I recently met my new business hero. His name is James Brown and he hails from the hardscrabble hills of Eastern Kentucky. Maybe they breed folks a bit tougher there but this guy has shown me a tenacity and resolve that I have rarely witnessed in my work with distressed businesses.
Jim and his lovely wife Mary have lost it all three different times. They have been flat broke, deep in debt and jobless but have made their way back every time. As Tina tells it; “I’d be on the couch crying convinced that we could never recover and Les would be on the phone trying to line up Plan B.” Almost every business problem is fixable but it is too often the owner’s lack of determination that creates shattered families, unemployment and a weakened economy.
Unfortunately, the primary deficiencies in Jim and Mary’s business are more universal than we care to admit. Following is a quick list of risky shortcomings that are common in many small businesses today:
No accounting system
Jim and Brown had one but it was so inaccurate that it was the same as not having one.
Minimal accounting knowledge
Jim and Mary are smart and savvy but are not comfortable reading an income statement or a balance sheet. Unfortunately, many entrepreneurs are in a similar position. And most have done “just fine” without them. Just as most recreational pilots have done “just fine” without instrumentation—until they fly into a storm. Folks, this economy is a storm and proper knowledge cannot be undervalued.
No Budget or Cash Forecast
Will you make money this year? Will you be able to make payroll 10 weeks from now? Any answer similar to: “I don’t know” or “I think so” should set off alarm bells. You are the captain of the ship and everyone is counting on you. People don’t fly on planes where the Captain leaves their safety to chance – why would they work for one who does? Both budgets and cash flow forecasts are simple to implement and should be one of your most powerful management tools.
It’s a great strength most times but can leave you exposed. The right family members will walk through fire for you but the wrong ones can leave you burned along the way.
Lack of Education and Training
Do you know what you don’t know? Smart business leaders do. Lack of greater knowledge can be a liability in family-run companies. Unless leaders have accumulated several years of work experience in professionally run corporations or have earned an MBA, they may not know what a well-run organization looks like.
Les applied the same pricing structure to every customer—from his very largest commercial customer to direct retail sales. If you are Costco, this model may work. But for anyone else, you are only shortchanging yourself and your employees.
Dependence on Inventory
Les sees inventory as a sign of wealth. Everyone loves inventory. Everybody. But too much of it only costs you money! If it takes 1 week for you to get new product in, why would you possibly carry more than 2-3 weeks of inventory?
Jim and Mary are way too savvy to have extended credit. The few times where they have and were burned, they took legal action.
Savings to the bottom line can be had. All retailers need, are the tools and training needed to sustain these gains well into the future.