A Business Owner’s Need for Reflection

In working with stressed businesses (those that are having cash problems, can’t pay their bills on time, have unending conflict and so forth), I have learned that nearly every stressed organization has a leader who rarely takes time for quality reflection. I choose to use the word “reflection” as opposed to the more common notion of “margin” because reflection indicates margin with a purpose and focus.

Times of reflection allow us to disconnect from the cares and schedules of this world and focus on something that is important to learn about, to understand and to eventually reach a place where we can make quality decisions or enter into rich experiences that will elude us if we don’t take quality time for reflection.

Reflection Time to Seek God’s Face

In order to seek God’s face (2 Chronicles 7.14), we necessarily must disconnect from the cares of this world. For a Christian Business Owner, this means disconnecting from his or her business – getting away to a gentle and quiet place where our sole focus can become God Himself. Quality times of reflection will ask us to slow down internally as well as externally – to slow down our mind and learn to focus it on God. “Be still and know that I am God.” wrote David in Psalm 46. We slow down our minds, focus on God, learn about Him as His Spirit teaches us supernaturally and we enter into His sweet presence that brings a peace that passes all understanding. Reflection time to see God’s face is essential if you’re going to run your business under the authority of God.

However, if you own a stressed business, it becomes even more difficult to take times of reflection to seek God’s face. A stressed business can be one of the “worries” (Matthew 13.1-23) of this world that causes the seed God has planted in the owner to be “choked out”. Worries about meeting payroll, paying vendors, closing deals and so forth can become all-consuming, robbing the owner of precious, needed times of reflection before the Lord.

The “deceitfulness of wealth” also chokes out the Word of God in business owners lives. Their business creates wealth. The owner increases his or her standard of living, become increasingly dependent on the comforts, conveniences and status that wealth affords. God becomes less and less and after a while, a Christian Business Owner can have the form of Christianity in his or her life, but lack the power and purity that only a close walk with God can produce.

For most business owners, their business is very consuming when it is going well. It can become all-consuming when it becomes stressed. Having been there, I can attest that a stressed business *will* consume you unless you purposefully manage your time to disconnect from it. Easy to say, hard to do. When we allow anything in this world – including a stressed business – to choke out the work that God is doing in our lives, we’ll not engage in reflective time to seek God’s face.

Reflection Time to Understand Your Business

In every stressed business that I’ve seen, the Christian Business owner rarely takes time away from the business to read reports, spot trends and pray through difficult situations. The owner naturally works harder and harder, thinking that through sheer hard work, she or he can turn around the business.

Often what is really needed is not harder work, but smarter work – work that is focused and informed through reflection and listening to advisors who can see things you can’t when you’re in the midst of the storm. Smarter work requires times of focus, times of prayer and time to hear the still, small voice of God after you have disconnected from your business and calmed down internally.

Reading through your profit/loss statements, cash flow statements, balance sheets in a calm time of reflection will yield insights that you’ll never get by reading them in your office. It’s a matter of perspective that is gained through disconnection and unrushed learning time.

Nearly every time we work with a new business, we have insights into that business that the folks running it will never get because they are too caught up in the swirl of their stressors to think clearly. I remember one retail establishment that I’m still working with had a complete lack of leadership and quality accounting skills. It was no wonder they were nearly bankrupt. Within the first two hours, I was able to relay this simple, but important feedback to the ownership group. It has formed the basis of our core work in turning around this company. No matter how much costs they cut or how much revenue they increased, they were doomed to failure until they resolved these two core, important issues. But they never saw it, in part, because they had worked in this business most of their adult lives. It just never occurred to them that they had a real business ($25+M/year). They always saw it as this little family business that didn’t need “all those big business titles and processes”. After getting them away from their business to our offices and having a series of discussions about their business, they began to see the need to resolve their leadership and accounting problems. Doing so has transformed their business. But they would have never taken these steps without quality times of reflection away from their office.

So, What Should You Do?

First, take two consecutive business days away from your office each month and get to a quiet place where you can review your financials and other core reports. Take time to read them. Absorb what is being reported to you. Notice what is missing. And pray through these reports to align your perspective with God’s perspective. Allow the Holy Spirit to teach you about yourself and your business. Don’t let the swirl of your business rob you from hearing the voice of God and reflecting on what your systems and people are telling you about your business.

Secondly, purpose to never make important decisions quickly. For example, purpose to take 24 or 48 hours before deciding to spend in excess of $25K or $100K (whatever level makes sense to you in your business). When presented with difficult or important decisions, give yourself permission to clear your schedule and get away to a place where you can reflect and hear the voice of God.

Thirdly, develop a Board of Advisors or Directors who will invest time and wisdom in your business and your person. Give them information they need to give you quality feedback and then take the time to reflect with them in an unhurried, calm manner about the important challenges facing your business. Your advisors can be an important aspect of growing your business.

Finally, get an Executive Coach who can get to know you and help you see where your derailers are in your work habits, interpersonal skills and professional development. Look for ways to shore up your derailers or find ways to hire around yourself so that, as a team, your business is dealing with the least amount of dysfunction from your office as possible.

When Peyton Manning went to the Denver Broncos after winning a Super Bowl in Indianapolis, he asked the Denver coaching staff to coach him. “I want to be coached” he said. Now, here is a Super Bowl MVP and multi-million dollar athlete asking to be coached. Why? Because he wanted to be the best he could be. Why don’t business owners ask to be coached? Pride? Arrogance? Cost? I don’t know. But what I do know is that coached leaders are better leaders than uncoached leaders. Just look around and see who is being coached. You’ll find you’re looking at a growing, thriving leader of a business or organization.

Take quality time to reflect on your person and work. Listen to the Voice of God. Then see what God does. I think you’ll be glad you took the time to reflect on seeking God’s face and learning about your business. It will one of the best things you’ve ever done.

Bill English

Friday Five for June 10 2016

When a country lacks a moral code that is above their own laws, you get rulings like this from the Canadian Supreme Court. Sex with animals is as detestable to God as ever and making it legal won’t change that. Ironically, its’ the animal rights groups that are upset with this. I’ll assume the religious groups are too, but they are not being covered as part of this story by the Press.

CEOs who behave badly leave a lasting, negative impression, an HBR study finds. What I find interesting is that bad CEO behavior persists in press reports for 5 years, on average, after the event has taken place. It’s the lasting impressions that count, I think. Yet it doesn’t affect stock prices – another sign that our country can quarantine moral behavior from economic gain.

Our national debt stands at $19.219 Trillion dollars. It was at $10.626 when President Obama took office. Well, done, Mr. President. You’ve managed to increase our national debt by over $8 trillion dollars. And you called President Bush’s deficits unpatriotic and immoral. Does the same standard apply to you? We’re not holding our breath for a positive response.

Romney says Trump will change America with trickle down racism. Romney needs to go home and fire some vendors. The man who ran one of the worst Presidential campaigns at a time when a yellow kangaroo could have beat President Obama is now inserting himself into this campaign for reasons that remain unclear to us. Face it: Trump *is* the Republican nominee. Either get on board or openly support another candidate. But you’ve had your turn – time to go home.  #Romneyfatigue #romneylost

By the way, Trump is not racist, but he is unscripted.  Those who know him well say he’s not racist or bigoted.

Is Google purposefully burying bad stories about Clinton? We don’t think so. But many will believe it who think most of the media is biased against conservative, traditional values. We just think it’s a difference in their algorithms.

How to Prepare Your Company for the Coming Recession

It doesn’t take a starburst of insight to realize that in spite of the President’s recent comments in Elkhart, Indiana, we’re heading into another recession. Since 1960, we have had eight recessions, occurring every 7-10 years on average. The Long Expansion chart indicates that we’ve had seven recessions since 1960 with the longest expansion between recessions being 10 years. Our last recession officially ended in 2008, so we’re eight years into the stretch before the next recession.

The May 2016 job numbers report coupled with a 0.8% growth rate in Q1 of 2016 is an indication to me that our economy is stalling. We need to be creating at least 200K jobs per month in order to keep up with population growth. This monthly jobs number has been below 250K more often than not since 2014 and in May, it stalled at 38,000 jobs. The GDP has been declining since Q2 of 2015 – from nearly 4% down to under 1%. We need at least a 2% growth just to keep up with population growth. Since 2012, our GDP growth has been below 2% for ten out of the 16 quarters.

When the next recession occurs – assuming a Keynesian approach to managing the recession will be the default option selected by this President – one can be forgiven if there is bewilderment about how Congress and the President would pump life into this economy. We have borrowed so much money to keep our present economy going that it would be foolish and downright stupid to borrow similar amounts moving forward. During President Obama’s tenure, we have seen our national debt skyrocket from $10.6 trillion to $19.2 trillion – an increase of 84% (calculator here). This debt suppresses our abilities to respond swiftly to a crisis, whether military or economic. The reality is that we have bought the lie that we can strengthen our economy by weakening our central government.

In the face of all this negative information, what can you do as a small business owner to prepare your business now to weather the next recession? Let me offer several concrete steps that you can take right now to ensure your company remains strong during the next recession.

Calculate your break even, then get under it and stay there

Knowing what your break-even point is should be on your radar screen on a monthly basis. The calculation is simple. So incorporate into your monthly financial reviews where your break-even point is. Once you know what it is, get your expenses under that point and stay there.

Pay off as much debt as possible with any excess cash you have

Relieving yourself of monthly payments on long-term debt will help increase disposable cash and decrease your fixed expenses. If your sales decrease during the coming recession, you’ll need to have a lower fixed expense base from which to operate. Now, you might think to yourself: “I’ll save this money, keep the payment and pay it out of my cash reserves during the downturn”. That plan will work too as long as you have other areas in your budget in which you can decrease expenses and you’re willing to make those tougher choices. For example, if you’re planning to downsize payroll, that’s a legitimate way to reduce fixed expenses, but it’s a tougher way to do than to pay off debts.

Introduce variability into your cost structures as much as possible

What we’re after here is variability to sales, so that as sales decrease, your cost structures decrease as well. A good place to do this is with your sales team. Let’s assume your team’s normal salary mix is a 70% base salary with commissions making up the remaining 30% of their overall compensation (not including benefits). I would suggest changing this structure to be much more variable to at least 50%-50% or even a 35%-65% structure. Some will leave, for sure, when you introduce this type of change. The one’s who remain may scoop up on the “open” accounts created by those who left and increase their overall compensation.

Another way to introduce variability into your cost structure is to lower your inventory as much as possible. If you can get to the point where you’re doing Just in Time (JIT) inventory, then so much the better. The more inventory you have, the more sunk costs you have, unless that inventory can be returned to the manufacturer.

Streamline your processes and eliminate activities that don’t contribute to increased customer value

While there is an upfront cost for process improvement, the long-term soft cost savings of working with lean processes usually outweighs the up-front costs. You’ll realize these costs savings in reduced payroll, office expenses, inventory and general overhead.

Re-negotiate your fixed expenses to lower monthly payments

This will take some effort, but it will be worth it. For example, go to your landlord and negotiate a lower monthly payment in exchange for a longer lease period. Or contact your insurance agency and ask for a higher deductible in exchange for a lower monthly insurance cost. Drop the questionable perks such as auto leases, free product or

Obtain favorable loan or line of credit terms from your bank

While the economy is not in a recession and your business is doing well, negotiate a better line of credit or a line with a lower interest rate. Talk to your bank and see what they can do for you. If you’re a company with excellent credit and the right ratios, the bank is likely to do more for you than what they have done in the past. Don’t be afraid to shop around your interest in obtaining better terms that includes a larger line that what you have now. If needed, use a third part, like the Platinum Group, to help you find the right credit facility to meet your present and future needs.

Develop an advisory board with people skilled in managing a business during a recession

Having the right advisers is important. Proverbs 15.22 says that “plans fail for lack of counsel, but with many advisers they succeed.” Having people who are willing to help you out as you manage your business during a recession is something that will help you immensely. You’ll have a place to go to “wonder” our loud. You’ll have people who can give you sage advice and who will see things that you’re not seeing. An advisory board, constituted correctly, can be invaluable to your success in thriving during a recession.

Unload marginally profitable product or service lines and invest in the most profitable and service lines

I can’t stress enough that you’ll need to shed the marginally profitable product or service lines as part of your strategy of preparing for a recession. If you don’t shed them through liquidation or a sale, then they will be the parts of your business that will likely cause you the most headaches and need the most financial support. Yes, you might need to shrink the size of your business and perhaps some customers, but it might be the right choice. For example, if you keep your marginally profitable lines, you might end up going from a $20M company to a $14M company, but if your profits rise by 5% and you’re able to build cash at a faster rate, then it seems to me that this would be the right thing to do. In addition, the time to sell these products or services is when your competitors are doing well. Trying to sell them during a recession will be more difficult and you’ll get a lower price for them too. Sell now, stock up on cash and focus your business on the most profitable lines you have.

Increase marketing and advertising – but have tight ROI metrics

The one thing you don’t want to do is to decrease marketing and sales during a recession. So, plan to maintain your marketing and sales budget or even increase it. During a recession, it is likely that your competition will be “feeling the heat”. Some of them may not know how to manage during a recession and you’ll find that they will decrease their marketing in order to save costs. This is exactly what you want to see – and you’ll want to exploit their weaknesses. Increasing your marketing, offering attractive options and incentives for customers to switch from your competitors to you will help you gain market share, new customers and increased revenue and profits. So, do not cut marketing and advertising before or during the recession.

Having said this, pay very (and I mean very) close attention to the results you’re getting from your marketing efforts. Marketing people are notoriously resistant to being measured and held accountable for the results of their efforts. While it is true that marketing as a number of moving parts with variables, it is also true that the right campaign to the right audience with the right offer and the right time will often result in rich rewards. Spend money on market segmentation and matching up the offer to the right customer. Some of what you’ll be spending on is demographics and research, but if done correctly, it should be yield very good results. If your CMO hates to be measured, then it’s time for a transition in that position.

Make sure you have excellent accounting skills and information

Every business I’ve ever encountered who needed to be turned around lacked two core elements: Good leadership and excellent accounting. You simply cannot substitute anything for a set of good financials, a 13-week cash flow forecast, and a CFO or Controller who knows when to “sound the alarm” because they can see trouble brewing on the horizon. Bookkeepers are a dime a dozen. But really good CFOs or Controllers are hard to find. If you’re wondering at all about the financial health of your organization, then bring in an outside firm to review your books and your processes. I’m not thinking your accounting vendor here. I’m thinking of someone who does turn-arounds for a living and can look at your financials and spot trouble within 10-15 minutes. If you know how to read these documents, trouble isn’t difficult to discern if it is present. Be sure you’re getting top-notch, high quality financial information from someone who thinks like an owner and who is willing to give you the hard, unvarnished truth. You need this. Believe me. You need this.

Build cash – but don’t stop giving away as God directs

Cash is really your only defense against a deteriorating economy. It’s no wonder that so many corporations are continuing to build cash on their balance sheets. With the uncertainty in key areas of the market and the government, companies are building cash as their first line of defense. Build as much cash as you can (yes, you’ll pay taxes on it), but don’t stop giving as God directs. Remember that you’re a steward of that which God has given to you – a business. So you’re ultimately responsible to the Lord for how wisely and effectively you manage that business. The cash in it belongs to God, not you. So build cash, but continue to fulfill the core purpose of Philanthropy. Just because you’re facing a recession doesn’t mean you have the right to jettison obedience in one or more of the core purposes for business.

A final word

Sometimes, shrinking your business can be the best thing you can do for your business as well as preparing for the recession. I know of one successful business that does process improvement project for customers. When they saw the steep decline in the market during 2007, they got ahead of the curve just a bit and cut 12 positions out of their 32 employees. It was painful, to say the least. They were profitable, but they also knew that companies would cut back their spending on process improvement projects during a downturn, so they purposefully shrank their business by 33% and then began to schedule new customers will in the future so that they could finish servicing current customers. Rumors abounded that they were “near bankruptcy” and that they “weren’t doing so well.” But as the recession hit bottom and then the slow improvement started, this company was not only financially strong, it was one of the strongest in their sub-market. They were able to acquire a competitor of nearly the same size as a result of being stronger and their competitor being weak and “cheap” to purchase. They were able to absorb all of their competitor’s projects while downsizing that staff by 35%. As a result of purposefully shrinking and building cash, they were able to be strong during the recession and acquire a competitor, which helped them grow top line revenue, grow profits, increase market share and gain key customers that they were unable to penetrate in the past.

Going smaller to get bigger can be the right strategy if you have the management skills to both downsize and upsize and you can actually come out of a recession thriving and growing instead of limping across the finish line, as so many of your competitors are likely to do.

Bill English

Friday Five for June 3 2016

We’ll start with the most predictable outcome of a guidance letter in the last century. Recently, President Obama issued a directive (background here) telling public schools to allow transgendered student to use the restroom of their chosen gender identity rather than their biological sex. Now, the leader of the Georgia chapter of the Americans Civil Liberties Union has announced her resignation after her daughters shared a bathroom with three transgendered women. It was a good idea when it didn’t affect her family – but now that her daughters have been exposed to the very real dangers, she can no longer support the ACLU. This is a classic NIMBY (Not In My Back Yard) effect. This guidance is Obama’s effort at showing kindness to kids with gender identity issues. So Obama and his administration sacrifice the privacy of the masses for a twisted view of kindness to a few. This was entirely predictable. And I’ll predict further that it is just a matter of time before a man posing as a transgendered woman sexually assaults a women in a bathroom. It will happen – but will the press report it?

It appears the next recession is on its’ way. We’re due for another recession, whether you like it or not. Hiring has slowed significantly and those who could work but are choosing not to has spiked. While the unemployment rate has dropped to 4.7%, that is due entirely to the workforce participation rate dropping to a whopping low of 62.6%. This means that out of a pool of 253,174,000 adults who are 16 years or older and who are not in an institution or in the military, a record 94,708,000 adults are not working. During the two terms of the President, that number has risen by 14,179,000. Hence fewer Americans are working to support the rest of the nation. In other words, for every 10 people in the USA who are 16 or older, only 6.2 of them are working. It’s hard to imagine that the other 3.8 of them are not receiving significant Federal and State aid. The President claims that by “almost every economic measure, America is better off” than when he took the Presidency. How about asking those 94M who would like a job and can’t find one if they agree, Mr. President? With this President, I often get the impression that the world I live in and the one he lives in are on different planets.

For US Banks, the weak May jobs report will negatively impact their ability to create profits. “Hopes the Federal Reserve could soon resume raising rates, which would improve bank profits, have been driving share-price gains for banks in recent weeks” wrote the Wall Street Journal. With the lousy May jobs report, it appears the Feds will likely stay on hold, at least in June. Lower discount rates mean lower lending rates, which continues to suppress bank profits.

If you want to play professionally in the National Basketball Association, then you should grow up in a family where you’re directly related to an elite athlete. A new Wall Street Journal study has found that 48.8% of the players in the NBA are related to an elite athlete, whereas that number is 17.5% for the NFL and 14.5% for the MLB. Their study concludes that height is the main reason the statistics are skewed in favor of the NBA.

The Medicare system is projected to be running deficits in just a few years. The highly popular program will be needing additional cash inflows in the future and no one knows where those inflows will come from. Our prediction is that the politicians will not scale the program to revenues but instead will borrow the cash to meet program benefit demands. And with our national debt at $19.2 trillion dollars, one wonders how long our economy can sustain this debt without serious injury to everyone. It’s time for the American people to realize that we’ve spent and borrowed our way into a place where we can’t meet the needs of a military or financial crisis. Our generation has spent the wealth of the next 3 or 4 generations on our own wishes and desires. If future generations rise up and let us die in the streets because they can’t afford to pay for our medical care, it will be a just response.