question: “Raise your hand if there’s someone in your company that you know you need to fire but you haven’t done it yet.”
I’ve never seen that situation posed when at least 10 business owners in the room didn’t raise their hands. If your hand is in the air as you read this then it’s time.
Stop picking on that person who’s underperforming. Stop making them show up to a job every day that they don’t like. Some of you will be thanked by the person you’re letting go.
For everyone else who isn’t an attitude problem and just needs training, get it for them.
Improve the quality of your team and then you can grow your business.
Check on Your Company Brand
The first time I became a CEO it was for a company that wasn’t profitable. One of the first things I checked on was the company brand. I wanted to know how safe the cash flow was and understanding how well respected the brand was gave me a good feel for that.
If your clients are becoming dissatisfied with your company; if your brand has a bad name; that could partly explain why you just had a bad quarter.
If you have a brand problem with your current clients then you’ll need to fix that before you start spending new money on marketing. Your new prospects will check with your current clients to see how happy they are. Those opinions will mean a lot for growing your business.
To check on your company brand you’ll need to talk to two groups:
1. Consider using a surrogate to speak with your clients. Sometimes people will say things to one of your advisors that they won’t say to you because they don’t want to hurt your feelings. Using a surrogate also helps make sure the information gets to you and that you don’t discount what’s being said.
If you use have a small board, a business coach, or even an external accountant they would be good choices to conduct these interviews. If you don’t have these, then you’ll need to do it yourself and be open to what you’ll hear.
2. Interview your vendors. Your vendors will be able to tell you a lot about how and why your company brand is respected. They’ll also be able to tell you which of your competitors has traction. Your vendors want to do business with all the strongest players in the market. Again, a surrogate will be advisable here if possible.
We’re not done yet.
We need to look at your brand data.
There are a few pieces of data we’re interested in. These are your Client Acquisition Cost trend, website traffic trend, and repeat business trend.
As a brand strengthens your client acquisition costs should come down. If you haven’t done this before simply divide your marketing expenses by the number of clients or projects you sign. I look at this number monthly and I plot it on a graph over time because this picture is worth a thousand words.
If the graph is trending up, you’ve got an issue.
How’s your web traffic doing?
If you haven’t either been to your Google Search Console or talked to you SEO team lately you need to do this quickly. SEO isn’t a set-it-and-forget-it kind of thing.
There are a number of issues that can affect your web presence ranging from an aggressive and savvy competitor to a Google algorithm update.
If your internet presence starts to slip you’ll definitely notice.
Let’s talk for a second about your repeat business.
Like Reagan said, “Trust, but verify.”
You’ve asked you client and vendors if they still love you and they said yes. Wonderful.
Not so fast…
If they tell you they love you but repeat business is declining then you’ve still got some research to do. You need to know if the decline is because their business is falling apart or is it because of something you did or didn’t do?
Make sure you can explain the difference between the data and their words. If they are saying one thing, but behaving another way, ask them about it. Just be polite about it when you do.
If their business is declining you’ll need to understand how bad it could get and then set your sales goals to compensate for it before your cash flow takes another hit.
Fire Unprofitable Customers
This sounds tough but it’s really not that hard…
Your unprofitable customers are siphoning off resources that you could put toward new or existing clients. Worse yet, they’re taking money away from you by hurting your cash flow. There’s nothing as good as a new profitable customer to replace an old unprofitable customer…
Don’t rush right out and fire them though…
You’ve got to replace them.
Let’s say you’re trying to replace a $250,000/yr revenue customer that you’re losing money on. Well, your sales team needs to find you $250,000/yr in new profitable business to replace this customer.
That means that the next $250,000 in sales that you add will be added without making any new investments in equipment or square footage, and by only adding temporary employees.
As soon as the new client is on board it’s time to cut ties with the old unprofitable customer. Here’s how you do it…
You need to have a conversation first. They may like doing business with you and might be willing to reconsider the price they’re paying you or the scope of work you’re doing. If so, you may be able to restructure the deal.
Call your client and ask for a meeting at their offices. Let them know that the relationship has become one-sided. Don’t assign any blame.
Let them know that if they’re unable to renegotiate the terms of your arrangement that you’ll need to discontinue helping them.
Ever heard the saying “sometimes you have to get divorced to save your marriage”?
Don’t burn any bridges here…
I’ve been on the buying side and had to go back to an old vendor and offer to pay them their higher price. I was willing to do this because we parted ways professionally. They didn’t leave me hanging.
So if you have to part ways leave them thinking about how much they hate to see you go. If the new supplier doesn’t work out you may just get a call six months from now. Give your old client plenty of time to find someone new. Not years, but don’t cut them off tomorrow either.
Find New Sales Opportunities
There are several places to find new sales.
First, how are you managing your sales team?
If you have a sales person you should have given them new sales goals for the year based on the new goals you’ve set for the business. I’ve always held sales people accountable for generating at least 10X their annual salary in revenue. In some industries the multiplier may be much higher.
If you’re small enough that you only have one sales person you should very seriously consider hiring a second sales person. In his book Built to Sell , John Warillow talks about a very sound logic for why you need to have more than one sales person on your team.
Second, what are your clients buying that they could be buying from you or that you could start selling?
You should be asking this question of your team every year when you do your annual planning. Many companies call this “white space”; the place where you could make more money with your current clients. It’s a white board waiting for you to write on it.
In order to hit your sales goals you may need to diversify your sales offering. But that’s not the only reason you need to look for opportunities with your clients.
Sometimes a bad quarter comes when the market moves away from what you’re selling. Think Blockbuster video tape rental. If you just keep your head stuck in the sand and don’t ask questions you will end up with more bad quarters in the future.
Third, where can your products or services be used as a substitute for something else?
A lot of people don’t know this but facial tissue was originally developed and marketed in the 1920’s to help ladies remove their makeup. Within two years it was discovered that men were using it as a disposable handkerchief. Kimberly-Clark rebranded and relaunched the product when they realized they had a hit on their hands.
How can what you do be remade, refashioned, or rebranded to help other businesses or people? Rebranding or repurposing your offer may be an easy way to improve cash flow. It may not take much to hit your new sales goals.
What skills, talents, or know-how do you and your team have that can be used to provide alternate services to different clients? Perhaps something that’s similar to what you do now…
Maybe you just need to add another person, piece of equipment, are software package and you’ll have it…
Improve Operational Efficiency
The executives at Sears were interviewed after Walmart passed them by. They were asked: Didn’t you see them coming?
They replied, “yes”.
The follow-up question: Why didn’t you do something to respond to their growth?
They replied, “we didn’t think anybody from Arkansas new anything about how run a world-class retail operation.”
The fact of the matter is that Walmart crushed everyone because they executed better.
What new process do you put in place every quarter to execute better?
Your Efficiency Ratio measures how well you use your assets; how well you execute…
If you don’t consistently try to improve your operating efficiency you’re going to get caught off guard by an increase in the market wage rate, supplier costs, increases in needed equipment costs, or worse… a motivated competitor.
The number of companies that have died because they got caught by surprise is endless.
The number of new and disrespected upstarts that have crushed entrenched brands by doing it better is also countless.
This starts with knowing what your operating efficiency is today.
Operating efficiency is your per unit cost; cycle time; response time, or something similar. Do you know your per unit cost or how long it takes you to deliver?
Then it moves to a goal.
The best organizations have a stated goal to improve their operational efficiency. What’s yours?
The goal is delivered upon through innovation. Here’s the cool thing about innovation: You can borrow ideas from other industries. You don’t have to hire an R&D engineer to figure this out.
All it takes is being willing to ask one question: “I wonder if that would work in my company?”
And you keep pushing every quarter.
Let’s Review
Own the problem.
Fix the cash flow. Be ruthless.
Set goals and go public.
Brand your goal program.
Get your team right.
Check the Brand.
Fire unprofitable clients.
Find new sales opportunities.
Always improve operational efficiency
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