Philip Campbell's Blog

Do You Get and Keep Customers Profitably?

 

The ultimate test of your business is whether you can get and keep customers… profitably.

So your question today is simply this:

Is your company good at getting and keeping customers… profitably?

If your answer is YES, then your underlying business model is working. Now it's time to focus on growing your business and driving your company's profitability and net worth higher and higher every year.

If the answer is NO, then you need to hone in on what's not working properly.

• Is the problem getting customers… profitably?
• Is the problem keeping customers… profitably?

Easier Said than Done

In most companies, defining which of these two functions is the problem is easier said than done.

Maybe you do a good job of getting new customers but you don't know how much you spend to get those new customers.

Maybe you do a good job of keeping customers but you can't seem to generate a level of profit that you are happy with.

Which creates related questions like:

• How many new customers should you bring in every month, quarter, or year?
• How much does it cost you to get a new customer?
• What is the 5-year value of your customer?
• What level of customer "churn" is acceptable?
• Which of your customers are the most profitable?
• Which of your customers are the least profitable (or unprofitable)?

Every business will have a different answer to each of these questions.

It's All About Customers… and Profitability

Peter Drucker said:

"The purpose of business is to create and keep a customer."

Here's a fun exercise that will only take about 2 minutes. On a scale of 1 to 10 (where 1 is awful and 10 is fantastic), how well does your company:

• Get new customers… profitably?
• Keep customers… profitably?

Write down your answers real quick.

Your answers will tell you where to focus more attention over the next three months.

 

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Financial Forecasting Will Strengthen Your Leadership Muscles

The essence of financial forecasting is turning numbers into insight.

It's about transforming financial statements into an action-oriented tool for better decision-making.

Creating the forward-looking view of financial performance will help you:

• Identify the dangers and opportunities that lie ahead
• Develop a deeper understanding of your business model
• Think strategically about driving profitability and cash flow higher

Financial forecasting will also help you in a way most entrepreneurs have not thought about. It will help you:

Strengthen your leadership muscles

Leadership is about taking a company on a journey and building a team that understands your vision and signs on to the work and commitment required to create success.

The best leaders do a fantastic job of communicating their vision for the company and attracting the talent that can help turn their vision into reality.

It requires that you persistently and consistently talk about the vision you have for the company. Always helping people both inside the company and outside the company to more clearly identify with your goals and what success looks like to you.

Painting the Picture Financially

Financial forecasting is the ideal tool to help you paint a picture of what your vision and goals look like financially. It helps you lead people in the direction you want the company to go financially.

The forecasting process is about hooking your vision and strategy for your company up to the likely financial implications of achieving that strategy. It forces you to think about your company, and communicate your vision, in a little different way.

It exercises your "leadership muscles" because it helps you link your vision to a range of likely financial outcomes. It helps you put some "guardrails" around what you think should happen financially. It helps you communicate your vision to others in a much more concrete way.

This is especially helpful if you are trying to raise capital or attract a lender. Financially minded professionals love a great vision… together with a well thought out path for how the leader plans to translate that vision into financial results (money).

It also pays dividends when communicating your message to people inside your company.

Now is the ideal time to exercise your leadership muscles by painting the financial picture of where you are taking your company.

 

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You Can’t Hire Someone Else to Do Your Push-Ups For You

You can hire people to help you get a lot of things done in your business. You can hire people to help you get a lot of things done at home.

But there are some things you just have to do yourself.

Jim Rohn is credited with saying:

"You can't hire someone else to do your push-ups for you."

When you think about it, the things you have to do yourself are usually the most important and the most impactful.

The push-ups quote speaks to the importance of personal fitness. It is mostly up to you to take care of that.

In business, your "push-ups" generally revolve around making decisions.

Decisions about how fast to grow, the quality of the people on your team, how much money you want to make, the relationships you want to develop, etc.

So what's ONE area of your business where you know in your gut you need to "do your own push-ups"?

 

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For CPAs and CFOs: A Seminar on Using Financial Forecasting to Enhance Confidence, Credibility and Trust

This post is for my friends and readers who are Controllers, CFOs, or CPAs here in Texas (or close by).

The Fort Worth Chapter of the Texas Society of CPAs has asked me to present at the 8 Hot Topics for CPAs in Corporate Accounting and Finance conference being held on March 25, 2015 in Fort Worth, TX.

The seminar will include a number of speakers on various topics of interest to both CPAs in industry and CPAs in public practice. My session is focused on showing you how to use financial forecasting to enhance confidence, credibility and trust.

Here is the description of my portion of the seminar (it will last 50 minutes and be presented mid-morning).

Using Financial Forecasts to Enhance Confidence, Credibility and Trust
In this session, you will learn how to use financial forecasts and projections to enhance confidence, credibility and trust with everyone interested in (and invested in) the financial success of your organization. Creating a forward looking view of financial performance is a powerful way for CPAs in industry to play a more strategic and vital role in the future of their organization. Philip will show you how to create a financial forecast you can trust… and how to avoid the single biggest mistake CFOs and Controllers make when creating a financial forecast or projection.

I presented this same program at the Austin Chapter of the Texas Society of CPAs in September 2014 and it was very well received.

The conference will also be webcast live by the Texas Society of CPAs.

Here is the link to learn more.

I'd love to have the opportunity to meet you if you can make the conference.

 

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Flying Blind: A Fascinating Problem in the Franchise World – Part 3

This post continues my discussion with franchisors and franchisees (and others running multi-location businesses).

The fact is…

1. Ultimately, success in business comes from profitability and cash flow
2. In a multi-location business, the profitability and cash flow that creates success starts at the location level
3. Franchisees in a specific system are all running very similar businesses
4. It's weird to be in a system of hundreds of franchisees running very similar businesses and not have frequent, comparative, action oriented financial data so you know exactly where you stand on the critical drivers of financial success

So let's say you are a franchisor and you have decided to end the weirdness. J

You want to implement a plan to create rankings, comparisons, and benchmarks that franchisees can get excited about. You want to provide information to help them drive both profits and cash flow higher at the location level.

Here's how you get started.

1. Demonstrate Value in Advance

It's incredibly important that you show franchisees examples of the reports and comparisons they will receive before you ever ask them to submit data. I can't overemphasize how important this step is.

They need to see very clear examples of the rankings, the benchmarks, the key performance measures, and the improvement opportunity calculations so they can answer the all-important question "What's in it for me?"

In fact, this is a beautiful opportunity to score big with franchisees if you do it right. It all starts in how you introduce the project. In one case, a franchisor put together a great presentation. They were hoping to get positive feedback from a select group of franchisees so they could get rolling. What happened instead surprised them.

Not only was the feedback overwhelmingly positive, franchisees were standing up saying it should be required that every franchisee provide their financial data.

So the franchisor was able to turn the tables and say "No, it will not be required of every franchisee. Instead, only those who provide financial data will get access to the reports." They were able to get incredible buy-in from franchisees as a result.

2. Key Performance Measures

You want to put the focus on the key performance measures that define success in your system. Oftentimes, franchisees are overwhelmed by the financial side of the business. They struggle to distinguish between the important and the trivial.

You become the hero when you help franchisees laser in on the key performance indicators/drivers. You're helping them zero in on the target so it becomes easier and easier for them to grow and improve their business.

Your measures could include…

• Average ticket
• Customer retention rate
• Inventory turnover
• Cost of goods sold %
• Personnel cost as a % of sales
• Marketing cost as a % of sales
• G&A cost as a % of sales
• Return on assets
• Return on equity
• And more…

Every franchisor has a different set of key performance measures. Make sure you think through and determine the measures that are critical to success in your system.

3. Financial and Non-Financial Data

To accomplish the objective we just discussed in step 2, you have to include both financial and non-financial data in your comparison and benchmarking results.

The financial data will include the franchisee's financial statements. The non-financial data will vary depending on your business.

For a retailer, data from the POS system is critical for calculating average ticket, average items sold per customer, customer frequency of purchase, customer retention, etc.

One franchisor had almost 90% of franchisees on a POS system where they had central access to the data. They were able to extract that data from the system so we could easily import it into our ranking and benchmarking software.

This really cranked up the value of the reports for the franchisee and the franchisor. Why? Because now the franchisee's had visibility into the key drivers of sales and they could easily see where they stood on those measures against everyone else in the system.

They were amazed at the levels others had achieved in average ticket and items per ticket. And they could see how even a small improvement in each of those measures would produce an exciting increase in their sales and profitability.

4. Common Format

Now you have franchisees excited about the information they will receive, you've determined the key performance measures, and you have identified the financial and non-financial data required.

Here's the challenge. It will all break down if you don't have a repeatable process for getting the data into a common format for analysis and reporting. This is one of the big reasons franchisors struggle with gathering and providing meaningful financial information to franchisees.

Franchisees all have a little different (sometimes dramatically different) chart of accounts. Their chart of accounts may start out as the "common format" but it quickly morphs into something very different over time.

And while many franchisees today use QuickBooks, there are still a variety of accounting systems being used throughout the system.

You need software that maintains an internal "map" that automatically maps the franchisee's chart of accounts to your common chart of accounts. That allows for importing and makes it possible to create rankings, comparisons, and benchmarks in a common format.

This also makes it possible to calculate and present the key performance measures consistently for everyone.

5. Electronic Format

The old way of getting financial statements by email (or fax in some cases) and trying to force selected information into spreadsheets is a dead end process (even if you outsource it). Its labor intensive, prone to serious error and inconsistency, difficult to update and maintain, and takes forever to complete.

You have to have a process that is repeatable and can be automated. And that means you have to be able to gather the data electronically. The good news is that almost every accounting system today can export financial statements almost as easily as it will print those same financial statements. (QuickBooks makes it amazingly simple.)

Caution: Getting the data electronically is not the same as asking the franchisee for a copy of their actual accounting system files.

I have seen what happens when a franchisor, for example, asks franchisees to send their QuickBooks file to them. (In effect, the franchisor is asking for access to transaction level data, detailed payroll data, and other transactions that many franchisees will resist providing.)

The good news is you don't need that level of detail to provide the rankings, comparison, and benchmarks. All you need is the basic financial statements exported from the franchisee's accounting system so you can import the data into your system using your common chart of accounts.

It then becomes much easier to update your benchmark and comparison data every month, quarter, or year.

The most powerful tool I have found for accomplishing this objective is SurvivalWare.

Steps 6 – 10

In a future post I'll walk you through steps 6 through 10 so you can implement a plan to create rankings, comparisons, and benchmarks that franchisees can get excited about.

There's just too much riding on financial success at the location-level to continue flying blind.

 

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