According to the Gallup Co., for the first time in 35 years, the number of business deaths exceeded business births. This is a staggering statistic that will affect the quality of life of every American.
Imagine what our lives would be like if we lost our small business base entirely?
Small businesses are failing faster and in greater numbers and everyone assumes nothing can be done. Nonsense.
What if we can truly understand why they’re failing and reverse the trend? Twelve Intuit ProAdvisors joined a pilot program through the Woodard Institute called, "Increasing Your Clients’ Profitability by 50% in 4 Weeks," to prove it's possible to double small business survival rates within a short time, usually one quarter.
These ProAdvisors chose their pilot small business and we took them through an accelerated roadmap with amazing preliminary results. The ProAdvisor became a true strategic partner and the business owner finally understood how to manage their pricing, product or service line mix, and customer base to grow profits and cash flow.
No one is better positioned to help turn the tide than ProAdvisors since they know small business best and have the means to reach the small business owners quickly. Small business owners can’t do it by themselves or else they already would have.
Reserve Your Spot Today – Dawn Fotopulos' highly acclaimed Woodard Institute course, "Increasing Your Clients’ Profitability by 50% in Four Weeks," begins Oct. 10, 2016. Seats are available, so register today.
The hypothesis I’ve tested for the last 15 years with more than 5,000 business owners revealed that small businesses are not failing due to lack of capital – they are failing because they don’t know how to manage the capital they do have.
For starters, most don’t know that a Net Income Statement and a Profit and Loss Statement are the same thing. No, I’m not kidding. Ask your clients and see what you find out.
Small business owners can’t read the financial statements their accounting professionals send them every month. And they’re too ashamed to ask for help. When I conducted my breakout session at Scaling New Heights 2016, I asked the accounting pros if they send statements to their clients every month. All hands went up. Then I asked how many of those clients actually opened, read and understood those statements?
All I got was laughter.
The financial ignorance is not a problem – it’s an epidemic. We need to see that the existence of sophisticated software is not going to solve this, but our pilot proved what will solve it.
If the first challenge is overcoming financial ignorance, the second challenge is that when most business owners are having difficulty paying their bills, their response to fight the cash flow wars is to drop their prices to acquire new customers quickly. All they succeed in doing with this strategy is buying themselves more work and driving their bottom line through the floorboards. The real tragedy is they don’t know it until it’s too late. It’s time to stop the madness.
Here is our five step plan:
Step 1 – Create a formal agreement with the business owner to follow the prescription the ProAdvisor tells them for the next three months. That agreement includes the ProAdvisor getting paid on the improvement in business performance, not just tax preparation. Everyone has an incentive to cooperate.
Step 2 – Teach the business owner how to read his or her financial dashboard by reading “Accounting for the Numberphobic: A Survival Guide for Small Business Owners” (AMACOM Books winner – Best Business Book 2015). The first four chapters do the heavy lifting for the ProAdvisor. Once the business owner reads them, it is as if, as one ProAdvisor said of the course, “I died and went to heaven.” The owner understood within a week what she had been trying to tell him for years.
Step 3 – Review the product and service line by gross margin, not just revenues. We were shocked at what we discovered. In most cases, only 20 percent of products and services offered generated any gross margin at all. The key is teaching business owners how to read their financial dashboard so they can see the risks and opportunities sitting right in front of them. Then, they can leverage the deep knowledge ProAdvisors have to guide the analysis and the action plan around doubling profits and cash flow in record time. Without the ability to assess the opportunities, the ProAdvisor’s advice will fall on deaf ears.
Step 4 – Review the client’s pricing strategy. In almost every case, the business owner was leaving tons of money on the table and had no idea. There is a method to pricing and in the "50% More Profits" course we take people through it using Harvard Business Review case studies. While pricing does have some art to it, it’s not “sticking your finger in the wind” either. This is a particular problem with service businesses that rarely track their time properly and get hit in the bank account because of it.
Step 5 – Rebalance the client base. Every ProAdvisor in the pilot program looked at their client’s customer base by gross margin or profit to see which ones were really paying the bills. It was quite revealing for the business owner to see they were over servicing unprofitable customers in almost all cases. And in many cases, more than half the client base was unprofitable.
The ProAdvisors in the course were seasoned professionals. Most had at least 15 years of experience and found the roadmap facilitated discussions with their clients. One put a plan together for his client that would enable him to hire more talent and grow his profits. Another changed the pricing model for his client, so after being in the construction trades for over 20 years, they guy finally was showing a profit.
Intuit ProAdvisors are much more than accounting professionals. They’re sitting on all the data. Isn’t it time they inhabited the roles they were made to play as business therapists?
When I’ve worked directly with small business owners over the years, the biggest challenge always has been to clean the books up, because they’re always a mess. If ProAdvisors perform quality control on the data, we can turn these businesses around before they become a statistic. I’m in it with both feet. How about you?
Dawn Fotoulos
Dawn Fotopulos is an associate professor of business at The King’s College and founder of www.hiddenprofitprophet.com, which is dedicated to helping fast growth businesses increase profitability and cash flow in record time. As an experienced entrepreneur and small-business turnaround expert, Dawn has rescued hundreds of small businesses and helped thousands of others reach their full potential. She has led an accomplished 20-year career in business working as a serial entrepreneur, VP at Citigroup, real estate investor and hedge fund partner. She also is a certified facilitator in the Kauffman FastTrac Program, a CEO leader for the Job Creators Network and an award-winning author of “Accounting for the Numberphobic; A Survival Guide for Small Business Owners.” An expert in her field, she has been featured on "MSNBC"’s “Your Business,” at the "New York Times Small Business Summit" and in Forbes. She also is a highly respected instructor at Woodard Institute, an intensive, 24-month program that provides practical insights, systems and tools to better service your clients, extend your reach beyond the current services you offer, accelerate your firm’s growth, increase profitability and elevate your practice to add (or expand) the management consulting services you offer your clients.