Archive for the ‘Strategies & Tactics’ Category

Migrating Your Products and Services Beyond Being a Commodity.

Tuesday, August 18th, 2009

No matter how hard we try, it seems overcoming the stereotype of being the “t shirt guy” is an impossible objective. The perception of being a t shirt company or vendor in the marketplace is huge. Just trying to get your customers to understand what you really do is a challenge. As I was thinking about this, some things began to occur to me.

My first thought was that the perception is reality. No matter how we see ourselves, customer perception of what we do is the real reality. They’re branding or labeling us with this perception. It’s up to us to fulfill that label, or somehow overcome it. Part of this labeling process is the commoditization of what we do. “You’re just another t shirt guy” is tough to overcome as it puts all t shirt printers into a giant group where everyone and every product looks the same. As I’ve said in the past, if you get caught in this trap, the only differentiator is price. That’s a losing game.

Your avenue out of this perception is to provide a logical path. Start with your position the same as everyone else. You can make or beat the lowest price in the market as the starting point. It really does not matter because our intention is to use this as a starting point for the conversation, that’s it. We have no intention for selling shirts for the lowest price in the market.

The key is to have a series of upgrades, steps, or levels. If you’re starting off with a cheap 5.4 oz cotton shirt, the next step up is a 6.0z with better graphics and special effects inks (high density, reflective, gel, etc.) Still not expensive, but something to compare with. Follow this with a more fashionable style like an American Apparel body or a 100% Certified Organic body with waterbase printing. Now you have much more margin and a clear choice that does not fit the stereotype. You’ve navigated away from a commodity to something beyond.

In order to make this transition it’s also important to give the reason why behind the upgrade. The reason why for the point of entry garment is all about being the cheapest, that’s it. It’s where it is because it fits the profile of the commodity. The fashion body is “hip” or cool, and the organic T is good for the environment. The more compelling you can make the story that leads up to the next level, the better chance you have of making the migration.

What you’re after is comparison. If you don’t have higher priced alternatives, you have nothing to compare against and the low end price gets pegged. Offering alternatives with a reason why behind them breaks the link to a commodity and frees you to move up to a higher sales price and higher margin.

Share/Save/Bookmark

The Value of Mastermind Groups

Thursday, August 6th, 2009

The first Thursday of every month is reserved for my Mastermind Group. This is a collective of 10 different CEOs from10 different industries. Each of us has a company ranging in size from about $3 Million USD to $50 Million USD in annual sales. None of us compete with each other and there are no conflicts of interest. We gather to discuss business in general and problems and challenges within our companies as a whole. I joined the group over 5 years ago and rarely miss a meeting.

What would cause a person to give up one business day a month to a group of guys that sit around and talk business? The answer to this question lies in the value each of us derives from the group.

Someone once told me your annual income can be loosely calculated to equal the average incomes of the five most influential people you associate with. If this is true, we can also look at the annual income of our companies in the same way. If you do business with a lot of small, local businesses, your business volume will reflect this. If you work with larger corporations, the size of your orders and your annual volume will reflect that as well.

The point here is, if you want to grow, you have to associate with those who are where you want to be. They’ve overcome the challenges you have and achieved a higher level. We can learn from their mistakes and experiences along the way. They can help us with insights on hiring, sales, production, administration, finance, and so forth.

Why would a bunch of larger companies want to hang out with a bunch of small guys? This is a very good question, and the answer lies in “agility.” Small companies tend to be very innovative and responsive. The larger a company gets, the more out of touch it becomes with its workers and the markets. This isn’t always the case, but for the most part the generalization holds true. These big companies are envious of the smaller companies innovative capabilities and their ability to capitalize and implement quickly. So their motivation is to see if they can gleen any wisdom or tricks that will speed up their own innovation cycle.

Napoleon Hill, in his landmark classic business book that everyone should be required to read Think and Grow Rich, proposed the concept of a Mastermind Group. He correctly theorized when you surround yourself with smart, successful, wealthy, experienced, knowledgeable individuals, their skills and influence would rub off on you. As a result, your overall skill set and capabilities rise as well.

It is a brilliant concept I fully endorse. Without outside perspective, we tend to become mired in our own thoughts and circumstances. We can’t seem to make out the difference of the forest for the trees. We become confused and lost in circular thinking. Solutions to problems evade us. What we need is fresh perspective. A Mastermind Group fulfills this purpose beautifully. Every business (or individual for that matter,) should be a part of such a group. The benefits are amazing as are the “AH HAH” moments or realization.

Finally, the Mastermind Group provides another valuable asset. It is accountabilitiy. This group of effective leaders holds each other accountable for things they’ve said and committed to. This need for accountability is crucial for entrepreneurs and business owners who do not report to anyone but themselves. They can’t run and hide behind anything to escape the scruntiny of the other group members. It can be uncomfortable at times, but it is a huge advantage to have this forced accountability. It speeds things up and makes it easier to get things done within the time frame you have budgeted.

Share/Save/Bookmark

On Being Responsive to Customer Demands

Tuesday, July 28th, 2009

Not much time today, but I wanted to get this short post out before I’m off for the day. Right now I’m in Tirupur, India doing a one week consult at a large apparel company. During the peak of their season they produce 50,000 units a day. The company is very, very modern with about 10 MHM presses and a couple of M&R pressses including an 18c Challenger II. They have automatic coating, soon direct to screen and an up-to-date imaging and prepress department. I have seen this situation many times in the past. Basically a 3rd World location but facilities anyone in the States would drool over. This is not what I want to write about today.

One of the biggest challenges on the horizon in the U.S. and abroad for that matter is the PVC free, Phthalate free issue. Big companies like Nike and Marks and Spencer in the UK are demanding that garments screen printed be free of these chemicals. They are abundant in traditional plastisols. The contaminent levels are ridiculously low as in 0.1% or less. It is a major, major pain to make the switch to become compliant. I know I will probably catch some flack for saying that, but it is the truth.

The point of all this is, my Indian client has made the commitment to switch entirely to waterbase inks, scrub everything inside and out, completely strip all their frames, squeegees, and flood bars, and generally go to extreme lengths to eliminate ANY possibility of contamination. They are not required to do this, it is entirely a voluntary effort on their part. It is an extreme effort and very, very expensive. Why are they doing it?

The answer is very simply. The owners of the company are visionary. They see the pressures worldwide within the Green Movement and the rising consumer demand for accountability. They also listen very closely to their customers and what they are saying. This is their proactive response to position themselves as responsible and progressive for the mostly EU markets they serve. They should be commended for their efforts and we should all use them as an example of responsiveness.

What are your customers trying to tell you? What are they saying about you? Do you really know or it is a best guess on your part? A great exercise, and one that will add credibility and value to your relationship is to ask them what’s important to them. Don’t let them off the hook. Formulate 5-8 questions that will really get them thinking about why they use you and what you could do better. After you’ve asked 20 or 30 of your customers the SAME set of questions, and had a conversation with them about the answers, you’ll have a pretty good idea of what the pulse of your market is. This will give you the fuel, and starting point to proactively take a leadership position in delivering goods and services that go beyond just a printed garment.

Share/Save/Bookmark

I’ve Got This Great Idea For a T Shirt! Part Two

Friday, July 24th, 2009

Having a great idea for a t shirt is just the beginning of the process. Getting it produced and marketed properly is a formidable job. Your two options are shortrun digital Direct-to-Garment (DTG) and traditional screen printing. DTG has a different look and fell than traditional screen printing and many consumers still feel screen printing is what they know and love.

For those who want the quality of traditional screen printing, there are a few things to consider. First, it takes more preparation at the front end to get the designs ready to print and on the screen. To keep your costs reasonable, you’ll need to do at least a couple of dozen shirts.

Second, before you go to all the expense of printing up a bunch of expensive samples do some basic market research to see if other people are as excited about your design as you are. Start by doing a Google Search (Your Design Idea) + T Shirt. So for instance do a search for: Michael Jackson Tribute + T Shirt and see how many other people are thinking the same thing you are.

Here’s an IMPORTANT TIP - you want competition. If you don’t find anybody who’s doing something similar, it usually means it’s a weak idea or you haven’t hit the key idea in a way others will recognize. If you find Michael Jackson Tribute T Shirts (and there will be a ton right now,) you’ll know there are other people who have gone to the trouble to develop and market a similar idea. This is a really good sign.

If you’re encouraged by what you find, it’s onto the production step next. With DTG, you pretty much go to the company website and follow their instructions. Screen printing is a bit more involved. The printers will tell you what they want you to supply and in what form.

Here’s a hint, DO NOT do your art work in Microsoft Word or Power Point. They are unacceptable formats. DO NOT do a screen capture from a web page. You’ll get horrible quality. Ask the printer for guidance on the file format and preparation.

Go the extra mile and get the art done right from the beginning. Great art is what sells shirts. When you have a great idea, you get their attention, but it’s the art that closes the deal. If you need to, get a REAL graphic designer to do the art for you. Having your cousin who has Photoshop do the art for you is like doing brain surgery on the kitchen table. Results are not going to be good.

Finally, when it comes to screen printed t shirts, NEVER use this approach: ” Give me your quantity price break on 1,200, but I only need 12 right now. We’re going to sell a ton of these.” It’s almost a sure way to get the boot. Every printer on earth has heard this line almost as many times as “I’ve got this great idea. . .”

Do this. Tell the printer you understand the set-up fees are front end costs. Ask them at what quantity the set-up is free. This becomes the point at which you can negotiate for the rebate of the set-up costs.

So if the free set-up is at 1200 pieces, negotiate a rebate of the costs when you hit this quantity. This way, the printer is covered up front AND you get the set-up fees back if you really do hit the big time. You’ll also find the printer has raised their level of respect for you because you’re sensitive to their issues, you talk the lingo, and you’ve done some homework on this project.

There is nothing that beats the excitement and satisfaction of creating a great t shirt and having it take off. Follow these guidelines and you’ll have a much better chance of being one of those successful few in hitting the big time with their great t shirt idea.

Share/Save/Bookmark

The Principle of Reciprocity - Giving Free Stuff Away in Order to Receive

Thursday, July 16th, 2009

When I talk to printers about how they market, I get a number of different answers. By far the most common one is, Word-of-Mouth. This is great, but unless you have a plan in place to maximize the result, it can be unpredictable at best. There’s no doubt it’s the most cost effective (free) form of marketing, but you give up a regular stream of business unless you go about it differently.

Another very common one I hear is, “We sponsor fun runs and events in the community.” This usually means either contributing the shirts and printing, or heavily discounting the printing costs for the group or function. This leads me to the the discussion in today’s post; the value of Reciprocity.

Reciprocity is the principle that if you give, there’s an implied obligation to respond in kind. This is an age old principle. It’s led to the saying “There’s no free lunch.” Simply put, there’s always an expectation of a return favor. Obviously this can have sinister implications if it’s used for personal gain. On the flip side, we can use this principle to increase our marketing efforts and help give teeth to those weak sponsoring relationships and inconsistent Word-of-Mouth referrals.

We’re all aware of the practice of free samples. If you’ve ever been to a Costco on a weekend, they’re at the end of almost every food aisle giving samples of salsa, chips, sausages, cheese, salami, you name it. I know this must be effective because I watch how many people actually put the product in their carts after sampling. It’s amazing. If you’ve never watched, make a point the next time you have the chance.

We can do the same thing. We don’t even have to give away printed shirts or embroidered hats. We can give away information products that make it easier for the consumer to make a buying decision. One of the best ways of doing this is to put together a consumer awareness guide that contains all the right questions to ask potential vendors.

We’ve all see the comparison charts with the checklists. This is a great way to level the playing field. I even go so far as to provide a chart for them to fill in. They can add the name of the vendors they’re shopping at the top and then check off the answers as they talk to each one. This is a great way for them to realize it’s not about buying from the guy with the cheapest shirts.

You can expand on this concept and provide short pamphlets on specific subjects. Things like “Buying T Shirts for Your Family Reunion.” or “Making Your T Shirt a Hit at Your Event.” The idea is to inform and educate, but not sell. Of course you’ll brand every page with your logo and phone number. Be sure to add something to the effect of: “Prepared as a public service by (name of your company.)

The point here is two fold. First, it’s very inexpensive to do this. Secondly, the more information you can layer on, the greater the reciprocity factor. You’re seen as the knowledgeable expert doing the consumer a favor. Even if you don’t get the initial order, you can be sure you’ll have made an impression which will positively reflect on you when the Word-of-Mouth factor comes into play.

Share/Save/Bookmark

How Innovative Do You Want To Be?

Tuesday, July 14th, 2009

Innovation. One of the key things that’s supposed to differentiate you from your competition. It’s one of the things we value the most about being in business for ourselves. We’ve been told “If you build a better mousetrap the world will beat a path to your door.”

I used to believe this. It’s been one of the things that’s driven me and my businesses over the last 35+ years. But when I sit down and really look at the history and experience of the innovations, and the resulting business that’s resulted from those innovations, I have to take pause.

Personally, I derive a great deal of satisfaction from innovation. I love solving problems and finding a better way of doing things. But there’s a problem with it. Often the problems we choose to solve are only problems for us, and not others. At least, it isn’t a problem for them yet. And there in lies the dilemma.

People and companies that make innovation a key part of their existence position themselves at the front of technology, the market, or whatever. They’re at the cutting or bleeding edge. We used to joke about it, but when times get tight, business is off, and cash needs to be conserved, being on the bleeding edge can be dangerous to your business health. I don’t think it’s any coincidence the companies that innovate the ideas and introduce them are rarely the companies that make money with them.

Here’s the problem. For those on the edge, the problem is apparent and this triggers the need to solve it. For those not on the edge, well, they many not even know a problem exists. When this is the case, the innovators have to take valuable time and spend a bunch of money to educate the market to the extent and need for the problem to be solved. This diverts resources away from the innovation. Since the problem isn’t compelling for them, it’s easy not to embrace or invest in the solution.

Over the years, on more than one occasion, people have approached me at seminars, workshops, tradeshows, and so on and said something to the effect: “Mark, most of the time I don’t know what you’re talking about, but I know I’m going to need to know about in the future.” I used to laugh at it, but it got me to thinking what they were really saying.

It comes down to this. New, innovative ideas, inventions, procedures and the like are of little or no value unless they are tried, implemented, and embraced by the market. We all want a competitive advantage, but it is a thin line we walk between being too far out and having an advantage.

One of the main reasons I write and speak is to expose ideas. I’ve been criticized for this in the past as giving away my “secrets.” I laugh at this because there really are no secrets. Secrets usually mean some shortcut or quick fix to a problem that doesn’t require much effort. Most secrets are just incremental efficiency improvements.

My response to this charge is that it’s dangerous to be too far ahead. It’s a lot like running a long distance race. If you’re a good runner, it’s easy to separate yourself from the pack and if you aren’t careful, you’ll be too far ahead before you realiz you’ve missed a marker and you’re off course. By the time you realize you’re out of the race, you may not be able to recover.

Such is the case with innovation. Especially when it comes to technology. All those new cool gadgets and gizmos, all the new software and operating systems do no good if they aren’t reliable (meaning they work when you need them to work,) or there are other alternative innovations competing with them.

I’m not saying to stop innovating. That would be fundamentally wrong. What I am saying is to make sure the innovation is just slightly ahead of where the market currently is. If it’s an incremental improvement, pretty much everyone will “get it” and it becomes a no brainer to adopt.

It’s the truly innovative, industry changing innovations that are dangerous. Keep an eye out for who is adopting. Open a dialog with them. As long as you aren’t competitive in the same market, they’ll welcome your inquiries. You’ll give them someone else to commiserate with when the dang things break down or don’t work the way they’re supposed to.

For those with true innovations, the path is the same. Create a breadcrumb trail of steps toward the new innovation. The breadcrumbs are the small, babystep innovations that are the no brainers. Introduce them fairly quickly over a few months and you’ll have a much better chance of acceptance.

Adopting new ideas is a dangerous proposition. The inherent nature of people is to be risk averse. Change scares them. Business owners are especially prone to this. They don’t want to mess with something unless it’s broken. Why move ahead when we’re making money doing what we’re doing? That’s the subject of a whole new post.

Share/Save/Bookmark

Managing Your Cash Flow Part 3

Monday, July 13th, 2009

Finding ways to improve your cash flow is a never ending job. When the economy is contracting like it is now, problems with the cash cycle show up quickly. The underlying weakness could have easily been masked by the flow of orders. As the order flow slows and sales stall, the real weaknesses begin to become apparent.

Before we get going on how to find more money from within the cash flow cycle, I want to make one very important point. If you aren’t currently accepting credit cards, get a Merchant Account and start today. You’ll see in a moment why this is very important. It solves some of the obvious and not so obvious problems you face.

There are two fundamentally different ways to improve your cash flow. The first is to find new sources of money from within your natural business cycle. The second is to borrow funds to inject into the cash cycle to keep it going. Let’s look at ways to get new funds from the natural business cycle.

Cash flow is all about timing and collection. The less time you have to wait for your money, the more you’ll have to work with and the less you’ll have to borrow. So, at the very beginning, get a customer deposit. At the very least enough to cover the material and labor costs. My personal rule of thumb is 50%, but I have seen the range go between 33% and 100% of the total order. You’ll need to be really aggressive to be able to get the client to prepay the order.

Make it clear the balance is owed on completion of the order. This C.O.D. approach is often received with reservation because your customer doesn’t want to give their cash up any faster than they have to either. The easy way around that is to have them put the balance on their credit card.

If they balk at that, you’ve just found some very interesting information. If they’ve maxed their credit card balance, how do you know they will be able to pay you? You’re not a bank, the credit cards are. There are a couple of key sentences you can use:

“We print t-shirts, we’re not a bank.” and

“The balance will be due when you pick up the order. You can pay with cash, check, or credit card. That won’t be a problem will it?”

Both of these messages are clear. You expect to be paid for your work and you’re not in a position to carry their balance. If they balk or beat around the bush, you have to decide if you want to go through the cash cycle and wait for you money.

Anolther way you can improve the situation is to RAISE your prices 5% - 7% and then offer a substantial cash discount for payment at time of delivery. You might say: we offer a 7% discount from the order with payment in advance, 5% discount with deposit and payment on delivery, and NET if we have to wait for payment.

By raising the price a substantial amount, there’s a huge incentive to get paid early. For me, taking a substantial front end discount is not that big of a problem because I can turn the cash cycle two, three, or more times in a month. So yes, I am giving up 5%, but I make at least 35% on each cash cycle.

It’s also important to make sure the invoice is completed and presented at the time the order is delivered. If the customer comes to pick up the job, and the invoice is ready, it’s much easier to get them to fork over the credit card or take out their checkbook. Afterall, they can’t pay the bill that’s due if they don’t know how much they owe.

This brings up another very obvious but often overlooked situation. Make sure the customer knows what your terms are and what you’re expecting from them. If they don’t know, they may expect you to bill them. If they give you some lame excuse like, “we only pay once a month,” give them a proforma invoice. This means “in advance of performance.”

Have them put the deposit on their credit card. They can pay the credit card bill at the end of the month.This is a very common approach to get the order into the cycle and once again helps you identify in advance any potential problems with getting paid. The more open you are at the beginning, the less chance of misunderstanding or delay at completion of the order.

You have a remarkable opportunity right now to ask for significant deposits in advance. Everyone has been hearing about the banking credit crisis. Any small business owner has either had their line of credit frozen or cut, or their interest rates on their credit cards have skyrocketed in advance of the new credit card limitations. With all the negative credit news, it’s easy to blame the situation on the bank. Make them the bad guys so it’s easier to collect from your customers.

At the other end of the process is the collection of invoices you’ve had to wait for. This is the Accounts Receivable collection period. Accountants will tell you to divide monthly Sales (revenue) by 21.6. This is the average number of billing days per month. This number then represents the average sales per day. Now take this number and divide it into your total Accounts Receivable amount. This gives you AR Days of Sale, or how long you wait for your money relative to how much you are selling per day. You want this number as low as possible. If your normal terms are Net 10, your AR Days of Sales should be very close to 10 or less. If it is more, it means your customers are not abiding to your payment terms.

AR Days of Sale is an indication of how efficient your Accounts Receivable collections are. In the next installment we’ll be talking about borrowing as a way to increase your cash flow. If you go this route, it will be important to have these numbers available so you’ll know how much to ask for and to let the banker know you have an understanding of the process and what your actual needs are.

It can be a bit tricky to figure this out. If you have some corporate accounts that absolutely insist on Net 30, they’ll skew the overall numbers. Retail is even worse. They want terms for everything. In other words, they want you to finance their business and take the risk your that your designs will sell.

My personal philosophy is that any small business needs to be on COD or Net 10 at the absolute outside. There’s no good argument in today’s economy for going longer. Blame it all on the the banks and your suppliers. What’s really going on here are you customers wanting you to lend YOUR working capital to their business. If you’re short on WC, it makes no sense to lend what little you have to others.

The argument for extended terms is you’ll lose the business if you don’t offer terms. This may be true, but if you run out of cash, damage your own credit, and can’t pay your vendors, landlord, etc., what difference does it make if you lose the order. Because you’re tight, you need to make absolutely sure you get paid on time for the work you do. The completion of the cash cycle is the only way you can get more capital to run your business, unless you borrow.

In the next installment, we’ll look at sources of borrowing to improve your cash flow. We’ll also look at how this can be empowering and limiting at the same time. In the meantime, here are your action steps:

1) Calculate your AR Days of Sale to determine what your collection period is now.

2) Formalize your business terms if you already haven’t done this. Make some signs or put together a term sheet you can give to your customers.

3) Get in the habit of telling the customer what the due balance is when you call to notify them the job is done. Better yet, fax the balance due invoice to them at the same time so there is no confusion when they come to pick up the job.

Share/Save/Bookmark

Managing Your Cash Flow Part 2

Saturday, July 11th, 2009

In Part 1 I talked about the Cash Flow Cycle and how it is the fuel that runs your business. It’s one of the most difficult things to get your arms around and next to marketing is the biggest challenge that faces most small business owners.

With a basic understanding of the cash cycle, we can now move on to some of the things you can do to maximize your cash flow. One word of caution, and it is a BIG WORD OF CAUTION. There is a huge difference between cash flow and profit. It is entirely possible to be extremely profitable and have absolutely no cash. It is also entirely possible to have excess cash and be losing money. My goal with this article is to get you to understand and RESPECT the difference.

With many small businesses, especially ones that are growing quickly, the cash flow gets out of whack very easily. The problem comes when you don’t collect from your customers when you deliver the job. You convert your available working capital into Work In Process Inventory and then into Accounts Receiveable (or as I like to call them Accounts Deceiveable - money I’m owed but can’t collect!)

It’s also common for new businesses and small businesses to be running on empty. They simply don’t have enough invested capital to keep the company going. They’ve saved, begged, and borrowed every last nickel they can to run their company and it still isn’t enough. So before I get into the specific things you can do to improve your cash flow, let me say this.

Invest a few hundred dollars in a meeting with a good CPA (certified public accountant.) Not a bookkeeper, but a CPA. These are the guys that will help you determine exactly how much money you have, how much you will need, and how much business you can do based on this amount. They will also explain to you the MISSING financial statement that almost no one gets. Your bookkeeper will give you an Income Statement and Balance Sheet, but they rarely give you the third one, and it is absolutely essential for your future.

The missing statement goes by several different names. It can be called Sources and Uses Statement, Funds Statement, or Statement of Changes in Financial Position. I like the first one best because it tells you what it does. It tells you where you got your money, where it is (inventory, accounts receivable,) and how you used it/spent it. Really very simple, yet it is crucial information, as we shall soon see.

The trick to managing your cash flow is to have more money coming in than is going out. Sounds totally obvious and straight forward, yet we all know the equation usually works in the opposite way most of the time. We spend more than we take in and we’re constantly looking for more. When we look for more, we are looking for Sources. This is the first place to concentrate our efforts.

There are actually many sources but they fall into two categories. The first is money that’s given to us or money we contribute to the business. This is “equity” or “capital” and means what we own. Equity comes from our savings and reinvested profits (assuming you have profits.) The more profitable we are, and if we can collect the earned profits (remember accounts receivable?) the less we need to borrow.

The second source of funds is borrowing. We call this credit, credit cards, credit line, business line of credit, business loan, supplier credit, or any other form of loan that needs to be repaid to the lender. This can be private (as in a relative, rich uncle, your dad, etc.) Or it can come from your suppliers or your bank.

A word of caution about banks and a disclaimer. This is my personal opinion based on many years of experience. Banks are the scariest, as we have all seen during this last year. If we borrow and can’t pay back according to plan, for whatever reason, they will do very bad things to get their money back. All banks aren’t bad, but the major national ones are heartless institutions and you are just food for their machine. If you can deal with a local business bank, where you can actually meet and talk with the bank president, you are so much better off.

So, enough for today. So far we have determined you need a CPA who will help you determine exactly how much money (capital) you need to run your business at the level you desire. Secondly, we’ve discovered the missing piece of the financial puzzle, the Sources and Uses Statement so we can see where our capital is coming from and where it is going. Finally, we’re set to explore all of the potential Sources and Uses so we can eek every possible drop out of our cash flow cycle.

In Part 3, we will do exactly that, go for the Sources. I promise to not make you wait for the third part. It will be published tomorrow.

Share/Save/Bookmark

Managing Your Cash Cycle for Maximum Potential Part 1

Monday, May 18th, 2009

Growth requires fuel. That fuel is cash, credit, or capital. Besides having enough customers, the need for cash is the single biggest obstacle a growing company has. Very few companies are capitalized at the level necessary to adequately fuel their growth. Consequently, they’re busy, but haven’t got the cash in their bank account to pay their bills and buy more goods. The first step toward managing your cash flow is to understand the Cash Cycle.

The Cash Cycle starts with cash in the bank. You buy raw materials and pay your workers as you create the final product. You convert your available cash to Work In Progress (WIP) or Inventory in this part of the cycle. This can last for a few hours or much longer depending on how much work you have, how you buy your goods, and how long the goods are in the production process.

When you’re done printing the job, your WIP or Inventory is converted to Accounts Receivable. If you collect right away, this isn’t a big problem. But if you have to wait for your money (eg Net 30 days or longer,) you’re in for a big challenge. Not only are your funds tied up in the job, but so are your margin dollars or profit. Your main objective is to get your original capital back, along with your earned margin, as quickly as possible.

The smaller your margin, the more important this becomes. Your margin (the amount above the material and manufacturing costs,) determines how you pay your bills, your credit rating with suppliers, and how much money you have left over to pay yourself, buy more goods, and grow your business.

This cash cycle is the engine that drives the company. When your margins are too low, you’re effectively spinning your wheels and going nowhere, even if you have a perfectly tuned cash cycle. If it takes you a long time to collect your Accounts Receivable, you can starve yourself right out of business. It’s far easier to over produce than it is to manage your cash flow. Yet, effective cash flow management is what allows you to produce at maximum capability.

The Cash Cycle is a series of conversions. You convert available cash to WIP, you finish the job, add your margin, and convert to Accounts Receivable. Finally, when you collect from your client you get your original capital back plus the margin you’ve earned for your services. The greater your margin, and the faster you turn the cycle, the greater your cash flow and profit.

In our next installment, I’ll be outlining all the ways you can increase the cash flow cycle to take the pressure off. Done properly, you should have a positive cash flow, meaning there’s more money left over after all the obligations have been met. What’s left over determines how fast we can grow and how much we can produce during any given time period.

Share/Save/Bookmark

Are You the Local Authority?

Monday, May 11th, 2009

One of the common problems I hear all the time from t shirt decorators is “my customers don’t take us seriously.” In general, the public sees apparel decorators as “just another t shirt guy.” We want, no need, to be recognized as the premiere authority of decorated apparel in our market or niche. Our credentials must be unchallenged. Our technical ability recognized by the by the marketplace. Our reputation must go beyond our local market/niche to encompass everything about how our product is used, but how do we accomplish this?

We want people to recognize the opportunity to have access to our skill set locally and to feel welcome in doing so. Part of accomplishing this involves our risk reversal or guarantees. We want our clients to know they’re welcome and that the business they do with us will be a positive “experience” they can talk about and pass on to others.

Jay Abraham calls this “Preeminence.” We want to encompass everything about what we do and how we do it. We are here to exceed the expectations of how our clients use our products and delight them with the final outcome.

A goal of Preeminence is to create a story that goes along with the experience. The easier we can make it to tell the story, the more word-of-mouth referrals we receive. This is important because a referral comes to us with a different expectation and a different mindset than someone off the street who doesn’t know us or what we do. Those individuals require much more time and effort for us to differentiate ourselves and prove we’re who we say we are and that we do what we say we will do

A second major goal of Preeminence is the role of authority. If you are truly an authority, your objective is to completely educate and position yourself as the only logical provider of the goods and services your customer is seeking. In this capacity, you have an OBLIGATION to completely inform and educate those you do business with. In the process, you will automatically differentiate yourself from all of the price cutting, low balling, fly-by-night competitors that are continually starting up and closing down.

It’s important to understand the role of education is all about just one thing, education. This isn’t some hidden sales pitch. The commercial focus is minimal to nonexistant. Our entire goal is simple to build confidence in our position as an expert in the market at what we do.

In my next post, I’ll go into the concept of Reciprocity, a condition that develops as a natural result of giving information away at no cost.

Share/Save/Bookmark