Don't React to Crisis - Respond
from Mike's new book to discover exactly
what you need to do next for your business
to survive tough times and bounce back strong
Download the PDF for the for the best guide I've seen yet to decipher the CARES Act for business owners. Thank you to Verne Harnish for sending it over, and to Greg Crabtree of Simple Numbers, for sharing this resource.
Produced by our partners at MikeMichalowicz.com, The Recession Response is an action plan for small businesses to implement now to preserve and manage cash flow. I appreciate Mike and the team for responding so quickly to the current conditions caused by the Coronavirus pandemic
Guest post by Mike Michalowicz, author Profit First, The Pumpkin Plan, and Clockwork
What is the next problem you must address or opportunity you must meet in order to grow your business? Do you know the answer? And, can you be sure that you have the right answer, the one that will truly move your business forward?
In the past, I repeatedly fell into the trap of fixing whatever problem was in front of me. Whether I was saving the day, or just trying to get my company to the next level, I rushed to the apparent problems. You know, the obvious stuff and the squeaky wheels. At any given time there are always a boatload of problems that need your attention. So, trusting my gut instincts, I would just pick the one that felt like the most urgent and focus on that. In this process of addressing the apparent issues, I disregarded the most impactful one. What resulted was a continuous run of problem solving, and yet my business remained stuck.
The biggest problem business owners have is that we don’t know what our biggest problem is. We can’t be sure that we are focusing on the area of our business that, when addressed, will yield the best results.
To solve that problem, I developed a model based on Abraham Maslow’s hierarchy of needs, which states that there are five categories of human need. From the most basic and essential needs for survival to the highest needs for happiness and fulfillment: physiological, safety, belongingness, esteem, and self-actualization. In order for us to attend to something higher on the list, we first need to make sure that our needs are met in the categories below it. So, for example, before you can focus on meeting your needs for love and belonging, you first need the basics: air to breathe, adequate hydration and nutrition, and a safe place to sleep. It’s pretty tough to deal with your self-actualization when you’re hangry and tired.
Looking at Maslow’s hierarchy of needs, I realized that it has a direct correlation to entrepreneurial progress: what drives your business, what keeps your company trapped, and how you fix the roadblocks along the way to achieve the highest levels of success as you, the entrepreneur, define it.
The key to climbing the hierarchy is simple: fully satisfy your business’s current level of needs, not by rushing to the apparent daily demands, not by addressing advanced needs before basic needs, and certainly not by trying to fix everything at once. To do this, we will use what I call the Business Hierarchy of Needs.
Sales: At this foundational level, the business must focus on the creation of cash. Just as humans can’t survive without oxygen, food, and water, if you don’t have sales, your company will not be able to survive for long. Heck, without sales, you won’t have a business at all.
The five core needs at the sales level are:
• Lifestyle congruence
• Prospect attraction,
• Client conversion,
• Delivering on commitments
• Collecting on commitments
Profit: Here, the company’s focus shifts to the creation of stability. Here, our businesses’ needs line up pretty closely with our human needs for health, financial stability, and a secure and safe environment. Massive revenue doesn’t mean much when you have no profit, no cash reserves, and are drowning in debt.
The five core needs at the profit level are:
• Debt eradication
• Margin health
• Transaction frequency
• Profitable leverage
• Cash reserves.
Order: At this level, the focus is on the creation of efficiency, and the needs are related to ensuring that everything runs like clockwork. With all of its organizational efficiency needs met, your business can run—and yes, even grow—no matter who is on your team. It can even grow without you, the entrepreneur.
The five core needs at the order level are:
• Minimized wasted effort
• Role alignment
• Outcome delegation
• Linchpin redundancy
• Mastery reputation.
Impact: The focus now is on the creation of transformation. Many businesses never properly address the needs at this level, because they either don’t know this level exists, or misunderstand what it’s all about. When we think of impact, we think of how our business impacts the world. However, the needs that must be addressed at this level are related to client transformation, and how your company aligns with your staff, vendors, and your community, not to the wider world.
The five core needs at the impact level are:
• Transformation orientation
• Mission motivation
• Dream alignment
• Feedback integrity
• Complementary network
Legacy: At this highest level, the focus is on the creation of permanence. Ensuring that your business and the impact it delivers will live on after you move on requires that specific needs are met. If you want your business to continue to thrive for generations to come, you’ll have to consider the big questions, such as your long-term vision for your company is, and how your business will adapt to changes in your industry, in consumer demand, and in the world.
Here are the five core needs at the legacy level:
• Community continuance
• Intentional leadership turn
• Heart-based promoters
• Quarterly dynamics
• Ongoing adaptation
To be clear, the Business Hierarchy of Needs levels does not represent stages in business growth. They are levels of needs. Your business will not climb the hierarchy in a linear fashion, but move up and down levels as it progresses. Like building and renovating structures, you don’t just go up. You go back down to the foundation, shore it up, so you can build higher. So, for example, while you may be dealing with a need in the SALES level, that does not mean your company is still in the SALES stage. You are simply strengthening the foundation.
The Business Hierarchy of Needs gets you out of guessing mode and into fast, impactful, deliberate action. It took me the better part of three years to perfect it, testing it out in my own business and with other entrepreneurs through multiple iterations. Once I figured out how to pinpoint what to focus on next, my businesses grew faster and healthier. Since creating the tool, I’ve stopped relying on my instinct alone and have started using this system to listen and respond to my company’s true needs.
Now, when you get stuck, all you have to do is start at the bottom of the pyramid and address the core needs you have not yet met. It’s back to basics, baby. Basic needs, that is. The tool never stops working. You can always return to it to pinpoint your biggest challenge, fix it next, and then pinpoint the next one after that as you build your beautiful business.
Learn more about the Fix This Next Eval or Fix This Next Book here: https://fixthisnext.com/
It's hard to believe that we are almost 3/4 of the way through 2019. In the US you just sent your quarterly tax payment in (it was due Sept. 16).
Or did you?
Take it from me, you DO NOT want to owe taxes to the IRS. I have been there, and it's the worst. Talk about sick to your stomach.
It's crucial you are proactive regarding your tax situation. Here's what you need to do going into Q4.
1) Check in with your accountant and/or tax preparer today and have them report to you on your tax position for the year so far. If you have grown this year it is very likely you will owe more tax than you have been sending in quarterly. Starting to prepare for that NOW will save on your antacid bill on April 15th.
2) If you haven't already, separate the taxes you will owe from your operating account. It's too tempting to "borrow" money from your main account and then never put it back. The minimum you should be putting away is enough to cover quarterly payments. Take it out of your Operating Account and leave it alone until you have to write that wonderful check to the tax man. You'll be glad you did.
Those two simple steps will help make sure you don't dread the next tax deadline, by being prepared and having managed your cash well.
Now go do it!
But to trust the process, you have to have a process that is proven to work, time after time.
When it comes to making every dollar count, do you?
In one of Eric Cressey's latest articles, he reminded me that "Bigger Isn't Better, Better Is Better", and went on to state...
"I think you're better off taking home 50% of a $500,000/year fitness business than net 5% on a $5 million/year one." Do the math. 🙂
Couldn't have said it better myself (no pun intended). A business that is 10x bigger is probably going to cause you a lot more than 10x the headaches, for the same take home.
Now I am not here to crush dreams. If you want a $5 million company that brings tremendous value and impact to the world, do your thing. All I am asking is you count the cost first. One of the mistakes I see many owners is chasing a big business before they nail down the fundamentals of business.
I used to think that getting bigger would solve all my problems. More income = more money = more flexibility, right? More stress, yes. More money in my pocket, not so much. As Profit First author Mike Michalowicz says - It's easier to control a $10,000 a month cash eating monster than a $100,00 a month cash eating monster.
Here's my advice.
Get REALLY good at what you do when your business is small. Perfect your craft. Develop your systems. Crush your debt. Learn to use every dollar to its maximum potential. You may find nailing down those skill gives you exactly the business you want. And if you do decide to scale, they will give you the foundation to do it right.
Better Before Bigger.
Because bigger isn't better. Better Is Better.
The original meaning of the word "coach" was as a description of transportation; a means of getting from Point A to Point B.
The same applies to a coach as we usually hear it today. A football coach, a basketball coach, a business coach. They all are trying to get their players/clients from Point A to Point B; from a good player to a great player, from flawed mechanics to good mechanics, or from one level of success to another.
My role as a Profit First coach is no different. It's to get your business to next level.
The truth is most of us didn't get into business to crunch numbers all day, and struggle to answer financial business questions like;
How much should I be making as the owner?
How do I know if I have a healthy profit margin?
Am I going to have enough for taxes this year?
Can I afford to hire some more people?
When is it the right time to scale?
Will I be able to sell my business and retire?
Not knowing that stuff kinds sucks, and usually leads to a lot of second guessing.
So I help solve that problem by coaching you through a system so you can easily manage your cash and give a purpose to every dollar you make.
The biggest benefit? The two "C's" - Clarity, and Confidence.
Clarity around your finances; we take the complicated right out of the equation. That clarity in turn creates the Confidence you need to hit your goals, grow your business, and keep more of your money.
Get from Point A to Point B. Faster and more easily.
If that sounds good to you, let's talk. Just click the button below.
One of the first business books I ever read was "The E-Myth" by Michael Gerber. And while this book certainly was foundational in the way I thought about business I also believe it is one of the most misunderstood business books out there.
As a brief overview, the concept of the E-myth revolves around the fact that many businesses are started by people who are really good at what they do - the "Technician" - not being able to make the leap to true "Entrepreneur", thereby never allowing the business to reach it's full potential. For instance a genius computer coder who loves programming so much he never develops the skills needed to run a viable business, so his amazing work never achieves any significant market penetration.
The fact is that it's not always the best products and services that win. It's the company that best communicates what they have to offer, and then delivers that offering efficiently (has good systems - another Emyth core concept) that usually wins.
That's why the book tells us we as Entrepreneurs need to work "on" the business, not "in" the business. The role of the Entrepreneur is to develop systems and processes that answer the question "How will this business work best?" And while this is true, this is also where I see a lot of business owners really screw up.
You see working "on" vs. "in" is not an "either/or" proposition. It's "both/and".
In other words it's very unlikely you as the owner can be doing nearly all the "technician" work one day, and then the next day handing it all off to someone else so you can go "create systems".
I see a lot of businesses get in financial trouble trying to pull this off. They hire too many people too soon, which almost always results in the owner earning less than they should from the business. The justification is that they need people to grow the business, so they'll take less until sales increase to where they need to. And 5 years down the road they are still stuck.
And selling the business? No buyer is going to touch a business where they can't step in and earn a return on their investment, the baseline of which is what they will make as the owner.
It's better to think of "on" vs "in" as a continuum. You gradually hire and offload technical tasks as sales increase, not hire and hope. You forecast how the additional payroll will affect your profit margin and labor rate, and you leave owner's pay out of the equation. When our clients are ready to add employees, we set up a "new hire" account and allocate into it for 2-3 months before the actual hire is made, which allows us to evaluate how cash flow is affected before a new employee is on-boarded and then "whoops, what happened to all our cash?" That can get really awkward, really fast.
Work on your business, yes. Just keep in mind that it is usually years before a business is mature and financially stable enough to support the owner doing none of the technical work. Do the work necessary to understand what size team your business is able to support and where you currently are on the "on" vs "in" continuum. Then create a plan to get you from where you are to where you want to go, without unnecessary financial risk or stress.
I am here to help.
One of the things Alwyn Cosgrove taught me is that you need to be constantly tracking progress to goal. Every year he sent out a post at the beginning of July which reminds you that it's halfway through the year, so you should be 50% to your (insert weight loss or fitness performance goal here).
The same thing is true of your business.
By now you should have your Q2 numbers in hand and be evaluating your company's performance over the first half of the year.
Now is the time to compare your actual Year-To-Date progress with the goals you set for your company at the end of 2018 (You did set goals, right?)
At the least you will want to see how your sales are tracking compared to Q1 2019 and also compare to Q2 2018. You can pull a Profit & Loss and Cash Balance report from your accounting software and run those comparisons. You will also want to compare your total expenses for the same periods and evaluate the ratio of expenses to sales. Evaluating expenses on a quarterly basis, and working to increase revenue at a greater rate than expenses, is one of our primary focuses with my FFP clients, as this is how greater profits are created.
One of the other things I do with my clients is make their financial lives easier. The less time it takes to get information that matters (eg. helps make better decisions) the more time you have to focus on other areas of your business.
For my clients using the Fit For Profit Dashboard, there is no extra work involved to comparing their quarterly financial performance at a glance. Every time they calculate and record an allocation, the dashboard automatically tracks performance on a monthly, quarterly and yearly basis, and shows progress to goal.
Here's a (not so) top secret video walkthrough of "Tab 6.0 - PF Allocations", a Fit For Profit exclusive available only to FFP clients.
Please expand the video to full screen for best viewing.
The fact is that if it's not easy to do your financial comparisons, you are probably not going to do it. As a small business owner you are pulled in a hundred different directions, I get it. My mission is to simplify your life and make your cash work for you. This is one more way to make that happen.
Q3 will be over before you know it. Schedule your Profit Maximizer Call today and let's talk about how to make managing your cash easier.
The vast majority of business owners I know don't want to bury their heads in Spreadsheets, Profit and Loss Statements, and Balance Sheets every day. Or even at all.
Yes, it's important to know some key financial numbers when you own a business. Having objective data that answers our financial questions and helps us make good decisions is more than just helpful, it is crucial to long term business success. But if you are like me (and I like numbers), you don't want to live your life by the numbers.
The financial plan for your business needs to answer your "Why?" and serve you, not be your boss.
Why did you start your business? What do you hope to accomplish by owning your own company? How do you want to spend your time and energy? What do you want to use your money to enjoy?
Answering questions like these, and then creating a business financial plan around the answers is ultimately why Fit For Profit exists.
My goals for Get Fit NH, the personal training company we sold last year in a seven-figure deal, were very modest when we first started out in the first decade of the 21st century.
I just wanted to find a way to work myself out of a job I didn't want to spend the rest of my life in, and find a viable business model to do what I wanted to do and enjoyed doing; helping people lose weight, get in shape, and feel better.
What we were doing worked, and we started growing outside of my capacity to serve my clients by myself. As I started to hire trainers who had the same mission and passion I did, my goals changed. I saw an industry that was churning through people, good people, at a crazy rate because they had no career path. In our area it wasn't uncommon for a trainer to work at 2 or 3 different gyms, because that was the only way they could make it work financially. Benefits were non-existent.
My new goal become to provide the coaches that worked for me a viable career; a good salaried position, health care benefits and retirement. And there is a practical side to all this as well, of course. Happier employees stay longer, and employee turnover is a killer to any business.
My question became "How can we as a company make all that happen, continue to be profitable, and still support my personal financial goals as the owner?"
The answer was to create a business financial plan, and support it with a cash management system and strategy that allowed us to incrementally accomplish every one of those goals.
It didn't happen overnight. It took several years until the entire full-time team was on salary, we added a 401k, and finally company sponsored health insurance. All while maintaining profit margins and paying ourselves a market based wage.
That story is not to brag or tell you how great I or my company are. The reality is I could not have done it alone, or without a system that had the configurability and flexibility to support those goals.
Your story is no doubt different, and that should excite you.
Like the gym owner who wanted to take his entire team to the Arnold Classic every year.
And the business owner dad who was getting crushed by tens of thousands in debt, but still wanted to take his family to Disney World.
They both created a plan that worked for them, and both made those things happen.
The point is to create a strategy that makes your story possible, by wisely allocating current resources, creating a sound plan for growth, and preparing for your future and the future of your business.
So you can have a business that means something to you.
And enjoy the freedom that comes with being a successful entrepreneur, no matter what your definition of that is.
Without having to live with your head buried in a spreadsheet all the time.
If you want to get started with a plan like that, I'd like to invite you to reach out. Get in touch with me here, and let's talk about what you want to accomplish with your business. If you have questions, I'm here to answer.
To your best success,