Mark Gandy, Author at G3CFO

Sowing the Seeds of a Profitable Landscaping Firm

In college, I had the 2 greatest jobs on the planet. I got to work outdoors, get dirty, get a great tan and work with some fun people.

One job was mowing the greens and fairways at Kirksville Country Club located in the frigid North Pole of Missouri. My other job was running the mowing division of Nurseryland, Inc. Well, it’s true, but we only had 13 lawns, and since I was a pro on the greens and fairways, I was pegged as the mowing guy, a team of just one person.

When I wasn’t mowing, I got to work with one of two small landscaping crews. That was fun. It was hard, but I loved it. Back then, I wondered, “Is there good money in this?” Little did I know I’d get a front row seat on helping a few landscapers design and doze their way to better profits.

The Entrepreneurial Seizure

Michael Gerber is famous for stating why small business owners start a business. Their decision stems from an entrepreneurial seizure. They rationalize they can be successful because they are skilled in their craft. And then they learn a truth that hits them like a dozen prickly barberry bushes all at once:

They don’t know how to hire talent for the long haul
They can’t manage multiple jobs
They can’t keep 100% of their customers happy (add general contractors to the list)
They have no clue what accounting is
Lack of accounting knowledge means they can’t manage the most important financial tool–the weekly WIP report
They realize managing cash is nothing like managing personal finances at home

I’d keep adding to the list, but I’d run out of space.

Let’s Do Some Digging

In no particular order, I’m going to reveal what the best business coaches of landscapers do (at the end of the post, I’ll share who my favorite coaching business is in this niche).

I’m calling this Profitscaping 101. These are simple tools anyone can master. Do you need a coach? No. But you’ll get traction faster if you hire one.

Dream Big Baby

When I take on any client (generally, businesses with revenues of $10 million or more), one of the first exercises we work on is taking a look at the future. Nearly every business I work with wants to grow. Accordingly, we start looking at whether they have the ability to 2x their revenues and profits over 3 to 5 years.

Let’s assume we’re working with a landscaping firm with mowing/maintenance, landscaping, irrigation installation, and snow removal divisions.

All we’re doing for right now is plotting the next few years on the top line by division. Here’s how I do this:

I start with the most recent year of actual data that can be pulled from the firm’s accounting or costing system.
Then we start moving forward in time. In some cases, we’ll look at the number of customers and determine an achievable growth rate. For landscaping, customers are generally meaningless. Instead, I’m focusing on the number of contracts. You’ll notice I did not change the average transaction size (dollar spend). Forget the inflation factor–just use today’s dollars. Why no change in the average transaction size? Because we’re not changing the business model. And even if the firm gets some Hermann Simon religion, we’ll address pricing strategies later.
Our revenue canvas showing projections in the future gives us a chance to ask, “Can we do this?” This is the starting point for the next steps to make these projections real.
Finally, and out of habit, I like seeing typical gross margins for each division. First, the numbers are super easy to pull from accounting or costing. And, we can start doing some cowboy arithmetic with those key numbers since we know pre-tax profit margins should range from 8 to 12 percent.

Don’t skip this step. I recommend doing a reboot of this exercise at the beginning of every November when the bulk of the landscaping season is over (I’m in the Midwest).

Know Thy Customer

I don’t work with many landscapers due to their size, but I’ve learned one truism about them. If a customer walks, breathes, talks, and can write a check, the landscaper is open for business.

I hate that mentality, and yes, hate is a strong word.

When I do the exercise above, I do some other quick analysis out of intellectual curiosity. Below is a simple scatterplot of every project completed in the past 18 months. The x-axis shows the contribution margin (direct materials, direct labor, and assignable overhead). The y-axis is contract size after all change orders.

If you were the consultant to this landscaper, how would you advise them? Would you question the large-dollar contacts? Why?

If this landscaper only focuses on their sweet spot of contracts, do you think they are a more sellable firm down the road?

Bottom line, know thy customer, love thy scatterplot.

Process Documentation

One of the biggest frustrations landscaping owners encounter is a lack of consistency which hurts customer and/or general contractor satisfaction levels. Lack of consistency means:

The owner plays too many roles (marketing, selling, supervising)
They are fixing all the problems on all contracts
And they can never seem to take time off

Lack of consistency is a symptom of a bigger problem. Employee training is nonexistent because there is no, “My Landscaper’s Way of Doing Business Making me Bucketfuls of Money.”

This leads to my first rule when finding a business coach to help you. Never hire a coach unless they have 3 ways of solving the same problem. Many have one trick to solve a problem. Don’t hire them. They are dogmatic czars. You want the coach who can provide the right tool for your situation. That’s true for developing repeatable systems and processes with predictable results.

Take the example below for vendor bill processing. The back office is normally a mess in small landscaping firms. Achieving consistency is as simple as creating some well-designed checklists.

I rarely follow the same checklist methodology from client to client because each person and business is different. However, you will find some commonalities such as:

The last time the checklist was updated, and there should be an owner of this checklist/process.
A brief overview. Note that an overview can be a narrative, audio, video, or an infographic. Be creative.
A well-designed checklist should be fewer than 6 steps. If you have more, that process will be ripe for errors and inconsistencies. If the checklist needs to be longer, then chunk it (break it down into smaller parts). I also like to explain ‘how’ in a checklist because it makes the trainer’s job easier.
Each step needs a frequency.
And each step needs the owner of the step–the fewer the better.

I already know what you are thinking. You want to see a flowchart.

I typically use post-it notes to document workflows, but here’s the documented process below for the checklist above:

I cannot emphasize this enough–have one place where you have you have a list of every documented process in your business. You can use a mindmap like I’ve done before. My preference is using Smartsheet.com, and you can ask me why in the comments section below.

Before moving on, let me make a few quick comments:

You need a place for all of your processes. That’s a given, but how about one file where you have a big checklist of every process such as the example above? You can do this in Trello, Smartsheet, or Google Sheets. Don’t get hung up on the tool. Remember, function over form. Fight over form later.
I like to delineate processes between the front stage and the backstage. I love sports, so in some of my work, I use on-field/off-field. Chunking processes like this make the business feel less overwhelming.
As you drill down to the process, make sure you have a link to the process documentation, checklist, or tool.

Hey, Your Financials Stink

Your financials are killing me. That’s because you are a victim of push-button financials coming straight from your accounting system. That’s a shame because those P&Ls, balance sheets, and cash flow reports need to be meaningful–and the ones from any software package simply stink. Yeah SAP, your built-in reports are terrible too.

We could spend more than 10,000 words going through a well-designed report. I’m not going to do that to you. Let’s stick with the landscaper above. Here’s what I want the first page of reporting to look like when I meet with the owner and her team each quarter.

I believe in the 60-second rule–in 60 seconds or less, you should know exactly if you are winning or losing. If the numbers do not make sense, then that’s where drill-down capability comes into play. In the case above:

I want the ability to select any timeframe I want–year-to-date, last quarter, season-to-date, etc.
I like seeing the profitability by division.
Obviously, we need a roll-up.

But we’re not done. I want more filtering abilities.

In the snapshot above, I can now just focus on one division at a time. Behind this view, we can:

Examine by month
Examine by month by general ledger account
Compare actuals to plan

There should be no limits to what you can do with your reporting. Find an expert financial modeler using a tool that can be integrated with your accounting system.

Meaningful Financial Statements Start With Accurate Numbers

Meaningful reporting is worthless if the numbers are inaccurate. There’s only one way to ensure the numbers are right. Your back office accountant (preferably someone with job costing experience) needs to follow a month-end closing checklist. The checklist includes a line item for every single balance sheet general ledger account. There are also steps for analyzing the P&L.

I started my practice in 2001, and one of my first clients was a specialty contractor. We finished the financials the last calendar day of the month. The secret? A simple checklist similar to the screenshot below:

Just because you have someone to help you create a month-end closing checklist doesn’t mean it will be followed. Since 2001, I’ve encountered these types of accountants when it comes to the month-end closing checklist:

They get trained on it, love it, and take ownership of it making it better and better each passing month
They get trained on it and just go through the motions and do not try to enhance processes going forward
They get trained on it and lack the humility to keep following it–they tend to do their own thing taking shortcuts–the end result is inaccurate financials

Before moving on, two of the most important closing checklist items in landscaping revolve around the WIP report. When landscapers work on contracts lasting 2 or more weeks, WIP reporting is critical.

Let’s take the example below.

In the example above, the landscaper has 5 jobs in process at month-end. I like starting the summary page of a WIP report showing the original contract total along with planned gross profit (after direct materials, labor, and assignable overhead).

Next, the landscaper needs costs to date along with the expected costs to complete the project. This will reveal the gap between planned and projected gross margin.

The very end of the summary shows whether or not the landscaper is playing with house money or playing the role of the bank. Notice project 2 is under water at $22,852. That means we have paid more than we have collected. Never let that happen. We always want to be ‘in the money’ and that’s very doable based on how contracts are written.

I don’t show the journal entry, but it’s in a separate sheet created by the numbers in this workbook.

I will sound like a broken record–the WIP report is one of the most important financial reporting tools at the landscaper’s disposal. That’s especially true when projects span 2 to 4 weeks in length. The better practice is to update the WIP report each Friday night for review.

Don’t be like most landscapers who say, “Oh Mark, I don’t need to do this. I just keep track in my head,” Yeah, right. Show me your bank account. Show me how many days you’ve taken off during the busy season. Show me a landscaper using her WIP report on a weekly basis, and I’ll show you a highly profitable landscaper who functions as a CEO.

Last Thoughts

I like symmetry along with bookends. Accordingly, I want to come full circle by picking up on how we got started. At the outset, the focus was on the big picture. Let’s finish with a broader picture.

As you design your way to more profits, I’d like for you to consider your competitor scorecard similar to the one below.

The competitor scorecard is easy to figure out and should be self-explanatory. If the landscaping firm desires to grow, it needs to know the obstacles. I like to do this quick analysis by listing why customers buy from the landscaper. While it’s subjective, grade yourself against your competitors. If you need to, create separate columns for individual competitors.

Do you focus on strengths or weaknesses? It depends. Who are you trying to be? Be that person, and be good and strong at the same time. That’s your focus.

You’ve got work to do, so get to it. And that reminds me, I happen to know the perfect coaching organization to help you–Gritt Business Coaching.

Gritt Business Coaching is new, but they are already great. And here’s a prediction–they will become one of the top small business coaching firms globally in the next few years. Get your landscaping firm back on track by using a coaching organization who can take you to the promised land.

Title Photo by Cosmic Timetraveler

The Power of 2x™ in Small Business Planning

All Articles, Strategy

Thanks to people like Dan Sullivan and Grant Cardone, 10x is alive and well. 10x is fashionable, sexy, and glamorous.

How about 2x? What’s wrong with doubling, say revenue or profits? Would you take it?

2x may not be the crème de la crème of business multiples, but it’s still a powerful tool when employed properly.

Getting Started with the 2x Mindset

I love thought experiments or thought experimentation in small business. For instance, my favorite conversations at lunch with a client sometimes start out like, ‘Have you ever considered … ?’. Or, ‘Have you thought about … ?’. Sometimes, we hit paydirt in those discussions.

My favorite thought experiment revolves around doubling. Accordingly, I’ve created a planning tool that I call The Power of 2x™. It’s insanely simple to use.

Let’s take the example of a small professional services firm providing business consulting (the small version of BCG or McKinsey). The process will work in any type of business.

I don’t simply double revenue. I want to know how many clients the company has and how often they serve those clients. If you want to double revenues, you only have two options. You can either pull the number of clients lever or the average project size lever. In the example below, I 2x revenue 3 years out by doubling the number of clients and keeping the average number of client projects per year and project size static.

Why 3 years? It’s hard, but not entirely impossible. To double in two years is extremely difficult unless the firm is much smaller. So in the case above, I do the doubling in 3, and then 5 years out.

Another way of doubling is changing the business model. Instead of focusing on small projects, how about doubling the average project size as shown below?

Doubling is easy–on paper, that is. This simple brain exercise is just the launching point for the next step–questions.

Is it Plausible to 2x?

Before I start asking questions, I need a simple framework to start the Q&A process with a small business owner. It’s not perfect, but the mental gyrations look something like this:

I don’t always start with data, but you can. In discussions likes these, anecdotal evidence works fine as the starting point. That allows us to craft stories and assumptions to 2x our way to growth. Then we can examine data to challenge our assumptions.

Still, we need to answer some serious questions. My incomplete list follows:

Marketing

Are there are enough hungry customers needing or wanting our service? If so, where are they? Once we find them, how do we get their attention? Finally, how do we get permission to tell them the story that our service will make them better?

Selling

How many new reps do we need? What skills do they need? Can our existing salesforce support the growth effort? Will retraining be required? Will a new sales management process be required to support the growth?

Fulfillment and Service

Is the delivery option solid right now, or is it broken? If solid, can the same fulfillment process be ramped up? Is it repeatable? Are customers far better off after a project is completed? How does continuous innovation play a role?

Support Functions

With growth comes more overhead. For instance, does accounting and billing need to be overhauled? How about HR and IT? Are there cash resources to tap into to support the new growth?

The Power of 2x™ is Not Just for Small Business Planning

I started using the 2x mindset several years ago when I’d go over financial statements page by page with new clients during the early years of a new CEO relationship.

I’ll never forget a meeting I had 7 or 8 years ago with one of the most talented CEOs I’ve ever met. I don’t think I’ve ever encountered a CEO who picks up financial analysis as quickly as he does. When we went over revenue per FTE for the first time, we were around $500k per FTE. Immediately, he said, “Mark, I’m going to double it. I want $1 million per FTE.” That was the first time he had heard about this concept. I kept my opinions to myself as I thought, “No way it will happen.” Wrong. He’s not there yet, but he’s getting close.

I’m a failure at trying to get clients to radically improve their inventory management practices. That’s because the majority of business owners practice what I call just-in-case inventory management practices. I get it. They love their customers and they never want to be out of stock. But there’s a cost to just-in-case, right?

One of my manufacturing clients has a great P&L and no debt. So it’s easy for them to justify inventory overspending. I hate it because it leads to waste and obsolescence. The way I applied my 2x thinking was through a simple question. “What if we could cut your inventory in half?” Bingo, almost. We’re a long way in halving inventory, but there’s now a new mindset–buying smarter and smarter.

What about a 2x mindset in a big company where doubling revenue is impossible? Here are some 2x questions to prime the pump if your company is sitting atop the sigmoid (business maturity) curve:

What if you could double the speed of closing a sale?
What if you could cut in half the time to hiring your skilled A-players?
What if you could 2x your insights to existing marketing data to better understand your customers?
What if you could 2x the speed of solving customer/client problems and how would that help your customer satisfaction scores?
What if you could cut in half the time in finishing critical IT projects?

This should give you an idea of how to apply 2x thinking in your business. Don’t discount the last question. If your IT team says it will take 18 months to complete a project, that means it will take 36 months. But you need to find out how that project can be done in 9 months. It won’t happen, but at least strategies and tactics can be employed to remove waste from critical IT projects.

Are You Ready to 2x?

10x is sexy and glamorous. But 2x is powerful and pragmatic. What’s holding back your 1x company?

Title Photo by Kyle Popineau

CFO Hacks–A Simple Tool for Managing Small Business Debt

All Articles, Banking

I came from a corporate world where debt was expected and even planned. And that corporate world taught me it was okay to maintain a certain debt to capital ratio at all times. And for my larger clients, that works. Or rather, we make this manageable.

In smaller businesses, especially with revenues under $10 million, debt can be a killer. Many business owners I’ve worked with over the years have needed money immediately for additional working capital, maintenance capital expenditures or for expansion.

Many of these business owners sign on the dotted line a little too quickly, and all is well until that first debt payment. And then the second. And the next.

Life just got hard, complicated, and stressful.

A Simple Debt Tracking Tool

When I work with a small business that has a large chunk of debt on their balance sheet, the very first thing I do is create a schedule of every balance owed to a bank, lessor, or any other lender. Here’s an example of what I’m talking about: In the first column, I list out the type of debt. Usually, I’ll even include another column showing the purpose of the indebtedness.

The next two columns are abbreviations for amortization schedules and ACH payments. I always create amortization schedules for each debt instrument. And my preference is that every loan payment is paid automatically and electronically each month, no exceptions. I then want to see the interest rate for each note in case I need to refinance a high-priced loan.

The next columns show the total balances on each note (my sort order is low to high) along with the monthly payments. The last column shows the cumulative total of debt payments each month. In the example above, the small business owner is making payments of $8,793 per month.

Notice the note at the very bottom of the balance column. I always make sure the total balance ties out to the general ledger. Care to guess how often these numbers tie out when I first do this analysis for a small business owner? Rarely.

A Few Takeaways from This Simple Debt Schedule

A few years ago, I worked with a small business doing about $1.3 million in revenue. The husband and wife worked closely together and made a great team along with the family dog. Debt was a major source of stress. So I created a schedule similar to the one above, although the list was much longer and the balances were higher.

Creating the schedule did not make the debt disappear, but here’s what happened:

Eyes were opened. The couple knew they had a lot of debt. But now they saw the big picture on one piece of paper (actually in Excel, but ‘paper’ just looks better in writing).
And this (new) heightened sense of awareness led to confidence. The stress of making payments still existed, but now they began to realize this debt snowball could be managed and ultimately whittled away.
And this renewed confidence led to a plan–using excess cash to slowly eat away at the debt balances.

In some cases, this couple had 0.00% interest on some of the notes. However, they largely ignored this variable and generally knocked out the smaller balances in order to free up cash flow.

They didn’t necessarily use that new-found cash to immediately ramp up payments on the other balances. Instead, we forecasted cash carefully making sure we had enough money in the till to address unexpected surprises. Only after that exercise would we start accelerating payments on the next smallest balance based on our forecasting insights.

Such a simple tool, yet much financial intelligence was gained for the small business owner. And did I mention the schedule only took about an hour to complete?

The Final Takeaway Is Knowing What You Can Afford Under Multiple Scenarios

The final takeaway is that we learned quickly the number of debt payments we could afford each month. In their case, the debt load led to stress. So we ran multiple scenarios to determine a good mix of free cash flow to debt payments.

Personally, I shoot for free cash flow to debt service of between two to three times. That is, I want my free cash flow to be two to three times in excess of the total principal and interest payments over the course of any 12-month time period.

Obtaining the right mix may take two to three years to achieve, but fixating on healthy cash management habits will lead to a discipline that meets the desired target.

I know, my recommended ratio seems high and maybe foolishly too conservative from your point of view. Remember, I stated, “shoot for.”

Start-ups, that ratio will be really tight (unfortunately), like closer to one to one. Growing companies, that ratio may be closer to 1.5 to 1.75. And that means there is little room for error. If sales start going flat or southward, a cash crisis will certainly follow.

The bigger point is that I focus more on ‘what can we afford?’ vs. what the debt-to-capital ratio looks like. I want cushion or peace-of-mind cash flow margin for my clients.

Small business debt is certainly a necessary evil in any small and growing business. But at least we now have a process for managing these debt levels that will lead to more confidence for the financially-intelligent business owner that had otherwise been operating in the dark.

5 Cash Management Questions You Need to Ace

All Articles, Cash Flow

Several years ago, a business owner of a $3 million specialty contracting firm called me because his P&L looked great but he didn’t know where the cash was going.

Have you added new contracts causing your receivables to go up? “Yes.”

Are inventory levels going up and are your payments for work in progress occurring faster than when you receive customer payments? “Yes, how did you know that?”

Bought any new trucks lately? New equipment? Have you started making loan payments? “Yes, I have.”

Did you just bring on a couple of new staff members? “I added one the month before last so we could support this new contract.”

Just curious, have you increased your draws? “When can you come to visit me?”

You Are Probably in Pretty Good Company

Several years ago, Karen and Joe Knight reported that about 70% of a sampling of C-level executives could not pick the correct definition of “free cash flow.” That’s scary, but I believe this based on my experiences with small to mid-sized business owners over the years.

When it comes to decision making, the norm is shooting from the hip on most business decisions requiring cash outlays. And then CEOs wonder how they were blind-sided with severe cash flow crunches that could have been projected weeks, maybe months earlier, with careful and deliberate planning. Shooting from the hip is easier, but it’s more painful in the long term.

You Need Cash Flow Intelligence

Of the scores of books I’ve read on cash management, Cash Rules by Bill McGuiness ranks near the top. This obscure book includes a pair of quotations I particularly appreciate.

Knowledge of cash-flow dynamics should be a qualification for virtually any responsible job in your organization. This doesn’t mean that you need a company full of accountants, but you do want each key player to see and understand the cash-flow issues clearly. Each one should have a definite awareness of how his or her personal effectiveness and efficiency affect your company’s cash flow. Accomplishing this goal involves some basic education and training, as does any new discipline.

Many small- and medium-size organizations think they cannot afford a trained and experienced chief financial officer. In fact, they cannot afford not to have that kind of expertise. But even among those companies that do have skilled CFOs, there is no guarantee that the cash-flow way of thinking will get integrated into the organization. The fact is that everybody on your management team needs to understand how cash-flow dynamics affect his or her department if your business is to prosper in the long term.

I agree on both counts. And this is why I appreciate Shawn Burcham of Missouri-based PFSbrands. Under Shawn’s leadership and guidance, every employee not only understands the numbers, but they are empowered to make decisions that can lead to favorable impacts on both earnings and cash flow.

Shawn will be the first to admit there was much shooting from the hip in his early days, but that financial training throughout the organization would be tantamount in order to remain cash flow positive where his business now enjoys double-digit sales growth every year.

Can You Ace this Test?

Not every CEO is a Shawn Burcham. Accordingly, try these questions on for size to measure your cash flow intelligence.

1. What’s Your Projected Cash Balance?

What do you expect your cash balance to be in one month? In two months? How about three months?

If you do not know, that means you are not forecasting your cash on a regular basis. My best clients are relentless in projecting their cash flow ranging from 4 weeks to 90 days. When the cash till is overflowing, sometimes the habit will be dropped, but these same CEOs in these cash-rich situations have an uncanny ability to know when they are getting off track from a cash perspective.

My recommendation–forecast cash every week at least four weeks out. Eight weeks out is even better. I’ve found that accountants generally do not like doing these forecasts because they want perfection. Trust me, it’s better to be 70% right than to be 100% in the dark.

2. What is your handful of indicators predictive of success?

Does your finance or operations team provide you 5 to 7 key metrics daily or weekly that can help you to monitor and manage your business? If so, the real question is, can you recite those metrics and what is driving the short-term trends of those key numbers?

My very first consulting client was an injection molder. He cared about one number, just one. Machine hours. I found that odd as I was a bottom line guy all the way. His explanation was that he knew his costs so well that by knowing his machine hours each day, he could recite the top, middle and bottom lines with a strong degree of accuracy by the time the financials came out. He was usually very close.

Knowing that one key number told him if his marketing function was deficient, if labor productivity was slipping, or if his machinery was not firing on all cylinders. His staff was so well trained that his key number was supported with a “why” behind every negative trend in addition to suggestions on how to resolve it.

I find it amazing how one little number can drive a staff to extraordinary results in a business world that generally lacks financial intelligence.

Ace this question, and you are a member of a very select few. While this question may not seem cash-like, the correlation between great metrics and cash flow management is high. That applies to the topics in the following three questions.

3. How timely are your meaningful financial statements?

Do you receive meaningful financial reporting by the third or fourth day of every single month, and if so, what is your trailing 12-month, nine-month, and three-month profit before taxes along with operating cash flow and free cash flow?

When I became a Free Agent CFO™ in 2001, I decided I was going to deliver financial intelligence in the same way that was found in much larger organizations. I was taken aback when my second client told me, “Mark, this is the first time I’ve ever understood my numbers.” At the time, one of the most prominent CPAs in his town was generating his monthly financials. Incidentally, he’s still a client today, and probably one of the most financially intelligent CEOs I’ve ever served. He went on to say his banker passed around the reporting because they were not used to that type of management analysis.

Meaningful financial information is critical. It leads to better decision making. From chaos to clarity. That’s what happens to the CEO who is provided reporting that finally makes sense. Furthermore, cash is far easier to manage and forecast with meaningful financials that are available that first week of the new month.

4. Are you constantly managing the gap?

After you receive your financials, are you then analyzing your actual results against your planned numbers? And immediately thereafter, do you roll your profit plan over a 12 or 18-month time period? If so, what are your targeted sales 12 months out? How about 18 months? And how about pre-tax profits?

The ability to model your business using key revenue and cost drivers with a reasonable degree of accuracy is the ultimate in achieving financial intelligence. You will never be a business winner just by forecasting sales and profit margins over time. But the insights you will gain from this process cannot even be measured.

When you follow this easy exercise each month, spotting liquidity problems on the horizon can be dealt with proactively.

5. Are you constantly growing the value of your business?

Can you measure the value you are adding to your enterprise on roughly an annual basis? If so, by how much?

This question is hard because you cannot enter a ticker symbol at Morningstar’s site and find the market value of your business today. But you should have a general idea of how a strategic buyer would price your business.

By having a clear exit strategy in mind and knowing how the process works, you should know what you could receive in a planned and orderly exit. And if you do, you can focus on the drivers that lead to increased value in your business.

Incidentally, the correlation is high between a growing business value and healthy cash balances.

How Did You Do?

Don’t worry. There’s hope for you.

My suggestion is to pick one area per month and learn all you can on that topic and put that new knowledge into action. Then continue the process indefinitely.

Title Photo by Nikhita S.

Do You Display a Sales Rep Leaderboard in Your Business?

All Articles, Management

Who doesn’t like to keep score?

When I think about scorekeeping, for some reason I’m reminded of my first tee-ball experience as a parent. Moms and dads were told, “We never keep score because we don’t want the self-esteem of your children to be harmed. We just want them to have fun.”

Yet, what was every mom doing in the bleachers at every game? Keeping score. The dads? We kept score in our heads. We sat there silently hoping our team would crush the other.

Keeping score can be motivating. Most people with drive want to keep scaling. They don’t want to be left behind.

A scoring system is a mechanism that can push all of us to greater performance. I believe that’s especially true for the sales team of any small business.

Open-Book Management Is More Than Opening the Books – It’s About Owning the Books

All Articles, Management

Early in my business career dating back to the late '80s and early '90s, I was not much of a reader. I think I can count on one hand the first few business books I read:

1. Barbarians at the Gate by Bryan Burrough and John Helyar

2. The Goal by Eli Goldratt

3. The Machine That Changed the World by Roos, Jones, and Womack

4. In Search of Excellence by Tom Peters

What was number 5? Drum roll, please.

The Great Game of Business

In 1994, I walked into Dennis Karsten's office. At the time, he was the President of Orscheln Farm & Home based in Moberly, Missouri.

"Mark, want this book?"

"Sure," I said. On the cover was a guy with a suit sitting on a large engine. It was a paperback where the edges of the pages were jagged. Couldn't the publisher afford higher-quality paper, I wondered?

I didn't look at the title until I got home. Once my family got to bed that night, I started reading The Great Game of Business.

Why did Dennis give this to me? He should have read it himself. I loved it and I got it finished a few evenings later.

I'm Not Here to Teach You Open-Book Management (OBM)

Sorry, I don't do what others can do far better than myself. I know how to implement OBM, but I'm not going to teach it on an open platform like this one. Let's leave that to the experts.

And the experts are by far the great men and women behind the Great Game of Business based in Springfield, Missouri, my home state. Definitely, spend some time on their website, and take note of the amazing content you can download from their site.

Dennis, I owe you. You gave me a hunger and thirst for the way every CEO should raise the engagement level of every employee in his/her company.

But I Will Brag About a Client Success Story That's Super Cool

One of the CEOs I serve asked me to build a scaled-down financial package for two of his senior management members. Since then, I've had a couple monthly meetings with them going through the numbers.

After meeting number two, one of the managers asked for additional detail on marketing costs, as we spent upwards to $4 million annually on this line item.

A piece of cake. I culled data from our ERP system and provided the costs by month by vendor. A week later, the CEO was thrilled that every cost was being scrutinized by this manager and was wanting to start eliminating some of these expenditures.

Was he asked to do that? No.

Did he take ownership of the numbers? Yes, absolutely.

This is OBM at its finest. OBM is not just sharing a P&L, balance sheet data, or various analytics. OBM is about personnel owning the numbers in an OBM environment. Owning the numbers means taking action when no one is asking you to or when no one is looking. That's powerful.

My client is fortunate to have such a team surrounding him.

Two Key Ingredients to OBM

I just stated my client is fortunate to have a team surrounding him that takes ownership of the numbers. That's what I say. That's what he believes.

But what came first? The CEO's decision to open the books to a couple senior team members. And that's ingredient number one.

OBM is not a flavor-of-the-month. Do not expect quick results overnight. My opinion is that OBM is not implemented. It's integrated into an existing culture. The integration is iterative. OBM is never perfected. We integrate OBM, we learn from it, we improve it, and we keep repeating the process.

I would go so far as to say that OBM is based on a culture closely resembling the personality of the owner. If the owner is a private person and likes to keep information closely guarded, I question if OBM can ever work in that environment.

But if the owner is open to change, cares seriously about employee engagement, and deeply desires a culture of continuous improvement, then OBM is a natural fit for such a CEO and his/her company. If that's the case, ingredient number one is making the decision to explore and eventually implement OBM. And I'd start with small steps in the early going.

The second ingredient is a staff that's going to act. The goal is more than communicating financial information.

We want employees to see the numbers, learn from the numbers, and then act on those numbers.

How does that happen? Through education. Lots of it. And that's where consulting pros who understand open-book management can help you.

Did OBM Start in the 1600s?

I'm one of those prove-it people. I like my data and research well done. It's only fitting that I live in the Show Me State.

Many years ago, I painstakingly read Of Plymouth Plantation, the lengthy diary of William Bradford.

The separatists of England founded Plymouth and ran it as a communal colony.

Lack of food was a persistent problem. Ultimately, Governor William Bradford and his advisers suggested that each landowner plant corn for his own household. Originally, all crops raised were turned over to a communal storehouse.

In Bradford's own words, "This was very successful." Bradford goes on to say that, "It made all hands very industrious so that much more corn was planted than otherwise would have been by any means the Governor or any other could devise."

And here's my favorite assessment from Bradford:

The failure of this experiment of communal service which was tried for several years, and by good and honest men proves the emptiness of the theory of Plato and other ancients, applauded by some of later times,--that the taking away of private property, and the possession of it in community, by a commonwealth, would make a state happy and flourishing; as if they were wiser than God.

Not all OBM businesses share their profits with staff members. Nevertheless, OBM businesses that start to open the books will probably see increased productivity and engagement similar to the colonists in the early history of Plymouth.

No, the Plymouth experiment is not an OBM case study, but the correlation to OBM is strong.

Other OBM Resources

Should you read The Great Game of Business and find yourself wanting more, a few other books come to mind.

Read Open-Book Management by John Case. Chapter after chapter is filled with real case studies, and the content is practical enough to give you ideas for implementing your own OBM system.

While not an OBM book per se, the little book, The Game of Work by Charles Coonradt is an excellent supplement to Jack Stack's first book.

You may be wondering if Jack's second book, A Stake in the Outcome is worth reading. Absolutely. However, he dives deeper into the nuts and bolts of employee stock ownership plans and how Springfield Remanufacturing Company structured theirs. Yes, go ahead and buy it, but you may not be ready for it just yet.

I've saved the best for last. Thanks to Shawn Burcham of PFSbrands, I now know Patrick Carpenter (great guy, great leader by the way). Patrick's mother was a pioneer in the education and implementation of open-book management. Her book co-authored by Patricia Kane is entitled The Power of Open-Book Management. Get it, read it, then re-read it again. Then just do it.

About Mark Gandy