What is the purpose of an online shop?

To provide the company with a shop open 24/7 which can drive non-credit account customers, to pay for products before they are manufactured, reducing internal sales, pre sales, pre-production and finance interaction with the customers’ requests.

What are some of the pros and cons of setting up an online account?

What other zero stock items could we supply from our shop?

We could tie up with a supplier of relevant accessories and sell these items on your online shop, selling them as an additional purchase with the primary product that will be at a more attractive price, all the time adding a markup on the extra goods, having the supplier send the accessories only when the order is made, we should be paying for the items sold this way with 30 days credit (becoming a small business, with zero inventory!)

We could tie up with other suppliers to offer stock items, which we’d sell at retail pricing paying our discounted price and only buying the stock with the customer’s order. (Zero Inventory)

We could offer a basic line of alternative products relevant to the field and not directly related to the companies actual product, again finding a stock supplier and holding zero inventory locally.

You could tie up with an open minded international partner to offer services that can’t easily be duplicated locally, with the thought of having a reciprocal service agreement for high quality finishing from your own company.

How have you gone about creating a digital shop front window?

For any small business as we’ve seen before cash is king. Directors shouldn’t treat the business’s money as there own, rather they should treat it as the most rare and precious commodity that has been on the endangered list for the past ten years.

It is often written that “far more small companies go out of business through running out of cash that by being inherently unprofitable” *

For large corporation, Directors tend to have a focus on large scale debt re balancing with bond market sales, while in a small business the nearest you get to financial help is paying over the odds for bank credit facilities, which in all probability will be used up with the first large sale of any moderately successful product.

So where does one look for the cash?

• Reduced stock pricing through careful management of payments to retain credit lines
• Reduce overheads in producing the product.
• Carefully negotiate the price of goods to customers and receive in writing the order
• Accurately produce the product providing information for reordering
• Ship the product ahead of time reducing costs of rushed shipping
• Accurately invoice for all items being sold.
• Check the cost of production against the invoiced price.
• In lean times avoid all use of credit facilities unless absolutely product dependent

The key tools for avoiding problems are the same for all business large or small.

• Communication, to all levels of the company
• Tracking of creditors list, paying key suppliers or communicating with them.
• Tracking the debtors list, chasing on late payers. (at a minimum weekly)
• Reducing stock inventory, running a just in time order system.
• Check product shipped to products invoiced.
• Reduce time to invoice to a minimum, (as if it needs saying, Invoice daily)

If you’re running a small business how are you spending your time to generate the oxygen of a small business cash?

*Accounts Demystified – Anthony Rice.

Cash is King. It allows your company to pay its suppliers, gain credit terms, and pay for reinvestment to offer new services.

Credit is only a good word when given by another company to your company.

Credit to customers is bad.

If a customer becomes a bad debtor it acts on many fronts to cost the company more money to provide the original service. When we have a debit, we have to in any case pay for the supplies used to provide the service. We have to pay our staff wages, and worst of all we pay bank credit charges, and finally wasted time chasing bad debts.

Ways to reduce customer credit.

Your company needs to offer an incentive to pay for the product up front. Examples of this are; paper photo finishing, or Dell computers.

Credit or Debtor days

Dell on average gets paid 14 days before they ship a product. They also have 30 days credit with their supplier. This means before paying the supplier they have the money in their bank for 44 days.

Maybe your company can’t reduce its debtor days!

Maybe you can’t currently can’t request payment up front. Or at least it is uncommon and difficult to set up an invoice before the material has been processed.

This is because you haven’t set up an invoicing pipeline to accept a new customers orders and payments at the same time

Solutions. What do you all think?

Sales spreadsheet capturing all the data up front?

Build a simple web payment system?

Build discounts by putting prices up for upfront cash payment?

Stop credit to new companies?

Don’t automatically provide credit?

Actively start chasing debts

If you can work as a team and concentrate our minds on this, you can get to the stage where in another 90 days you have less than 30 days of debtors days.!

As part of Michale E Gerber’s an ever popular book, The E-Myth Revisited. He explains how a part of every new businesses DNA should be a clearly written out set of overarching job descriptions. Where each of the main core business tasks is written up as a job description, each job has who they report to. Who they may have as staff etc. Even as the company is in it’s embryonic stage of say two people all the potential jobs are divided up, giving out ultimate responsibility to each party.

When the business metaphorically starts hitting the road.
Each of the job roles that is awarded should be given out with a clear job description. It should be clear that sales should be left to sell. Operations left to direct production. Finance should deal with the money. Human resources deal with personnel etc, and finally the Chief Executive Officer should ensure the company runs a straight course.

In every company human nature dictates that people will always do in a business what they most enjoy.
It is also obvious that if a legal representative would rather be entertaining clients than reading contracts. Issues will ensue, equally each employee (and everyone in a business is an employee!) needs to have a laser beam focus for maximising their area of the business.
As soon as the Finance director becomes the new business developer. You’ll find bookings clerks, invoicing, debt receivables, and accounts payable will all loose equal focus.

In summary for any successful business venture each employee needs to step up to the plate and perform with excellence their chosen job.

Upon purchasing any equipment or software that represents a large capital investment to a company there is often a further continued cost item that is rarely talked about during the sale. This is.

An Annual Support Contract.

An annual support contract will rarely be needed with in the first 12 months of purchase and thus is often forgotten about, as the person making the purchasing decision is often concentrating on gaining the most productivity for the lowest price point.

Why do you need an Annual support contract?

It is only after one year of use does the question of protecting the investment from potential disaster occurring come from the original vendor, they will point out that you can help slow the depreciation of the original asset, by providing a full maintenance cycle or in the case of software upgrade cycle.

From my research of 20 years in the media hardware industry a common ratio/percentage for purchase cost to annual support cost is between 10% and 15% of the original purchase cost.

I won’t analysis the reasons for the cost structure of support contracts just pass on the average costs, where hopefully the reader of this blog post can arrive to there own conclusions why each percentage point of support contract costs is worth discussing as part of the purchase costs.

Below is a table showing a nominal £100,000 purchase cost, this could easily be Dollars, Euro, Yen, etc.

Question; Would your company be able to negotiate a 5 year maintenance plan during the purchasing phase, incorporating this money into the capital expenditure or do they have to in-cure the higher operational costs year after year?

How to treat your working/investing directors.

When a company is at it’s early stages there are difficult choices for the company directors to take, one of the hardest is with regards to monthly salaries. It may be thought that the done thing is to manly endeavor for months without taking a salary, while all the time fooling yourselves that your potential 2nd round investor will think you’re great financial stewards.

Any investor worth their salt is going to be looking at the books and seeing how the performance of the business is month on month, and will look at the business shareholdings, then at the directors salary and do a calculation as to the viability of becoming an investor who will be able to demand fair returns for the investment.

While the investor will know that if a company director is not taking a salary they will either expect to pay themselves in large lump sums or may end up finding creative ways to live off the companies credit.

Share awards

Clearly in a new company there will be Founders, 1st round directors, 2nd round directors etc, with each round of directors the vesting time will normally remain the same for a nominated number of shares to be fully released. While it is widely accepted that those starting as 1st round directors in the company are taking the most risk they will expect to receive more shares than say directors that stood back and waited for the company to operate before jumping from one company to the new company.

With the thought of shares removed, if it is accepted that the company will not be in profit for the first couple or more years, then there won’t be any dividends awarded and thus the directors who are working in the company will need some form of salary to be able to put a roof over their heads and eat the obligatory rice and beans, or pot noodle which every is your favorite!

From the outset an equal and absolutely regular minimum stipend should be drawn up, while it is clear from the earlier discussion of founders and rounds of directors, all the directors will not be bringing equal assets, whether financial or practical experience. While it is important for group cohesion that all “investors” of time and money are treated equally, except of course for the initial shareholder agreement and division of shares.

So where can this go wrong, for example in a small business each director will have their own financial reserves, without a crystal ball no one can predict a day when a profit is made, while a CEO and Sales Director could be using a company credit card to fill their car tanks, and eat out each day, other directors may have cars needing replacing or mortgages to pay. It can be easy for a bubble of division to occur within the business, of the haves and have nots.

The important point is the core group will be bringing the company to a successful status to enable the company to make a profit, and thus an attractive proposition for investment and thus more profit can be made.