Well-structured meetings are a
vital strategic planning tool. Setting an organization’s strategic plan involves
industry exeprtise, current research,organization knowledge, staff
understanding, and management commitment. Leaders can design a planning process
that exploits the benefits of different types of meetings at different stages to
make the best of this knowledge and insights.
The strategic planning
process is an excellent platform for assessing a company’s situation,
performance, and likely future and then deciding how to improve the
Most planning processes incorporate basic elements: customer needs and
wants; the market landscape including competitors, product substitutes, and
regulation; product profitability and company economics; and internal
capabilities and gaps.
The challenge for leaders is
to structure distinct strategic alternatives, evaluate each alternative based on
benefits and implementation capabilities, and select a path forward. Planning
meetings are where this work can take place to maximize successful thinking and
The objective and structure
of each meeting depends on where it falls in the strategic planning sequence.
The major meeting types are outlined below.
To help clarify, consider the
example of a non-profit organization went
through a multiyear planning process. The CEO sought fresh ideas and fresh
approaches to old problems, with particular emphasis on emerging technologies.
Her key goal was to involve and motivate a variety of diverse constituents.
Here are major meeting types
arrayed in sequence followed by a typical strategic planning process:
Generating lots of ideas and putting creative thinking on the table suggests
that a large group—from 20 to 35 participants—is a useful size. Breakout groups
can be programmed to allow more conversation.
The non-profit invited key
players from all constituencies to maximize idea generation and lay the ground
work for buy in. The designers developed clear criteria and enforced good
meeting behaviors to promote quality "structured" brainstorming.
Agreement and Alignment:
Gaining alignment on a set of options, through either consensus or majority,
calls for a smaller group, say 6 to 14 participants. Smaller teams are very good
at considering and selecting options. To maximize the chance for closure at the
meeting, relevant data should be available and the final decision-making process
should be understood.
The non-profit used a group
with only a few representatives from senior management – the bulk of the group
was comprised of highly engaged and well-informed representatives from major
constituencies. The team was empowered to articulate core beliefs, validate the
external environment, and draft strategic imperatives for Board approval. This
group was convened several times over 18 months to drive key elements of the
strategic planning process. At the end, the members were fully aligned around
the options under consideration.
When the stakes are high, as they are when shifting an organization’s direction,
decisions must be made by a small group of key executives and Board members.
Typically, these people have been involved throughout the process.
In our example, there was a
key group of leaders – three executives and three Board members. The final
decisions, including resource allocation, were made by them.
Once decisions have been made and options chosen, a larger group is required to
put plans in place, particularly if implementation requires cross-functional
planning. These meetings should be structured to develop key implementation
steps with goals, objectives, metrics, responsibilities, time-lines, and budget.
Typically, the members are those staff required to implement so this step
ensures both communications clarity and more thorough implementation.
At the non-profit, a team of
approximately 35 met to hear a presentation of the strategy and then broke into
teams of five to seven individuals to sketch out first drafts of the action
plans. The group members both heard the strategy and understood the execution
requirements and the specific roles they would play.
Information sharing meetings are one-way communications, so group size can be
unlimited. Meeting planners have to make sure that participants' expectations
are clear and that not everyone is able to speak. The objectives are to announce
and explain the new plan and to generate enthusiasm for moving forward.
The non-profit used
information sharing meetings several times during the planning process. The
first was to reveal that management and Board concluded the organization needed
to make some fundamental changes and that the strategic planning process would
be the tool to make that happen. A second meeting updated the organization and
external constituents about progress and the draft set of decisions and
alternatives. The final information sharing meeting unveiled the final decisions
and action plan calendar, and invited participation from all concerned.
To recap, here are meeting
Have a strategic plan
formulation sequence in mind. This allows you to make the tradeoffs between
staff work to prepare for meetings and the pattern of meetings themselves.
Determine each meeting’s
objective. Is it to brainstorm ideas? To discuss options and improve them? To
make a decision or select an option? To align people around the action plan?
Align group composition to
meet these objectives. The starting point is a naturally occurring team of
senior executives: the CEO and his direct reports. Sometimes this team is the
perfect size. But some managers try to use this fixed group for all purposes,
rather than expanding or contracting a meeting's size to suit the topic.
Tailor meetings to ensure
thorough discussions – otherwise it is cheaper to just send an email or make a
You Tube video!
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Salesman Equivalent Units: Quantifying Expectations from
Just about all corporate business sales involve sales
people. Even MRO transactions consummated electronically have their beginnings
in personal sales, negotiation, and contracting. It goes without saying that a
sales force is expensive. That is why so many companies look to marketing and
alternate channels, both online and offline, to leverage this expensive resource
and make it more efficient and effective.
Making ROI decisions on sales and marketing mix
alternatives has been too often considered an art form but it does not have to
be that way. With a simple sales pipeline model, management can calculate
opportunity benefits and costs of various sales and marketing configurations
using the Salesman Equivalent
Consider a straightforward sales pipeline with five
stages defined as the “state of the selling conversation.” Stage 1 is beginning
to learn about a qualified business’s problems and needs. The successive stages
can be called Prospecting, Identifying an Opportunity, Developing an Opportunity, and Negotiating a Contract. Analysis of a
well-defined pipeline’s transaction history measures the probability of
advancing from stage to stage. For example, over time, 40% of prospect move from
stage 1 to stage 2, 50% of those move to stage 3, and so on. Furthermore, the
average sales time spent with a prospect at each stage can be estimated by the
sales force. Taken together, some interesting data can be estimated:
· The number of new
prospects required to yield one closed contract.
· Sale person time required to
convert a new prospect to a customer.
· Aggregate sales time
required to work all prospects at each pipeline stage to yield a closed
One financial products example: each stage required
increasing amounts of time to understand a prospect’s problems and needs,
contact and persuade the buying influencing network, craft a solution that met
the needs of the customer, and close the sale. It took a sales person about six
hours over 13 weeks from initial qualification to closed sale. But of course not
all qualified leads turn into customers. In this company’s case, 14 prospects
had to be qualified for every one contract. In aggregate, a sales person spent
an average of 80 hours, or 2 weeks, to get one sale.
Assuming an average salary, commission, and benefits
cost of $40 per hour, a single product sale cost $3,200. With this insight, the
company was able to evaluate several trade-offs about its sales and marketing
· Contract sales
people are somewhat common in the particular market space segment. The typical
finder’s fee was about $2,500, so the company was ahead by $700 per referred
sale through this channel.
· Google AdWords
campaigns can result in prospects at the Opportunity
sales stage or at least very interested leads. The company found that 10% of
click throughs were classified as Opportunity. This
was equivalent to a sale person working through six prospects for an aggregate
time commitment of 12 hours or $480. A single click cost about $5 each, so the
AdWords cost per stage 3 prospect was $50, a clear cost savings.
· The company’s
participation at trade shows was in the process of being phased out because
participation cost $15,000 at each show plus sales force time. Yet analysis
using this framework showed that overall sales force productivity was improved
to the tune of almost $1,000 per closed sale, which more than paid for the out
of pocket costs.
· An outside
appointment-setting service was retained to secure phone appointments. The
arrangement was to pay the service $50 per appointment, which seemed like a good
deal. Yet analysis showed that the sales force was able to qualify 80% using
similar lead lists with an average time commitment of 30 minutes per name. Even
though the sales force preferred that someone else make the cold calls, it was
more expensive to use the outside service.
· The company invested
in a new branding campaign. Was it worth it? Electronic versions of collateral
were used in a series of email blasts. The results of followup sales force calls
were compared to a similar list without the email campaign. Using this
framework, the company was able to measure the benefits of the branding campaign
in terms of Salesman Equivalent Units.
The marketing function has three purposes: identify
prospects, increase awareness, and reinforce the brand. The Salesman Equivalent
Unit model can help evaluate marketing’s contribution and guide planning and
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Market Segmentation and Cost-Effective
Marketing The marketing function has three purposes: identify
prospects, increase awareness, and reinforce the brand. Effective marketing
programs focus on viable market segments, as defined by profit potential, and
are crafted to communicate how prospects’ needs and wants can be satisfied by
your product or service.
Market segments are defined along two dimensions: demographic and psychographic.
Demographic characteristics include customer type,
size, and location. Demographic segments determine market potential. Segment
members tend to share similar business problems and the
need for a particular product or service.
Psychographic characteristics describe customer
attitudes, needs, and buying behavior. Two prospects with identical demographic
characteristics can have vastly different needs and
Using Segments in Marketing
The marketing plan must address both dimensions –
first to find prospects (demographics) and then hook them with focused marketing
Demographics are the physical
characteristics that define the prospect’s buying environment, a combination
of variables such as its target market and number of end users, age and
condition of buying firms’ present equipment, geographic distance from shipping
points, proximity to service and support centers, and compatibility of product
or service with buyer’s existing facilities. All are objective and measureable
characteristics. This helps figure out how to find
prospects through sources such as mailing lists, industry associations, and
Psychographics are the values
and attitudes shared by the Buying Influences within a company and held collectively by the company itself (its culture).
Examples include company reputation, ethical standards, and attitudes towards
people including customers, suppliers, and employees, openness to innovation,
and relative importance placed on quality compared to quantity of sales.
Understanding a prospect’s psychographic characteristics is important to hook the prospect by matching your offering with the way
he or she thinks and decides.
Psychographic segments can be uncovered by
understanding the industry, hypothesizing likely segments, and then testing with
structured marketing interviews.
For example, a marketing agency finds that its
clients can be characterized as Experts – “I am the expert, do what I tell you, no
more, no less,” Collaborative – “I know enough to trust your
expertise; help me as I need to get the job done,” and Neophyte – “There are too many choices and variables;
make the pain go away.” Another example is an avionics manufacturer which
describes its aircraft manufacturer customers in three segments: “Extremely
Conservative,” “New Kids on the Block,” and “Leading Edge.”
Tying it All Together: Tailored
An effective marketing program has different message
layers. For example:
1. The first set of messages could be the
benefits of your product or service compared to product substitutes in order to
explain the concept to Neophytes
and to demonstrate expertise to Collaborative and Experts.
2. The second message set demonstrates positive differences compared to
competitors and provides evidence in terms of marketing language, the business
process, and client testimonials.
3. The third layer is tuned messages which
capture the attention and interest of the psychographic segments within the
target market segments by first demonstrating that we understand their needs and
problems and then showing that we have the best solutions.
Not all marketing communications can capture all
three layers at once, but the overall marketing mix should be designed to get
these messages to prospects.
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Managing the Sales Pipeline
In commercial sales, especially for complex products
and services, it is all too easy for a company’s sales force to concentrate on
closing deals and lose focus on regularly working the remainder of the sales
pipeline. Once pending proposals are resolved – one way or another –sales people
are often chagrined to find out the number of prospects is low and their quality
The sales pipeline metaphor can help a sales person manage his or her book of
business to increase sales productivity and success.
The pipeline is initially filled from the marketing
funnel. The marketing function has three purposes: identify prospects, increase
awareness, and reinforce the brand. The first two functions yield names and
contact information of companies that potentially need and desire your product.
The initial work of the sales force is to qualify these leads and determine if
the company is willing to engage in conversations about how your company can
meet their wants and needs.
Once initial contact verifies a potential sale, the
prospect is entered into the pipeline. This next step is to cover the basics.
This includes understanding the prospect’s situation, business problem, and
needs; identifying and contacting the key buying influencers; and articulating
the results each influencer needs to win.
The next pipeline objective is to identify the Best
Few: those prospects which are expected to place an order in one-half or less of
the normal selling cycle. The sales work is to understand the response mode of
the buying influencers and show how the product or service can eliminate
Trouble, promote Growth, or both, depending on the influencer’s perspective. The
idea is to eliminate barriers and close the sale.
Throughout the pipeline process, the obligation of
the sales person is to continually reassess the sales picture and regularly
update the sales manager on status and next steps. A wide variety of CRM tools
exist to help the management aspects. The key is to set an appropriate reporting
structure and measurement discipline.
Many companies set up sales pipelines like this:
1. Qualify: based on
research and inbound inquiries, assess potential fit.
2. Prospect: gather
information about the company; establish the company’s willingness to engage in
conversations about its relevant problems and needs.
about the company’s specific needs, identify and contact buying influencers, and
educate them about how the product or service can solve their particular
Development: more focused conversations about needs and solutions; begin
to remove barriers.
5. Proposal: company
has requested a bid; the sales person finalizes all the details to craft a
specific proposal and reviews it with all buying influencers.
6. Close: overcome
all remaining objections and get a signed contract.
The management process depends on regular review of
pipeline status and planned next steps. The value added by the sales manager is
to provide ideas and guidance on overcoming influencer objections and moving all
names along the sales pipeline.
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Strategic Selling: Buying Influences
One of the most influential books on how to plan and
execute complex sales is Strategic Selling: The Unique
Sales System Proven Successful by America’s Best Companies, Robert B. Miller
and Stephen E. Heiman, with Tad Tuleja.
The book was written in the mid-1980s when seemingly
dry academic sociological findings were being translated into enormously
successful business books such as Search for
Excellence and Theory Z. Like these books, Strategic Selling is about understanding culture. Making
the sale is a process of learning about and leveraging the client’s organization
Strategic Selling emphasizes
process and win-win thinking. Great sales people are not “born” but can be
developed. That’s why IBM, in the company’s hey-day, put the book on the map.
We have used Strategic
Selling insights as a starting point to assess and improve marketing and
sales plans and operations.
One of the great insights from Miller & Heiman is
understanding Buyer Roles. In every complex sale, a number of people or
committees exert influence on the sales process. Figuring out who those people
are and what they want is critical to a successful close.
There are five buyer roles. Sometimes a single
individual may have more than one role. Sometimes a role is filled by a
committee or work group.
Technical Buyer is tasked
with accepting, or more often than not screening out potential products or
services. “Does it meet specifications?” Typical titles: staff specialist such
as an engineer, brand manager, or someone tasked with ensuring compliance with
Functional Buyer, who is
worried about how the potential product or service will impact his or her job
performance. “How will it work for me?” Typical titles: manager in procurement,
production, logistics, sales, or marketing.
Economic Buyer is focused
on the financial bottom line. The economic buyer can often be the final
decision-maker. “What kind of return will we get on this investment?” Typically
a controller, CFO, or finance committee.
Strategic Buyer, who is
focused on brand implications and the impact of the purchase on the
organization. “How will this help the company?” Since this person has veto
power, it is the CEO or General Manager, or a committee that reports to him or
her. (Footnote for Miller Heiman purists – the Book says that Economic Buyers
are the final decision maker, but the increased understanding of strategic brand
planning and management in the last ten years has led to the distinctions here.)
Coach is a credible internal person who wants to help
the sales person succeed with a particular sale because he or she perceives
benefits to the company and to the Coach. The Coach acts as a guide for the
sale. “How can we pull this off?” A Coach can be almost anyone, including one of
the above Buyer roles or sometimes an outside expert on the company such as a
consultant or business adviser.
The Buying Influence analysis should be part of a
sales person’s planning. The task is to understand how buying decisions are made
by a prospective client. Who are the individuals? What are their titles, roles,
and responsibilities? What are the relevant committees? What are the company’s
purchasing policies and decision-making criteria?
The better this mosaic is understood, the greater the
chance of closing strategic sales.
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Some Internet Marketing Metrics
This is the last installment of my report about
liQuidprint president Mike Montgomery’s great presentation to PAC
members at our latest Speaker Event.
It is usually difficult to figure out returns from spending on traditional B-B
advertising and marketing, such as print ads, brochures, trade shows, and so
Mike told us how Internet marketing is different – by
its nature, companies can track and measure results. Improvements to Internet
marketing campaigns can be made quickly and at relatively low cost.
Using free features from Google or free/low-cost
services like www.compete.com, a
company can track the number of visitors, measure how many and which pages they
read, when they leave before acting and the number of conversions tied to
specific search terms.
You can also set up tests to evaluate Pay per Click
(PPC) ad effectiveness. Mike says a good ad should reflect search words, its
copy should speak to the problem the visitor has and the solution you offer, and
have a clear call to action – all in a handful of words. Also the ad should take
you to a specific “landing page” tailored to the visitor’s specific need rather
than the home page. Finally, successful conversion – a visitor taking a desired
action – depends on the quality of the landing page and the offer.
These are a lot of variables to evaluate. The good
news is that Internet ad companies, such as Google and Yahoo!, make it easy to
set up and run “A/B split tests” of ads with different wording, landing pages,
and offers. The A/B split test allows you to measure the differences between two
ads. You can run a test for a few months, then drop the poor performing ad and
replace it with a new ad. Over time, this natural selection process increases
the effectiveness of the campaign while improving ROI.
Given the ease of fielding Pay per Click campaigns and tools to self-publish web
content as a means to achieve Search Engine Optimization (link back to first
post), a small business can run experiments and continually improve its search
engine marketing for as little as several hundred dollars. No wonder small
business presidents, CEOs, and owners are using Search Engine Marketing as a key
B-B marketing channel.
For a practical tool to help you assess your current
Internet marketing efforts, please check out the PAC Tool for Success “Internet
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Pay-per-click Internet Advertising for Small
This entry continues my report about liQuidprint president Mike Montgomery’s excellent presentation to
PAC members at our latest Speaker Event.
In my grommet example, I used Google to search for
new “plastic grommets” suppliers. Last time, I told you what Mike had to say
about organic search and how to use Search Engine Optimization (SEO) (link to
that blog entry) to get on the first page of a search.
Paid search is another way to attract a prospective customer’s attention. Pay
per Click (PPC) is an online marketing and advertising formula, where the
business does not pay a fee to place an ad, but rather pays only when a visitor
actually “clicks” on the ad and visits the website.
With PPC you can choose the keywords or phrases you
want your website to be associated with when a search is performed. This means
you have to decide how much you are willing to pay each time someone clicks on
the search result, but the upshot is that you are advertising to people who are
already interested in you.
The Google ads I am likely to click are those that
reflect my search term and have a clear call to action. In my grommet example,
only one ad out of eight fit the bill. Right or wrong, I ignored the other ads.
Only one ad worked for me.
1. Either the one company targeted me exactly right
and thus paid only for a good prospect or it misled me and wasted its money.
2. Either those other companies didn’t waste ad
dollars on me or they failed to attract me when in fact they could have met my
3. As it happens, the landing page for the company I
selected could tell me what I was looking for, saving me time and effort and
increasing the chance of a sale.
Bottom line: a well-crafted targeted ad with a
landing page that meets my need will result in a conversion and eventually a
Next time, I will conclude with Mike’s recommendations about tracking results.
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Internet Marketing Ideas for Small Businesses
Mike Montgomery, president of liQuidprint,
well-regarded website design and consulting firm, gave a great presentation to
PAC (www.presidentsadvisorycommittee.com) members and guests at our latest
Mike told us, “People who are running businesses are
trying to find your product or service. And one way they are doing this is
through Internet searches.”
More than61 billion searches were carried out in the
last year, Mike said. No wonder that small business presidents, CEOs, and owners
are using Search Engine Marketing as a key B-B
Potential customers – businesses you want to meet –
use search engines to find a solution to a business problem.
Say I need grommets to build my product and I would
like to check out new suppliers. Using Google, I enter “plastic grommets”, which
results in 841,000 results, about a dozen websites on the first page, and a
handful of ads. Like most people, I won’t go past the first page. This means the
companies that have the most focused sites or pay the most for ads have the best
shot at my business.
The dozen or so websites listed on the page are
results of “organic search” as opposed to “paid search.” That is, the company
pays nothing if I click on its link.
How does a company’s website get selected to appear
on the front page? Search engines automatically evaluate a website’s content to
determine relevance to search terms. Search engines also assess a website’s
“freshness” – that is, at least 10-15% of content changes over time. Also
important is the number of links to the site from other websites, a measure of
popularity which boosts the site’s ranking. The higher the search engine score,
the closer the web site moves to the top of the list.
Getting on the first page is the result of Search Engine Optimization (SEO) techniques used to
increase the attractiveness of websites to search engines without explicitly
paying for ads.
Typical SEO advice: make sure the text content (what the computers can read) is
relevant to search terms used by your business prospects. Refresh at least
10-15% of your content monthly with news items, press releases, blog entries,
and new text.
The CEOs were particularly interested in learning the
importance of external links in search engine scoring. Mike suggests a goal of
at least 500 links. One tool to count external web site links is SiteExplorer.Search.Yahoo.com.
Link building has two key steps. First, create
link-worthy content others will want to link to including quality, useful or
amusing articles, stories, news, blogs, videos (see www.presidentsadvisorycommittee.com for an example) or pictures; and free reports or white
papers (see here for an example). Second, promote that content, with
press releases, your own newsletters, personal contacts, press releases and
article publishing sites and social bookmarking and networking sites.
Coming up: I’ll share Mike’s techniques for Pay per
Click and analytics.
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How to Win the War for Talent
In spite of the seemingly-poor economy, small business
employers tell us that good people are unavailable. Numerous surveys confirm that CEOs
and presidents are struggling to hire the best employees, retain talented staff,
replace aging skilled workers, and let go of people not performing as expected.
Mary Lynn Fayoumi, President & CEO of The
Management Association of Illinois, confirms that the labor shortage faced by
small businesses will intensify. “Once upon a time,” she remarked, “people were
happy to just have a job. Now, there is a ‘war for talent’ and small business
owners need to know how to win.”
Ms. Fayoumi told a diverse group of small business
presidents, CEOs, and owners that retention and recruitment efforts need to be
more sophisticated. Thanks to technology, it is easy for employees to look for
other opportunities “with your equipment, on your time, and on your dime.”
Companies need to be aware of what drives talented staff away. It is not merely
compensation but the entire work experience. She says that it is the simple
things that cause dissatisfaction. “Employees may join a company, but they
usually leave a supervisor.”
The statement that business presidents and CEOs must
win the war for talent “may seem more banal than profound,” writes human
resources expert Dennis Zeleny. He says that relatively few business leaders
grasp the importance of treating this issue as strategically critical. Even more
troubling, he says, is that even if presidents and CEOs are “waking up,
recognition doesn’t guarantee success in the competition for the best people.”
What should a business owner do?
¨ Look at your business objectives. Select the talent
specifically for the needs you have. Are you formulating the right job
¨ Look inside your company. Describe your culture in
one word and then have your staff do the same. If they are not the same, and
they won’t be, why are there differences? Are you searching for candidates that
fit the culture you want or the culture you have?
¨ Look at your employees’ supervisors. Are you
providing them with the training and tools necessary to keep the best talent?
¨ Look at your development programs. Are you helping
your people learn and grow? By the way, this is an important retention strategy
that does not have to involve promotions.
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How to Talk to Your Bankers
In an earlier post, I introduced Mike Flynn,
Shareholder of American Chartered
Bank and a member of PAC, who discussed credit access with a diverse group of
Chicagoland small business presidents, CEOs, and owners.
Mike says that small and mid-sized businesses can get credit, but they need to know how to talk to
their bankers. The key is to understand what banks are looking for.
Here is what your banker needs to see about your
business’s health and value before he or she can lend you money:
financial cushion in terms of earnings and owners’ equity.
¨ Create customer or
¨ A diverse customer
base, current accounts receivable, and minimal bad debt.
Here are some specific actions to take.
Increase free cash
flow. Free cash flow is KING right now. Even 50% loan to value ratio without
adequate free cash flow will not assure receiving a loan. Bank regulators are
especially focusing on free cash flow metrics, which is another reason why the
banks are doing so.
Companies can take several types of actions to
increase free cash flow:
¨ Monitor and act on
your accounts receivable. Send out billing statements promptly. Be sure that
your customers understand payment terms.
¨ Work with your vendors
to stretch out accounts payables.
¨ Rationalize inventory.
¨ Take out fixed
expenses. Delay capital spending and nonessential purchases. Consider leasing
instead of purchasing essential items. Defer hiring new employees and eliminate
¨ Reduce expensive debt
through renegotiation or pay-down.
¨ Review all leases and
consider renegotiating where applicable.
¨ Use PAC’s Cashflow
Management Tool to forecast and
manage your short term cash position.
Use the “Five C’s of Banking”
Worksheet to evaluate how you appear to a prospective lender. The completed
worksheet can also be used as a communication tool that can help take the
emotion out of the conversation. This shows you understand the bank’s concerns
and helps you better understand its decision-making criteria.
Start your banking search
early. Mike Flynn says that companies should be
upfront with their banks. Ask your existing bank about its current credit policy
and the likely impact on your credit line. Begin talking to new banks and see if
they are interested in new business in general and your business segment in
Mike also recommends that you make sure you are
talking to the right people through the right channel. Get them to give you
specific examples germane to your situation so you can evaluate you are in the
appropriate part of the bank.
Unfortunately, traditional banks may be unable or unwilling to extend you a
loan. If three banks say “no,” you may need to go to other sources. So don’t
limit your search to banks – consider factoring companies and other specialized
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How Can You Get the Credit You Need?
The Wall Street Journal reported that “small
businesses are turning to angel investors, suppliers and personal credit cards
as the financial crisis spreads to Main Street and access to commercial bank
loans becomes more restricted.”
Mike Flynn, Shareholder of American Chartered Bank and a member of PAC discussed credit access with a diverse group of Chicagoland
small business presidents, CEOs, and owners.
The good news, according to Mike, is that banks are
open for business. Banks can grow only if they lend. Small and mid-sized
businesses can get credit,
but they need to know how to talk to their bankers.
Needless to say, there is some skepticism. One
attending president complained that he was very disappointed how conservative
banks have gotten. Several others reported that banks were cutting back their
lines of credit or even refusing to renew existing lines.
Mike acknowledged that it is much tougher to get a loan. The mortgage lending
crisis and the more recent global credit market meltdown has had a significant
impact on business borrowers: tightened lender standards, more stringent
collateral, and a much longer lending process.
The key to securing credit is to understand what
banks are looking for. Banks are not a source of equity, they are a source of
liquidity. That is, your banker needs to know that your business is healthy and
valuable before he or she
can lend you money. Your banker wants to know that the business has a
more-than-adequate financial cushion in terms of earnings and owners’ equity.
And he or she wants to see that you are good at managing your customers or
clients. This means a diverse client base, current accounts receivable, and
minimal bad debt.
Here are some things to can do to survive and
hopefully grow during this credit crunch
Spend the time to make sure
your operation is ship-shape. You can’t afford to be surprised by unexpected
costs from things that you ought to be taking care of – it’s like washing your
hands before eating.
Insist on “clean books.” That is, make sure your
accounting records are up-to-date. You need this information to be totally
accurate and current in order to complete the others steps in this list.
You also want make sure you are doing the right things by your employees. During
tough times people get worried and sometimes do things they wouldn’t ordinarily
do, sad to say.
For example, your workers comps claims may jump.
Complaints to government labor departments, EEOC, and the like also go up,
particularly as people are laid off. Your HR procedures and policies need to be
current and your supervisors need to be toeing the line. Of course, your
insurance policies need to be paid up.
And be sure you stay current with your payroll tax
deposits. The IRS has no sense of humor…
Sure these actions may seem like distractions when
your business is slowing and your cash levels are falling. But it is too easy to
be blindsided by collisions you can avoid.
Preserve your core
business. Keep your good customers happy. Continue to market to your core
base. Do not cut the core sales force. And maintain services which are important
to keeping business.
Going back to the nautical theme: review your business from stem to stern as if you were a
potential dispassionate financial buyer. (Thanks to Richard Daniels of
Daniels for this metaphor.)
Be honest with yourself. If you have a problem,
address it – in the current environment, it won’t fix itself. You will probably
find that dealing with problems in the business now will help you execute the
other ideas I’m proposing.
Next time I will describe specific cash flow
management actions recommended by Mike.
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