The mighty GE has been going through interesting times of late.
In the 20 years from 1981 to 2001, the iconic Jack Welch ruled supreme. He was considered the epitome of chief executives, and businessmen all over the world hung onto his words. During his reign, GE’s market value rose from about $15bn to over $400bn. GE’s strategy and tactics were so obviously successful that there were adopted universally.
Since then, the fortunes of GE have changed somewhat. Today the market value of GE is less than $150bn (still a lot of money!), and it is the worst performing stock on the Dow Jones Industrial Average.
What led to the change in fortunes? Jack Welch laid out 3 rules:
1. Cash is king
3. Buy or bury the competition
It seems that Jeff Immelt, Jack Welch’s successor, violated all 3 rules, with what could be called disastrous consequences.
So what does this have to do with SME’s? Well, while rule 3 may not apply to SME’s the first 2 rules are as important to SME’s as they are to any other business. So let’s examine them.
Cash is king
This is so important that it would seem to be obvious. Without cash, a business cannot survive. How many times have we seen businesses that seem to be going gang-busters suddenly disappear? Turnover is great, and there is a never-ending flow of customers – but suddenly the doors are closed.
The reason is a lack of cash. While turnover was growing, the business ran out of the cash necessary to pay for new stock, staff salaries, and expenses.
The need to look after cash is not new, nor is it rocket science. It has been said that the Profit and Loss account, which every business owner looks at, is a work of fiction, because a business can do nothing with profit. What really matters is the cash the business is able to generate by its activities.
So how does the owner of an SME look after the cash?
1. The first thing to do is make sure that you have access to a cash flow statement of your business on a regular monthly basis, so that you know if cash is flowing into, or out of, your business. You should also know what expenses lie ahead – a GST payment, for example – so that you can see that you have enough cash on hand to fund your business.
2. Controlling your debtors – what people owe you – is essential in every business. In a competitive environment, it is too easy to be soft on your debtors, soas not to upset them, and, before you know it, your debtors have more of your cash than you do.
3. If you run a trading business, dealing in stock of one kind or another, you need to control the level of inventory. Once again, it is too easy to have all your cash sitting on your shelves instead of in the bank, and sometimes it is not wise to take advantage of special quantity deals, however good the price may be
4. Paying creditors on the button is good for your reputation, but not so good for cash flow. Take advantage of every bit of credit you can, without ever jeopardizing supply
5. And of course, you need to manage expenses to the best of your abilities.
Managing your cash is the most important part of managing your business. It’s not complicated, but failure to manage cash results in failure of the business.
In an SME, communication is just as important as in a corporation – perhaps even more important.
There are 2 elements to communication – internal and external
It is vital for you to communicate with your team. Hold team meetings. These must be formalized, with a set time each week or fortnight, with a set agenda. You should create an environment in which team members feel free to talk about anything that affects them in the workplace. There are rules to holding team meetings. If you would like to know more about how to run really productive team meetings, please contact us.
It is just as important to communicate with your customers and your prospects. Most of you will have websites, which, unless you are spending money on SOE, will be on-line brochures. If you don’t already have one, you probably need to set up a newsletter to send to customers and prospects on a regular basis (as often as you think is appropriate) to remind them that you are there, and to highlight any specials you may want to promote. Whatever you do is good, as long as you communicate regularly.
While Jack Welch’s third rule might not apply, Jeff Immelt did commit another sin – he used multiple accounting standards that led financial analysts to complain about a lack of openness. And that leads to another rule that SME’s could well consider: be transparent and open.
Owners of SME’s are often reluctant to share information with their team – especially financials.
Remember – two of the 6 keys to a winning team are:
1. Common Goal. If you want to make sure that you are all on the same page with regard to goals, you need to share some kind of financial information with your team.
2. Involvement. Sharing financial information will help to make you team feel included – leading to them becoming involved, which is when, instead of coming to work with 6 cylinders – body and mind – they bring all 16 cylinders – body, mind, heart and spirit.
So take a lesson from the world’s business leaders, and incorporate these rules into your business:
- Cash is king
- Be open and transparent.
They may not make you as big as GE, but they could help you to leap-frog your competition.
Contact one of our business coaches here.
This blog is brought to you by Lex Tannenbaum