business manager Archives

Cash Flow and the Life Blood of a Business

My youngest son, Austin, likes to play the “net cash game” method of settling debts. I owe him $10, but then I pull out a twenty, he then takes out five ones from his wallet and states I now owe him $15. Then we exchange back and forth until the accountant in me realizes that I paid him $25 for a $10 debt. At 16 he bought an Audi…no surprise.

Business cash flow with customers and vendors can seem like the same game. Taking from here to pay there, paying partial or late payments to vendors to “make payroll.” Dan Ginsberg writes about this in Ten Steps to End the Dash for Cash. His point is well taken. Too many small and medium-sized businesses do not look at the underlying reasons for working capital shortages.

Here are some areas you should consider in addition to looking deeper into his suggestions:

Take a close look at the profitability of your services or products: Too many companies are afraid to discontinue losing products or services thinking that they will come around. There is no room for favorites in business. You must take a hard look, but before that, you must determine that your costing information is accurate. This requirement is a cost accounting function. If you do not have good information to make your decision, then your decision may not be a good one.
Take a close look at the profitability of your customers. Have you ever read The 80/20 Principle by Richard Koch? The book argues that clients that represent twenty percent of your revenue are absorbing eighty percent of your company’s time? Can you think of customers like that? If you do, you should consider whether they are worth keeping. Remember, that extra time can be used to bring in better clients or service clients that are more profitable.
Generate a list of monthly metrics that represent the health of your cash flow: Most business only look at monthly sales. There are several other cash flow metrics that you can monitor in order to gauge the health of your business. List them and use them.

Cash flow is the blood of a business. Take its pulse and regulate it to a healthy future.

A Revelation: Bad Strategy of the Four Horsemen (Part 3 of 4)—“Mistaking Goals for Strategies”

In our last two installments, I mentioned how Knute Rockne compiled four sophomore football players in the Notre Dame backfield who became football lore. The Four Horsemen of Notre Dame destroyed almost any defense they faced from 1922 to 1924, only losing twice to Nebraska.

In a strange way, their image came to me when reading Richard P Rumelt’s Good Strategy/Bad Strategy and his four major aspects of bad strategy. Rumelt writes that you can detect bad strategy out of four hallmarks: “fluff, failure to face the challenge, mistaking goals for strategy, and bad strategic objectives.”

In this issue, we will discuss the third horseman, “mistaking goals for strategies.” Many bad strategies are just statements of desire rather than plans for overcoming obstacles. Many companies express their desires as goals, not strategy. For example:

We will be the industry company of choice
We will grow our revenues 10% per year
We will sustain a profit margin of 15% per year

The problem with this kind of pseudo strategic thinking is that it is looking at the trophy, not the method to earn it. A simple example is using two components of the SWOT tests (strengths, weaknesses, opportunities, and threats.) What strengths and opportunities are you going to use to build a strategy to get to those goals?

If you have a difficult time distinguishing a goal from a strategy, always think of a tightrope walker. Their goal, or vision, is to get to the other platform. Their use of a wire, training, a balancing pole, and other aspects feed into the overall strategy that will get to the other side.

But do we ignore numbers? Absolutely not. Metrics work as milestones or sign posts along the way. They can have the effect of measuring the strategy and altering tactics that can get you to your vision. But for these metrics to mean something there has to be an action that creates the conditions that will allow the company to reach its visionary goals.

Performance goals have little to do with strategy. But the real challenge is thinking strategically. Take the military, for example. Would this be a proper response by General Eisenhower to President Roosevelt in his strategy to defeat the Germans in WWII? “Mr. President, we plan to defeat the Germans in six months.” His response stated a goal, but not a strategy to getting to that goal.

The same can be said on how individuals “strategize.” In Los Angeles, a singer may say, “I want to get a recording contract.” Or, “I want to earn five platinum records by time I am 35.” These are not strategies, they are goals. The challenge is to go through the process of creating a basic roadway. This roadway joins where you are now to where you want to be.

Business Solutions for Quality: Integrative Thinkers Don’t play The Game Differently, They Play on a Larger Field

I picked up the title from an article, Inventing Elephants article by Beth Robinson. The article was linked to the In2 Inthinking Network home page, a new way of approaching organizational problems introduced to me by Dr. William Bellows of the In Thinking Network.

I am in the middle of spending 9 hours in Dr. Bellow’s class to think about organizational problems differently. He quotes Dr. W. Edwards Deming: “This is the age of superstition.” Basically, we live in the “last straw era of philosophy where the problem is the person, or department that caused it. The awards/benefit concept exacerbates this because it has winners and losers.

The opposite of this is to look at the larger picture and the relationships between the actors that produced the product and service. Dr. Bellows introduced us to Deming’s System of Profound Knowledge to change an organization. He says the system provides an outside lens to the organization, and a map of theory by which to understand the organization.

To understand this system, the first step is the transformation of the individual, and the application of its principles in every kind of relationship with other people. There are 14 points to transformation. I won’t list them all but will highlight a few:

Breakdown barriers between departments: The concept of awarding (or punishing) a department level breaks down relationships between departments. Concentrate on the relationships and the COMPANY WIDE teamwork that works towards the same goal.
Remove barriers that rob people (including hourly workers) to their right to have pride of workmanship: This is something that many businesses fail in. The staff or rank and file lose the desire and opportunity to a sense of ownership of their labor.
Cease dependence on inspection to achieve quality: Do people tend to work better if they are part of a much bigger picture than a menial task? I would think most would. If so, their product would not need to have extensive quality inspection.

These are just a few of the ideas on how this organization is trying to change the way organizations approach problems before they happen. The old saying, “If it ain’t broken, don’t fix it,” should be changed to “if it ain’t broken, break it, or you aren’t looking hard enough.” Continuous improvement should be the point of view.

Do You Have An Economic Depression Mentality?

I have found that family and friends who survived the Great Depression usually have a different economic philosophy than those who did not(especially as a small business owner). Basically it goes like this: Pay cash for everything, pay off your house, and have the cash to buy large items like a car.

This may sound very foreign to you if you handle your credit card like a derringer, or amassed a boat load of student loans, but, you must understand the philosophy of those who think this way. During the depression there were no safety nets at first. You were on your own when you lost your job, savings, and house.

When it comes to small business, a depression mentality can work against you. For example, look at these troubling assumptions:

If it ain’t broke, don’t fix it. This small business conservative mentality flies in the face of innovation. I like another one I read, “If it ain’t broke, break it.!” A small business must always be evolving, and not stagnating in order to survive. So, replace and upgrade at a managed state.
I pay cash for everything. If an asset has a life that will extend beyond one year, then you may want to finance it through a small business loan (or line), or raise capital. Try to conserve your cash for operating expenses. This is when a conservative use of cash will help you.
My small business runs itself. Always a danger sign. As many have said, “You should run your small business.” This conservative point of view is a fuse to self destruction. Every good idea has its day.

Small businesses are the major job creators of our nation. It is up to us, as small business owners, to manage our businesses efficiently. At times, a conservative mindset is called for, but other times, it is not.

Artists’ Futures are Truly in Their Hands

I was twenty-one in 1978 when I got my first part-time CPA accounting job while studying at UCLA. The adding machine I used had a crank…really.

Over the last year or so, I have written about apps that help business people run their businesses better. Recently, I came across Artistgrowth that literally puts “organization” in the hands of the artist, manager, and others in the music world.

The app helps you manage your schedule, gigs, and tours. In addition, it helps you and your CPA manage your finances by allowing you to photograph your receipts and attach it to a report. The app also has a portal that connects you to many different informational sources, videos, etc. that discuss such things as promotion, songwriting, and instrument repair.

The Action Packs section helps you implement the knowledge you learned in the informational sources. I thought the business plan pack was very superficial, but at least it displays the basic concept. (These packs are limited depending on your subscription level.)

Before jumping on your phone and buying it, step back and think about what you and your music business lack. The problems with apps is that they offer a whole list of bells and whistles that you may not need.

I have written several times during the last year that now is the best time in the last 100 years to start a business because of all the resources available online. This app seems to be one of those gems that a music professional can leverage. The boundaries that separated CPAs, managers, and even artists are changing. The things that one person used to be responsible for, may no longer exist. If you have the ambition and maturity, you can evolve your role to further your career and maybe save you a lot of money and grief.

I am not saying that you should replace your CPA or manager with this app. However, by assuming some of the lower level responsibilities, you can empower your CPA to provide higher level services that could multiply the financial return of this app.

Changes: Bowie Was Right, Look Out You Rock n Rollers

“Still don’t know what I was waiting for

And my times was running wild

A million dead-end streets and

Every time I thought I’d got it made

It seemed the taste was not so sweet.”

–David Bowie, Changes from the Hunky Dory album

This song ran through my head when I read the article, Just-in-time strategy for a turbulent world by Lowell L. Bryan. Bryan tackles the corporate world, but the same principles would apply to artists or small businesses. Basically, change is good and time can be on your side.

One unique concept he proposes in his article is “for businesses to take full advantage of their best opportunities without taking unnecessary risks.” Bryan implements this concept by advocating that businesses set up a portfolio of initiatives.

In a nutshell, his concept states that businesses should not develop a single-minded strategy that requires a bucket full of resources. Instead, develop smaller pilot programs at much smaller price tags, and re-evaluate constantly. The small business or artist will be able to switch directions quicker because they will not be so heavily invested in any one.

This concept can be achieved more today, than any time in the last one hundred years because of technology. Technology, most notably the Internet, allows artists and small businesses to reach their target audiences in real time. This ability will accelerate changes and require an artist or small business to adapt quickly.

So, how do you get started? Using Bryan’s illustrations, all initiatives should adapt the artist’s and small business’s core competencies. In other words, you have to know what you don’t know. If you are developing your core competency, than the time frame can be much shorter, even less than one year. The risk would be lower.

Conversely, if you are venturing into unfamiliar territories, then your time frame should be 2-3 years before it comes to fruition. The less you know about an initiative, the larger the risk.

But, should you invest entirely in longer time frames? The answer obviously is no. You have to make sure you balance your longer term initiatives with your immediate ones so you can provide adequate cash flow for all of them.

Now that you have picked out your initiatives and time frames, how should you implement the plan? Bryan suggests four steps: Search, execute, monitor progress, and reassess the initiative portfolios. This procedure is no different than what I have been writing about all year. In any of your initiatives, you have to measure what you are doing against benchmarks and milestones. The old adage is if you can’t measure it, you can’t manage it.

Artists and small businesses should consider adapting this method of strategy in the fast-moving world. Who would have believed 20 years ago that you would be able to access the world in a little handheld device?

Sales Tax War and Peace From a CPA

My wife dragged me to Beverly Hills estate sales. At first I was very disinterested because I hate to shop. You can tell that by my clothes. I still wear khakis and corduroys from five years ago. I guess that is a dead give away that I am a CPA.

Well, I still went to the sales, so to pass the time I learned about the antique and vintage items, and what they were selling for on the Internet. The prices of these items at some estate sales were from $1.00 to $15.00. Their E-bay values ranged from $30.00 to $99.00.

So, not being one to accumulated old things, my wife and I created Manhattan Beach, California Antiques. Now, before you start googling our name, let me tell you, its not there. I haven’t even opened a web site, but do sell many pieces we picked up. This puts me at ground zero of sales tax wars.

Internet businesses have a distinct advantage over brick and mortar businesses by not being required to collect sales tax unless they have a presence in the same state as the buyer.

Well, the fight has moved from the state to the national level. The Main Street Fairness Act, sponsored by Dick Durbin last August, helps the states in their enforcement. The Act would allow states to require Internet and mail-order retailers to collect state and local sales taxes. To exercise this authority, a state must sign on to the Streamlined Sales and Use Tax Agreement (SSUTA) and adopt legislation implementing its provisions.

So far, almost half the states have implemented SSUTA. Small businesses (less than $5 million) are exempt from this enforcement. The act places a policy of basic fairness among the states so that large retailers can’t run from state to state to avoid sales taxes.

But what does this mean for the small business person? For those under $5 million, nothing. You still report all sales and collect applicable taxes. For larger Internet companies, you must really get your sales tax infrastructure in place. So many companies of all sizes do not report sales in the correct state, if they report it at all.

As a CPA, I advise any client to impliment whatever software they need to track sales tax correctly. Don’t wait for your state to exercise its this agreement, or law if it passes. And if you are an Internet business, do the right thing before the government does it for you.

Sales taxes must be taken as serious as income taxes. Discusss this and any tax decisions with your tax advisor before acting.

______________________________________________________________________________

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the U.S. Department of the Treasury and Internal Revenue Service, we inform you that any tax advice contained in this e-mail (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (a) avoiding penalties under the Internal Revenue Code or state tax authority, or (b) promoting, marketing, or recommending to another party any transaction or matter addressed herein.

Strategic Planning for the Artist: A Los Angeles CPA Business Manager’s Attempt to Integrate Business Concepts

Tomorrow, as a Los Angeles CPA business manager, I will be merging two of my skills with a client. My entertainment business management skills, and my strategic planning skills. This client is a singer/songwriter who produced a music demo and video. My question to her was, “So what?” If you pursue the path of other musicians to acquire a contract, a 360 deal, you are no better than them, and may be just one of many homogeneous artists trying to make it.

This actually happened to my dad, Bobby Norris, in the 1950s. He signed with Capitol Records as a rockabilly artist, only to receive very little promotion for his records. It wasn’t until after he died, 2003, that he receives the recognition that he longed for as one of the original rockabilly personalities.

As a Los Angeles CPA business manager, I really don’t see artists driven in their profession from a real strategic planning position. I did stumble onto a book that seemed to address strategic issues. But I will have to buy the book to see if they do more than just scratch the surface.

So how would I, as a Los Angeles CPA business manager recommend how an artist should strategically work their career? Here is a short answer to a long question:

Identify an issue. What are you really trying to accomplish? It has to be more than “be a star.” You have to really focus on something and list your assumptions on why you are equipped or not equipped.
What is your vision? Quantify what you want. For example, to have 1 top ten single on the charts every year, or play to an average of 200,000 per event. See Jim Collin’s Good to Great and Build to Last for big, hairy audacious goals.
Why would the fans want you? You must focus on your fans. Many books like Blue Ocean Strategy help you think on a level of satisfying your fans and creating an uncontested marketplace. Don’t give the fan more of what they heard. Find out their needs and satisfy them.
SWOT analysis and quantifying: Now you can look at your strengths, weaknesses, opportunities, and threats. You must also put some real numbers to your goals.
Lay out your strategy
Reduce the strategy to tactics

I’ve produced this approach, in part, from Johnson and Smith’s 60 Minute Strategic Plan.

In my opinion, as a Los Angeles CPA entertainment business manager, you must think strategically about your career and stop focusing on yourself. Focus on your fan base and serve them the art they deserve and are entitled to. As Los Angeles CPA business managers, we try to work with clients on the front end, not just record the results on the back end. That is where we strategically differ in our profession.

Does Your Company Culture Prevent You From Change?

In business, or in a non-profit, one thing that bugs me is when a group of individuals agree on a vision, but very few want to see it through to implimentation. Oh yes, there are excuses, but the result is still failure. The business culture destroys the vision.

Gardini, Guiliani, and Marricchi’s article, Finding the right place to start change discusses change in a business culture. They say, “Our recent experience at a European retail bank shows the benefits of starting to implement change by focusing on the employees who have the most influrence over the daily work that needs to change.” The article discussed how they bank struggled to get bank managers to change. So, what was the article take away? The authors suggested the a company take two concurrent steps to change the company structure:

Change the pivotal people first.
Build a comprehensive program.

This article didn’t really say much and at first glance it looks like it regeritaged Jim Collin’s book, Good to Great. In that book, Collins emphasizes to get the right people on the bus(the wrong people off the bus), and then figure out where to drive it. His theory differs from the article in that once you get the who you can decide the what. The reason is because a company therefore can then easily adapt to a changing world. Secondly, Collins argues that if you have the right people on the bus, the motivation problem goes away. Lastly, the wrong people on the bus will sabotage any advances you try to make.

So how do you know which people to have on your bus? That is really the tricky question. One way is to lead by example as a “Level 5” leader. Collins defines these leaders as those who are ambitous for the company, and not themselves. In other words, a humble, but ambitious leader.

So, the trick to changing any business, small and large, is to change yourself and the leaders around you. Once you do that, you can find those who emulate these qualities as the riders on your bus, and the most likely group to impliment your changes.

Jeff Bridges: Be an Actor or a Singer, His Skills Are Transferable. And In Business, So are Yours

Many articles surfaced earlier this year about Jeff Bridge’s crossing over to country music. Some were not flattering. For example, theweek.com quoted comments that branded Jeff as “country-lite,” and “a troubadour tourist.”

But the critics missed the biggest point about Jeff Bridges. Back in the late 1980s I work on the Bridges family(Lloyd, Jeff, and Beau) in a business management firm. I remember my boss commenting about Jeff being the consummate artist. He said Jeff knew what he loved to do (act) and did it intensely. He also mentioned that Jeff’s wife, Susan, took care of the typical things in life and family allowing him to pursue his career unheeded. It is no surprise that Susan was the first person Jeff acknowledged after receiving his Oscar.

But the critics missed the point. What Jeff demonstrated, was that he could transfer his artistic skills from one medium to another. The movie Crazy Heart was just his first vehicle, and it won’t be his last.

The same can be said for anyone today, whether an artist or small business person. This is echoed in 8 Tips: How to Make Your Company And Career More Dynamic by Shira Levine. In the article, Shira quotes James Marshall Reilly who says:

“We’re lucky, because these days, our skills are more transferable. ‘Advances in technology have facilitated easy access to self-education and idea exploration,’ he says. That makes it easier to take information we’ve previously learned and apply it to other ideas, concepts, industries and businesses. ‘These iterations allow the individual to grow intellectually rather than stagnate in one position,’ says Reilly. ‘They also allow for the influx of new ideas to established fields as people move around and infuse new lines of thinking into conventional and often rigid spaces.'”

The Reilly article equates our current society status to the Renaissance period, when there was an explosion of ideas in society leading to leaps in the area of art, science, literature, etc. If he is right, then everyone reading this article, no matter what you profession, has the opportunity to be a part of it.

For example, if you are a singer/songwriter, are you just trying to match the path of those before you, like acquire a recording contract? Or how about a small/medium sized business? Are you evaluating every new technology in light of how you can change your company?

Looking at our CPA practice, we have done just that. Many companies cannot afford comptrollers and an accounting staff due to the economy. What we have devised systems that provide accounting, tax, bookkeeping, and access to any of our financial affiliates. We have leveraged the current paperless and remote access technology, among other things, to provide this service.

The skill transfer also surfaces from our entertainment industry experience. As business managers, we sometimes deal with all financial aspect of entertainer’s lives. We have transferred that skill to our small business clients if needed.

You don’t have to be an actor to transfer skills. The pallet of gifts are there for you to use. You just have to grab the brush and execute a strategy.