Article by entrepreneurmag.com

A budget is or should be a part of your business plan. It is one of the major control methods to make sure your plan is implemented rather than ignored.

I agree that there are some very successful businesses that operate on a seat-of-the-pants basis, but there are a lot more trying to do so but instead floundering around in the dark.

Unless you are gifted with unerring judgement and great insight you are likely to achieve more success by working to a plan and budget.

Budgets are often prepared by financial managers and tend to focus on operating and capital expenditure rather than sales, purchases, inventory and debtors targets. A better approach is to start by agreeing what performance your company would like to achieve for all key areas.

The sales budget could be a separate section of the main budget to manage expected sales by whatever breakdown suits your business: Type of product, by division, branch or sales channel, or type of customer. In each category budget for margins, discounts and commissions.

Correctly managing your expenses

Key expense items like payroll, overtime, marketing promotions, travel, vehicle expenses and IT costs should be planned for and monitored via the budget but I suggest you don’t clutter the expense budget with too many items which you have little power to manage.

Rather lump these together, you can always drill down if the costs get out of hand. If you have a seasonal business with variations in sales and expenses depending on the time of the year, make individual budgets per month.

Do not forget balance sheet lines, especially capital expenses for new buildings, machinery or vehicles, and also borrowings and other liabilities.

Debtors, creditors and inventory should all be planned and monitored and it is a good idea to monitor measures like average days outstanding for debtors and creditors, days inventory held, bad debts and obsolete or lost stock.

The last items can be target ratios which may not form part of the budget, but should be reported on regularly so that you do not get nasty surprises at the year end. Prepare the budget with everyone concerned to get buy-in. The budget becomes an agreed plan of operations to which everyone is committed.

Continuously review your budget

Monitoring performance against budget should be done at least quarterly, but I prefer once per month in a management meeting. If you are the only manager, set aside time each month for a vital review your performance against budget.

The actual results must be up to date and available. Use a simple spreadsheet showing budget, actual and variance or a dashboard which shows key metrics as graphics or tables.

Examine those items where the variance to budget is significant and probe for reasons. The dangerous ones are the start of a trend — for example sales in one area consistently below budget or mushrooming overtime costs.

For any bad variances that are not just a short-term hiccup you should plan to correct the problem, or if the problem is insurmountable, replan to get around it.

Course correct your budget as you grow

The budget can be changed because circumstances are different to those envisaged when the budget was prepared, but a better option is to add another column for a revised budget, so the amount of the change remains obvious.

Managing the budget should not be limited to complaining about excessive entertainment or travel costs, but a vital tool to give stark visibility to key areas of the business that are not performing as expected.

It should involve all the key players in decision-making to catch and fix problems early, but also to seize opportunities presented by better-than-expected performance at the earliest time.

Treat budgeting as a management tool and it is likely to treat you to more profit and less nasty surprises.

Do this

An excellent way to increase profits is to treat budgeting as a management tool. Never be scared of your budget — use it instead.

Article by entrepreneurmag.com

Article by www.entrepreneurmag.co.za

How do you ensure new clients can pay for the services and products you offer?

Borrowing and paying debts or using credit is standard practice for any business. Some businesses have good payment records, whilst others don’t, so it’s important to always check the credit rating of any business before lending them funds or dealing with them.

Similar to an individual, a company can have its own credit rating. A credit rating is a number generated by a mathematical algorithm based on statistical analysis of information researched for a credit report. Here’s how to go about building a credit report that will save you from collection problems in the future.

What to include in the credit check

If the report is for the purpose of extending credit then the following items would be important to include. However, the extent of your exposure would dictate the amount of information required and some credit bureaus allow their clients to choose the information they wish to include.

• Comprehensive company details are important to understand the type of entity you are dealing with. This could affect how you deal with the company and its information, especially considering sole proprietors and small companies fall under the protection of the National Credit Act. It can also affect litigation in the future.
• Comprehensive details of owners/directors/members to obtain details of current and previous business interests and any judgments.  If a person has been involved in a number of failed companies or has personal judgments you may wish to be more careful in your business dealings with them.
• Bank code. This verifies that the company’s banking details are legitimate and gives a ‘snapshot’ of the company’s cash flow situation.
• A few trade references will give you an idea of how quickly the customer is paying its other vendors and whether they are handling credit accounts matching what they are hoping to obtain from you.
• Details of preferred creditors. If your exposure is high ie. bank overdrafts, mortgage bonds, cession of debtors, and if you are looking for some form of security from the client, this will establish how many suppliers are already ahead of you and also the number of preferred creditors there are in the case of liquidation.
• If your exposure is high, include further detailed financial information including turnover figures, value of debtors and creditors and audited financial statements.

Should the report be required because you are considering a supply agreement whereby the subject of the report is to become a supplier, the focus of the report would be somewhat different and should include the following in addition to most of the above, as it would be necessary to establish both financial stability and capacity.

• Operational details, which would include major customers, contracts and agencies.
•  Details relating to capacity would be important in order to ensure the company was capable of fulfilling your requirements. This would come from type of premises, number of permanent staff, vehicles etc.
• Financial information, including audited financial statements to ensure stability. This may be hard to come by and depends on the disclosure. It may be easier to use an independent company to request it.
• Customer references to establish the reliability and operating style of the company.

How to read and interpret a report

Researching a company’s judgments, bank code, financial information and what suppliers have to say in the trade references may seem to be the most important aspects of a credit report.  However, checking on previous or current business interests of the principals, the type of entity or whether the directors have been involved in a previously failed business can often be very telling and a better indicator.

It’s not sufficient to just obtain a credit rating, and by using a professional credit check you will ensure that reports include more information which improves the report’s accuracy in terms of creditworthiness and risk. Using a bureau that is registered with the National Credit Regulator will ensure that the research generated is above board and may well prevent bad business dealings from occurring down the line.

Dealing with cash emergencies

The unexpected can happen to even the busiest businesses. A big customer can be late on payments, or a normally busy season is not so busy. Colleen DeBaise, the author of The Wall Street Journal Complete Small Business Guidebook, shares three ways you can deal with a cash emergency.

Get out there and sell

Jump start your sales efforts to find new customers and work the ones you have. Now’s the time to make sales calls – if you don’t, your competitors will, especially if they learn you’re in trouble.

Review your line of credit

See if there’s any room to borrow. If there’s not, talk to your banker and see if you can increase your ceiling. They might give you the money you need to cover the deficit.

Ask your suppliers for a favour

Remember, you’re a customer too. Talk to the people who provide your supplies and your equipment. See if they can extend your terms or give you a line of credit. After all, they don’t want to lose your business. Now is the time to work those relationships.

Article by www.entrepreneurmag.co.za

Last year I shared a couple of tweets from this passage by Louis Groenewald and received more re-tweets than ever before: “Passion is a powerful language. Passion for a cause crosses cultural and language barriers. It is felt, rather than mentally understood. Passion feels authentic. It sends out honest vibes. It can be quiet and vibrant and at other times it can be overwhelming and dominant. Passion can also be the most destructive force on earth driving evil motives. Passion is a catching thing! It can be seen in our eyes and body language. Our passion for excellence as leaders has the tendency to cross almost impossible boundaries of cultures and philosophies. Passion is a universal language. The greatest passion is that of unconditional love, often manifested by mothers and leaders committed to universal values.”

Unfortunately I find leaders are less passionate about what they do than in the distant or even recent past. And the same can be said of employees in general, fortunately with exceptions here and there. Simple passion for one’s job seems to be disappearing quickly in the modern workplace, and as this happens the passion for excellence is also severely impacted in a negative way.

And of course there is a strong correlation between a leaders’ passion for the job and that of the employee.

There may be many reasons for this decline in passion. Clem Sunter recently touched on this when he wrote: “Where people are employed, many of them are working much longer hours than their parents did last century. It has been known, particularly in the investment banking industry, for companies to set the norm of 70 to 80 hour weeks which is 10 hours or more a day with no day at the weekend off.”  He continues: “Stress-related illnesses are multiplying and the work/life balance has gone straight out of the window. Even Australia, which is not known for having a cruel work ethic, has introduced migrant labour into its mining industry with its “fly in-fly out” system, putting pressure on the marriages and quality of life of those who spend two to three weeks a month away from their families.”

Against this backdrop, in today’s fast paced, ever moving environment which never comes to a standstill, and where pressure on leaders increases daily, they have to be on top of their game like never before – and I would hasten to add that they had better possess bundles of passion if they are going to succeed. But it is difficult to be on top of their game when the facts about the situation they lead seem to fluctuate and change at the blink of an eye – because in today’s world everything affects everything. The socio-political, economic and technological environment is so integrated that one thing changes and affects another, which affects yet something else – the well-known domino effect. Many leaders struggle to have sufficient insight into their environment to see how dynamic changes around them impact the facts of their own situation.

The environment in which leaders lead seems to be bombarded by all sorts of obstacles, challenges and negative perceptions of their followers. These too seem to change on a consistent basis, and while this was always present, the pace and severity seems to continually increase. This clearly has an impact on people’s attitudes, which has a direct correlation with performance – once again because of the dynamic composition of our modern, connected society.

On the positive side, as challenges and obstacles arise, so do innumerable opportunities, options and possibilities. This is the nature of life and amidst the persistent change of facts and constant wave of obstacles a leader needs to be fully aware of this. If he is not and allows himself to be consumed only by challenges he is on a losing streak.

Because of all this and more, these distractions make it very difficult for most leaders and their team members to keep a focused eye on the strategy and vision.  As a result they easily divert from what they agreed on, in order to get a handle on the changing facts and deal with the never ending challenges. As this happens and performance is negatively affected, they panic and seek answers or even quick fixes by unnecessarily changing direction and relevant structures, implementing new systems and procedures in a desperate attempt to impact performance indicators and accommodate or correct the course. And then their organisation moves towards becoming a compliance institution rather than a value adding institution. This is a dangerous place to be.

Under this mounting pressure leaders neglect to calmly, consistently and systematically follow up, evaluate and measure the right priorities pertaining to the plan and vision. Or, they do far too much of this because of a compliance culture. The emphasis becomes one of measuring or evaluating for the sake of doing it or to simply enforce compliance, rather than doing it in areas that add most value or that are core to the business. They lose confidence to adjust when needed and more often than in the past act tough inappropriately, out of context and due to frustration and lack of confidence. They stop trusting and listening, and instruct instead, sending a message of panic and spreading the feeling of distrust and even fear across the organisation. And so the spiral continues.

To make matters even worse, the environment does not slow down to give them a chance to breathe. In fact it just continues to pick up pace and thrust new and different challenges at them, or the same one’s in different guises, but faster and more regularly than in the past.

What to do about this? As is always the case the answer is simple but difficult, yet it remains the answer nevertheless.  A leader must implement a process, system or way of always remaining in tune to the following:

1. The changing facts of their relevant responsibility – not only as they see it but as their team sees it. They have to keep listening.
2. The constraints, obstacles, challenges of their relevant responsibility, together with the negative perceptions their people may have at any given moment. Why? Because these impact directly on their attitude, which has a direct correlation with their performance. Again, this must be viewed not only from the leaders’ angle but his team must always be part of identifying and addressing these.
3. The positive opportunities, options, strengths at their disposal, together with the positive perceptions that exist. Also for reasons of attitude, to remain sane and positively focused on solutions and even ways to miraculously leapfrog their pressured environment into proactive space where they achieve profitable movement.
4. Exactly where they are leading their people to – the destiny. This must be on every agenda and always top of mind.
5. The clear and relevant plan or strategy that will take them there and continually raise the believability levels of followers that they can get there.
6. The relevant resources, structures needed to follow the plan towards the destiny. If this is not done structures will get out of hand, irrelevant, expensive and consume unnecessary energy that should be expended in other areas.
7. The above six points need to be evaluated together with the leaders team, on a regular basis and in accordance with the pace of change of their environment
8. Only when the leader feels on top of the seven points above may he adjust where relevant and even act tough appropriately where the situation requires it or people require it.
9. Finally, he needs to continually focus and re-focus his team and organisation on the vision, the destiny of where they are moving to.

As we have assisted leaders to “culturise”,  “habitualise” or institutionalise this crucial nine step process on all levels of their organisation, we have seen how the timing of when to refresh, revisit or tap back into it changed. A team may for example feel to do it every year or six months, but soon realise that the pace of their changing environment requires a more regular approach. They are forced to stay on top of every point every month, week or even day.

This is the reality under which leaders operate today. There is no way of escaping it. If leaders do not master these nine steps they will become crises managers that mostly feel out of control and they will lose their passion, resulting in their people losing their passion, which can only move one way fast and that is nowhere – failure.

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Article by www.entrepreneurmag.co.za

Deep down, we’re all a little greedy. We all want the best outcome for ourselves. We can’t help but consider what’s in our own self-interest any time we negotiate a deal.

But to become a truly successful negotiator, you have to learn to put aside pure self-centeredness. Because if all you care about is serving yourself, you’ll blow the deal before you even start.

Negotiations are a delicate balance of give and take. Learning to strike this balance is necessary for any entrepreneur hoping to build a prosperous business. It takes time and practice and whole lot of patience to hone a winning strategy. And yet each deal is unique and needs to be approached correctly, which is why a one-size-fits-all approach will never work for long.

Here are eight of the most important skills every entrepreneur should learn to become a master at negotiations.

1. Do your prep work

Successful negotiations are built on solid prep work. This means you know something about the parties involved, you’ve done a little background checking, you know about their business and maybe you’ve even talked to others they’ve worked with to get an idea of their strengths and weaknesses.

The same is true if you are on the other side of the table and are looking to invest in a product or service. You should have a solid understanding of the pros and cons of the commodity they are selling. The bottom line is, you need to have a good idea of who you are dealing with and what they can offer.

You should always go into negotiations with your best foot forward. You should be well rested. You should have eaten something (being “hangry” can swiftly detonate any negotiation). You should show up on time – maybe even early, so you aren’t walking in feeling rushed.

If you’ve done the above, you should be feeling positive and are going in clear-headed and confident. You will have the stamina and energy to get this deal done.

2. Consider all the details of the opening offer

The opening offer usually acts as an anchor for negotiations. It’s also where the details get hammered out, so it’s important that it’s done carefully and thoughtfully.

The basic elements of an offer include the offer price, the work being proposed, what goods or services are included, when it will all be delivered and if there are any performance incentives, warranties or terms and conditions. Obviously, price is a key component to any deal, but keep in mind the other details. They can matter nearly as much in the long run.

If you are the one initiating the opening offer, this is your chance to set the stage for the negotiations ahead and start with the upper hand. You won’t get what you don’t ask for, so be bold! If you’re on the other side of the table, the offer is key to seeing how close together you are.

Know your bottom line – what are you willing to accept? And remember to take a close look at the details. What else are you getting for your money and what else are you potentially signing up for?

3. Check your ego and emotions at the door

While you should have confidence and assurance because you’ve done your prep work, you also have to check your ego at the door.

Letting your emotions run the show will never serve you well. In fact, you should be going in feeling as neutral as you can about the situation. Leaving your ego behind will free you to think objectively during intense bargaining. You can then negotiate from a standpoint of flexibility. 

To be successful you have to be able to think clearly in stressful situations and be willing to work to find common ground. If you walk in with a middle-of-the-road attitude, you’re more likely to strike a balance between getting what you want and not giving away too much.

On the other hand, you don’t want to give something away without getting something in return. Losing your ego and putting your emotions aside will help you find right path forward.

4. Play the game rather than letting the game play you

If you’re entering into high-stakes negotiations, it may be helpful to run through possible scenarios with a friend or colleague.

This will help you feel less nervous, and it may also show you objections to the offer that you hadn’t thought of, or help you see a side of the deal that you hadn’t considered.

Playing through the scenarios, even if it’s just in your own mind, may help you feel less attached to the outcome. In order to treat the whole thing as a game, you should care…but not too much!

Having a little apathy will help you stay neutral and keep your feelings in check. And remember, negotiations are like anything else: the more you practice, the better you’ll be.

5. See your strengths and weaknesses clearly

Self-awareness is key when you begin negotiations. You are essentially looking for the other side’s strengths and weaknesses. Not in a cruel way, but to help you determine your next play.

At the same time, you must also be aware of your own strengths and weaknesses, so you don’t allow yourself to be exploited. Try to take an honest inventory of your strong points and vulnerabilities.

If your company is small, what is its growth potential? Are you able to be more responsive to the market than a larger company? In short, what can you offer that the other side can’t, and what can the other side offer that you can’t compete with? Knowing where you stand on the negotiation chessboard will help you determine how to land the best deal.

6. Know when to walk away

When you enter into a negotiation with the knowledge that you are willing to walk away if things don’t go as planned, you come from a position of strength. That’s why staying neutral is key to a successful negotiation.

You can’t be bullied into a deal if you just leave. But often we tell ourselves that this deal means everything to us. Our ego is involved, and that weakens our position.

It’s about mindset. You have to believe that if this deal falls through, you aren’t losing an opportunity. You are keeping that space open so when a better opportunity comes along you can snag it. If you force a bad deal to happen, you are stuck.

You are no longer able to grab hold of something better. And there is no shortage of business out there. So if you are pinning all your hopes on one deal, you may be killing future business.

7. Negotiate in good faith

Whether you’re negotiating a long-term business deal or setting up a quick sale, it’s natural to feel on the defensive when you begin negotiations. We are all protective of our interests and we want to cut the best deal in our favor.

But if you are hoping to walk away with your reputation intact, you need to practice negotiating with compassion and good faith. Engage in active listening and really hear what the other side is saying and asking for. What are the issues that are making them hesitant? Then make sure that you relay your own priorities.

This is the basis of a “win-win” solution, when both sides explore each other’s positions and walk away feeling heard and comfortable with the deal that was struck. Even if it appears that you are on opposite sides, there’s usually common ground to be had. Maybe the other side has a different goal or an opposing position. But if you look for it, you can usually find mutual gains both sides will accept.

8. Know how to close

Negotiations may feel like a game of chance, but they’re more like a game of chess. A successful negotiation requires a good sense of timing and the ability to sense the other side’s next move.

If you’ve done your prep work and are bargaining in good faith, you should have a solid idea of what they’re looking to get out of the deal. And of course, you should have a clear idea of your own bottom line. So you’re either working to bring the sides progressively closer, or the deal is going nowhere.

Ask yourself what the endgame is. Can the difference between both parties be split? If both sides are close but a few numbers are hanging up the process, what will it take to shake things loose?

If you can strike a bargain that makes sense, it doesn’t need to be perfect. It just needs to work for both parties involved. If you can get to that point, you have set the stage for the final handshake. If not, you have to be willing to walk away knowing it just wasn’t the right time.

This article was originally posted here on Entrepreneur.com.