Monday, October 12, 2009

Things You Absolutely Cannot Do...

A recent consulting assignment was one of the most challenging I have ever tackled... $1.2 million in annual sales and was/is bleeding to death... The full story will have to wait for a week or two, but some lessons learned can be shared now.

Never, never loan your company money without a specific, documented plan for repayment. The only worse thing you can do is make another loan to supplement the first. If your company owes you money (check your balance sheet) and your cash flow is low or non-existent, make installment payments to yourself in lieu of taking a salary. You will save on payroll taxes and improve your balance sheet.

Never, never fool yourself that you can survive with an SPE below $100,000. The chances are good that unless you take immediate steps to improve productivity (and your SPE), that your SPE will drop rather than improve.

Never, never allow your total payroll to rise above 30%! There is no way a company with payroll costs at or above 30% will survive in the long-run. Don't lie to yourself and your spouse that things will get better. They won't so long as you ignore this number.

Never, never ignore your financial statements - The most troubled companies I have encountered these past three years are those that either don't receive financial statements on a regular basis, or if they do they never read them and compare them to the readily available ratios that can point the way towards survival and turn-around. If you want more information about some of these key ratios check out my recent blog that discusses "the six pack" of flying instruments.... (or something like that. )

It's late at night and I wish I could share more of my thoughts, but I spent 18 hours visiting with this firm and at least another 18 hours trying to pull my thoughts together and recommend step-by-step measures that might, just might save this company.

There's one very special problem I encountered with this consulting visit, but I could not bring myself to tell the client and I am still trying to determine whether it should be mentioned. I may share this in a future blog.

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Blogger Shirley said...

Hi - new to your blog here, thanks for all the useful content!

Question regarding SPE - when calculating this number, do you include in the count the owner(s) who may or may not work daily in the "store" or only "hired hands"?

September 10, 2010 at 9:26 AM  

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