Mayday

[To those] … who know victory in so many enduring ways, and how the triad of joy and wonder and love puts it beyond the counting, beyond the touch of time, beyond the singing of it. — Curtis Bill Pepper This column is about saving your butt when your business is failing. Read it even if yours isn’t, because some of the suggestions may pull you back from an unseen brink. My friend Bill (I changed his name for this column) is there right now — he’s on the bitter, disappointing edge of losing the shop he inherited from his dad. Funny thing, Bill is in his 50s and has successfully run the shop for nine years — so this isn’t a case of a kid blowing his inheritance. No, Bill’s been hit by the economy; ineffective sales efforts; a few bad decisions (that, in better times, would be butter knives, not daggers); a dozen broken promises; several regrettable business decisions; and hiring at least one relative. Alone, each would be a week-long headache, but, together, they’ve amalgamated into a steamship anchor short-chained to a runabout. I knew Bill was getting plenty of advice from his family and friends, but I’d also learned that he wasn’t getting professional help. He’s faced dilemmas before — they’re part of running a business — and, I’m sure that he believes, somehow, that he’ll pull himself through. Still, I wanted to help. I wanted to be able to tell him four or five survival strategies that might better the situation. For this, I decided to call Kent Smith in Colorado. Kent and his wife, Judi, own Smith Sign Studio (Greeley, CO), and they’re not only long-time signshop owners, but business-survival experts who lecture and write from real-world experiences. What’s more, Kent and Judi just pulled their shop from the brink. Kent answered the phone, and, after we talked about Colorado (I once lived there), I said, “Kent, tell me four or five things that will help a person save a drowning business.” Kent hesitated, then, with his characteristic and legendary humility, said, “Our biggest issue was to find the cause. In our case — and I think this happens a lot — we were trying to be nice to our kids and bring them into the business.” Mistakes. Like it or not, we all make mistakes. Mike Holt, in his Business Management and Management Skills Workbook, counsels, “Limit focus on the mistake, and create a positive mental setting for the remainder of your tasks.” He writes that “limiting focus” means you mentally set the mistake aside. You can’t relive the moment, he explains, so deal only with correcting it — and on how to avoid similar mistakes in the future. Kent and Judi are experienced businesspeople. Kent, moreover, is a signman’s signman; he’s an authority if there ever was one. Judi knows the business and the industry. She is happy when she’s talking accounting and business methods, and she always wants to track every penny. Together, they make a great small-business couple. From the problem’s start, Kent and Judi became passionately analytical. And, because the shop had been successful, they instinctively knew that, the world economy aside, something in the mix had changed — negated — the business’ payoff. Like Navy commanders, they immediately implemented a damage- control plan. They cut staff and stopped all unnecessary spending. Kent described it plainly: “We plugged the bleeding holes.” Understand, however, that plugging this metaphorical hemorrhage wasn’t the least bit easy. Kent didn’t say it, but anyone looking closely will realize the implications. We’re talking about relationships, about dealing with family, friends, suppliers and customers — all who were part of the problem as well as part of the solution. Imagine the misperceptions and misunderstandings. Imagine dealing with them. Debt, Kent said, limits your freedom to act. Instinctively, the Smiths knew they needed to clean up their debt and, by doing so, gain space to operate. They took their savings — in essence, Kent said, they borrowed from themselves — and paid every debt. He explained, “If you don’t pay the debts back to zero, you don’t have the freedom to get things back on track.” Then they started over. Stephan H. Zades, in his September Inc. magazine article titled “Creativity Regained,” interviewed Robert Redford regarding his Utah-based, Sundance Enterprise. Sundance is a multi-faceted, international operation that includes a cable channel, a DVD/video line, a retail catalog, a resort, and a nonprofit institute that, according to Zades, is part artists’ colony and R&D shop. Sundance also produces the annual Sundance Film Festival. In the article, Redford described his enterprise’s success: “I did a lot of the work myself. And when you do everything by hand — it’s just different.” Zades also said Redford told him that good fortune should cause people to reinvent themselves. “You should go right back to zero, as though nothing had happened and start again, ” said Redford, “because you can get real stale.” Kent, now moving from the active to the reasoning segment of the rescue operation, said, “You have to see the business as an asset and determine a ratio of its worth against the debt. The critical point is to be able to infuse it with money, but to get that money back after you get the company in the clear.” He said to figure this ratio with your CPA; it’s an essential reassignment of capitalization. Cash, essentially, is king. A critical business marker occurs when cash sources equal cash uses, meaning the first obliterates the second. Obviously, a cash shortfall indicates trouble, whereas surplus cash indicates the business is operating safely. In his book, Preventing Business Failure, Robert E. Fleury writes, “The signals that warn of business failure are within accounting, but they are substantially masked by the manner in which commercially available accounting statements are presented.” He’s saying you get what you pay for, and most people scrimp when it comes to buying accounting services. He doesn’t blame the accountant, either. He also says that a business owner should do at least 95% of the actual accounting work because he or she must know the numbers in order to run a successful business. What’s worse, Fleury says, is supplying your accountant with improper information. Faulty data will cause faulty reports — and the equally faulty decisions that take a business to the edge. “Next,” Kent said, “We went over the past year and job-costed every project. We learned what jobs put us where we were, and we also discovered those that were profitable.” To get back into the black ink, Kent and Judi immediately redirected their business efforts toward the profitable sign work. They said “no” to the types of jobs that put them in the red, but not without first examining to see if the job could cross the loss-to-profit line. Simply reducing the cost of raw materials — buying intelligently — may change the profit/loss picture, Kent said. Kent and Judi conduct seminars on operating a small business profitably. In conversations with signmakers after these seminars, they’ve learned that many small shops — and a few large ones — don’t calculate a sign’s cost after the sale. They believe many small shops are making unprofitable signs and don’t know it. Another profit/loss issue is labor costs. A part of their outlined plan called for reallocating the staff so the shop could produce work in the most profitable way. It soon became obvious that Kent himself was the most efficient signmaker. Kent not only took on the sign work, but committed himself to working long hours. He knew he had to commit to saving the shop and, in doing so, earn the return on their investment. This month, Smith Sign Studio celebrates its 75th anniversary. Today, the shop is profitable and out of debt; in fact, Kent has new equipment in place. By applying determination, smartness and attention to detail, Kent and Judi won. Richard Bach, an author and ex-fighter pilot (USAF), once bought an old biplane and piloted it from the East Coast to his home airport in California. The trip required several days of flight. Along the way, he experienced numerous life-threatening experiences. In his book, Biplane, he tells of writing a note to himself, later, after the flight. The note said, “You survived because you decided against quitting when the battle wasn’t much fun…that was the only miracle required.”