Train Me To Be a CEO

Mark-up or Margin, are you confused?

2010-04-27T13:39:00.002-04:00

I am sure most of my readers check the search words used by visitors to their website. I do almost every day, and there are some very revealing and frankly shocking facts which emerge. Perhaps the most shocking is the fact that the commonest type of search which finds my site goes something like "What markup do I need for a 25% margin?"

"Why", you ask, "do you find that shocking?" The answer simply put is that it shocks me that business owners are struggling with the concept of margin when it is the basis of almost all business analysis, and if they don't understand it, they are putting their business at serious risk. To understand why let me give you a real life example. More

Accountability: The Rim of the "Wheel of Management".Here is the full article!

2010-04-14T10:41:00.002-04:00

There has been so much interest in my latest article that I have reproduced it here.

This is the final article in the series entitled "The Wheel of Management". In previous articles we talked about organization, delegation, measurement, evaluation, communication and discipline, each critical components of an effective management system, and we saw that all of these processes had a common theme:

- Tell your people what you expect them to do;
- Measure their accomplishment;
- Give them feedback; and
- Reward or discipline them as the case may be based on that accomplishment.

Now we must ask ourselves whether all of the processes also had a common objective and a little thought will tell you that the answer is a resounding "Yes!" Unquestionably the common objective is the fostering of a climate of accountability among our employees. Accountability, the attribute that makes the organization run smoothly, the thing that absorbs the potholes along the way, yes accountability is truly the Rim of the Wheel of Management. And accountability happens because of the way we manage!

Perhaps this comes as a surprise because the common misconception is that we look for employees who are accountable. Looking doesn't work! We have to make them accountable, and making them accountable means that it is our job! This is what managers do. So, sorry guys and gals, those of you who lament that your people are not accountable, well, suck it up because it is your fault!

Now this may seem harsh, and it is. It is because it is not hard to do all the things we have discussed, it just takes a little resolve to really be a manager, and a little effort to get the small amount of knowledge necessary. The worst part is that it is actually easier to manage well than it is to manage badly. If you take the time to master the skills that we have discussed, it will be a weight off your mind because the things you have always wanted will really start to happen.

The greatest reward about doing what I do is when one of my clients comes to me and says, "You really gave me my life back. I was beating myself up the wall, making less money than when I was employed, and you changed all that." I don't correct him even though I know that it was him who actually changed all that, all I did was provide the knowledge that he needed.

The best part about all this is that accountability also means profitability. This means that any investment you make in gaining the knowledge to become a better manager is repaid several fold by improvement in your bottom line. This must be one of the most unique of all opportunities, make your job easier, and make it more profitable. Boy what a deal!

To find other articles in the series go to my website.

The Wheel of Management series is complete!

2010-04-12T09:16:00.003-04:00

I have just uploaded the final article in the Wheel of Management series to my website. The article ties it all together and shows that accountability of our employees arises from the way we manage. In other words we make them accountable by what we do. This is somewhat of a revelation. Read more now!

Planning, The Hub of the "Wheel of Management".

2010-03-25T10:36:00.003-04:00

This is the penultimate article in the series. The reaction has been great so far, but wait for the finale, it will blow your socks off! To read this and other articles in the series go to the article index in my website.

The Wheel of Management

2010-02-12T15:06:00.002-05:00

I have started a new series of Articles which I call The Wheel of Management series. Each article will concentrate on one of the spokes of the wheel, the tools or processes we all need to know and use if we are to be successful managers. The first article on Organization is already published here.

New articles in the series will be published regularly.

A Budget is so much more than just a financial plan!

2010-01-17T13:58:00.004-05:00

In this new article on my website I discuss the merits of preparing an annual budget. I make the case that "but the best part is that the benefits given are just the beginning. Used correctly, the budget becomes a major part of your management process, and is a key element in defining goals and objectives for your people. In so doing it is laying the groundwork for the holy grail of personnel attitudes, accountability".

See what you think. Read more

New Year Resolutions for Small Business Owners.

2010-01-04T16:22:00.000-05:00

As we enter the new year, we all make resolutions about change we intend to make in our lives. So why not give some thought to those resolutions we need to make for change we need to make in our business. Here are some I think many small business owners will benefit from:

Cash is king, so why don't we resolve to implement a comprehensive cash planning process. Large companies do this, but most small business owners fly by the seat of their pants, and too often get caught with them around their ankles. Using data from their own accounting system, it is a really simple process to define who can be paid and when, but most importantly to also signal when problems are on the horizon.
Organization makes the business work smoothly, so lets resolve to check that every employee has a current job description that sets out not only what his tasks are but also what his authority is, what measurements will be applied and what satisfactory performance is. Doing this lays the groundwork for creating an accountable workforce. While we are about it lets review the organization chart and make sure everyone has a clear idea of who their boss is, and that they are assigned a job only because they are the best person in the company for that position,
We all want to maximize profit, so a resolution to ensure that our accounting system is working smoothly and providing us with the information we need to run the business, not just the information the CPA needs to file the corporate tax return. We must make sure we have a costing process that tells us which parts of our business is doing well, and which is not, what gross margin we need and when we are achieving it and when we are not.
A final thought may be a resolution to ensure that we are providing our employees with the feedback they need. A formal evaluation process sometimes seems cumbersome for small businesses but the benefits are enormous. But don't let it stop there, make sure you and all your senior staff recognize good performance when it happens, and of course do not shy away from criticism when performance falls short.

This is not an exhaustive list of resolutions you could make this New Year, but I promise you, make and keep these and you and your business will have a better year!

Year end is tax planning time.

2009-12-25T10:40:00.002-05:00

As we approach the end of the year, it is a great time to think about planning for the next year. However the best place to start that process is to get this years situation in order, and part of that is tax planning.

Small business owners know that the inevitable result of making profit is you have to pay tax but you neither have to pay too much nor too early. Now one of the easiest tax strategies available to small business is to calculate your tax on a cash basis. Making this election which you may do once only, will frequently postpone the payment of a chunk of tax.

If you do that, you can increase your saving by paying bills and regular payments early to get them recorded in this year. Part of the training we provide is to help you develop you tax and cash strategies.

Of course, as we think about planning let us ensure we include getting the help and support we need to maximize the effectiveness of our business. All the best for the holiday season, and a fruitful and productive new year.

Why Do Small Business Owners Struggle with Accountability?

2009-12-16T12:38:00.000-05:00

When I speak with small business owners, the conversation almost always comes round to the question, "How do I make my people accountable? The immediate response I make is "Tell them, measure them, then trust them."
Read More

How to properly organize your small business.

2009-12-05T10:21:00.002-05:00

I have just posted this new article on my website.

"An alternative description of a company is an organization, but experience shows that very few small businesses are properly organized. Well defined organizational structure is the framework upon which a business depends for its form and efficiency.

Delegation and Accountability: Two Strings of the Same Bow.

2009-11-13T16:32:00.000-05:00

Those of you who read the earlier separate articles on delegation and accountability may have noticed several similarities in the concepts, and that is no accident because these two building blocks of management are in truth two sides of the same coin, or as the title of this article says, two strings of the same bow. Yes, to have effective delegation, you need to hold your designees accountable, and to be successful in holding your subordinates accountable you must have effectively delegated the required authority.
Let us review the concepts. First Accountability. In leadership roles, accountability is the acknowledgment and assumption of responsibility for actions within the scope of a role or position, encompassing the obligation to report, and be answerable for resulting consequences. There are five basic requirements for creating accountability. You need to ensure you have:

- Understood Goals - the subordinate must understand what they and their team are trying to achieve;
- Buy in - subordinates must believe in the goal and be a part of the success;
- Benchmarks and a Quantifiable Result - subordinates need milestones and a result that can be measured;
- Two-way Feedback - feedback from the supervisor to the subordinate and from the subordinate to the supervisor;
- Evaluation - once a goal is accomplished, celebrate the success. Conversely, do not shy away from criticism if performance falls short.
Turning now to delegation, we said a basic principle of organizational management is that enough authority needs to be delegated to a manager to take the actions necessary for accomplishing an objective. It is also necessary for the limits of the authority to be clearly defined. This means that the subordinate to whom you have delegated the task knows not only what they may decide, but also what they may not. The same five requirements apply, clearly defined goals, buy in, benchmarks, feedback, and evaluation.
Repeating what we said before, to effectively delegate you must hold your subordinates accountable, and to hold your people accountable you must delegate the required authority.
In that statement is implicit the main reasons people fail at delegation and holding their people accountable. They cannot entrust authority to their people. "How can I trust them not to make a mistake?" or "I need to know what is going on." The problem is that if you cannot overcome these fears, you are still the one doing the job. To be free to to the job you are supposed to be doing as CEO, you have to get over it. Once you do you will never be the same again, and surprise! surprise! not only will the work be done better, but you will get your life back.

Discipline in your Small Business

2009-11-06T19:15:00.002-05:00

The imposition of a regime of discipline in any small business is an issue that faces the CEO and other senior managers. The problem is not as insoluble as it appears, and help is on the way. Visit the Articles page here.

How to Use Delegation in Your Small Business

2009-11-04T16:25:00.002-05:00

One of the most important skills a small business CEO or other senior manager must master is delegation. The reason is very simple. He cannot do it all himself. Unfortunately delegation is not that simple, and mastering it takes commitment and practice.
So what is delegation? Probably the easiest way to answer that question is to demonstrate what it is not. Delegation is not giving instructions and monitoring the result. That is supervision, and it is what most of us do. The reason it is not delegation is that authority is not transferred in the process.
So why is that so different? Well, if you do not delegate authority, then every time something happens which is not covered by your specific instructions, no one has the authority to make a decision, and they must come back to you for further instructions. That is inefficient. It is also aggravating for your people.
A basic principle of organizational management is that enough authority needs to be delegated to a manager to take the actions necessary for accomplishing an objective. It is also necessary for the limits of the authority to be clearly defined. This means that the subordinate to whom you have delegated the task knows not only what they may decide, but also what they may not.
You notice we never mentioned delegation of responsibility. Certainly in the process of delegation we give employees the responsibility of completing tasks, but unfortunately for owners and CEO's, they retain the responsibility. That means it is up to them to ensure that their employee has the training, the resources and the authority to get the job done right. I have found that the managers who truly understand that failures by their subordinates are really their own failures turn out to be the best managers.
Go to my website http://www.trainmetobeaceo.com for more information.

Work Smarter not Harder = Get Your Life Back

2009-11-03T14:37:00.003-05:00

The other day one of my associates asked me, “What is the most important thing your clients take away from their association with you?" My answer was simple, “They get their life back!”

A grand statement, but it is true. Most entrepreneurs are great at what they do but they are lousy managers. This has one of two results, either there is a lot of conflict in their company, or they end up doing more than their fair share of the work. Result 60+ hour weeks, no vacations, and stress at work and at home. The crazy thing is that running the show the right way is much easier than doing it the wrong way, and learning how to do it only needs one thing – commitment to change.

The concepts are not rocket science, they are simple logical processes, and when mastered make the job so much easier. Yea, it costs a little in dollars and effort but getting your life back – Priceless.

Managing the Cash in Your Small Business

2009-11-01T10:28:00.002-05:00

The recession seems to be nearing it's end and good times are on the way. Sales will begin to grow and we will be busy again. End of problem? Not really- beware of the cash crunch.

Yep, as sales grow, cash decreases. How can that be? Read on.

In the article "What does the CEO of a small business need to Know" I referred to the importance of Cash Planning. In that same article I noted that cash flow was more likely to cause your business to falter than any other reason. How can I say this? Simple. Experience tells me that most small business owners, CEO's, Presidents, or owners don't give this important area the attention it deserves.

"If the business is making money, there will be enough cash!" I have heard this so many times but it is so wrong. Why? Firstly, because all profit is not cash. Most often the the "profit" is consumed by increases in receivables and inventory and cash actually goes down. Yes I know you need inventory, and receivables are a part of business but the point is if you prepare for them. they are manageable.

So what do we have to do. The simple answer is to project where we are going to be in a week, four weeks, or more, up to twelve weeks if you can. After that, update your projection each week. "That's fine," you say, "But who's got the time?" A good question, but the answer is just as good, "Learn to do it properly, and you and your accounts person will not only have the time, but you will find that the time you have saved on dealing with crises gives you more time for other things. Now this is not a platitude, it's a promise.

I recommend a little spreadsheet that does all the hard work, and most of the data will come directly from your accounting system untouched by human hands. All my clients will receive the tool that will help them do this function seemlessly. Go to my website http://www.trainmetobeaceo.com for more information.

When will we learn?

2009-10-22T13:44:00.003-04:00

I never fail to be amazed when clients say something like "I do not know my profit last year, my accountant is still working on it". Sometimes we are having the conversation in September, nine months after year end. The accounting process is the main measurement system which tells us if things are going well, and here we are well into next year and we have no measurements for the completed year. We just hope!

So why do small business CEO's react this way. Maybe the accounting profession is to blame. They don't want us average folk to know that there is no mystery in accounting, and with just a little training, understanding financial statements is no more difficult than reading a blueprint or a job spec. Reading blueprints and job specs is something the small business CEO does routinely.

I say it is simple to understand financial statements and I stand by that statement. I promise my clients that they will say it too. All that is necessary is for our Small Business CEO to start acting as a CEO. Taking the plunge to be trained, to get the training which you need to do your job, will be the best decision you make this year.

Come on, get your life back!

Mark-up Margin Table.

2009-10-15T10:11:00.005-04:00

In the previous post I included a table which did not format correctly when uploaded. Because it is really quite an important table showing how dramatically mark-up differs from margin and often can result in major errors in pricing.

After several tries on the blog I could not get it to work so I have published the full article on my website. Please go here.

Mark-up or Margin, what is the difference?

2009-10-14T14:20:00.001-04:00

Almost every contractor I worked with over the last few years, and there have been many, used a mark-up formula in their pricing. In most cases it was something like $55 per hour for labor, plus materials marked up 25%. (We will talk about the labor charge later because it is more complicated)

“I need 25% margin to be profitable” they say. “So why don’t you price to achieve that margin?” I ask. “Your 25% mark-up is actually a 20% margin!” It usually takes half an hour plus a calculator and several scraps of paper before they agree that they are pricing their product/service 5% lower than they intended.

You can try it yourself, but to save a little time, here is a table:

Mark-up % Mark-up Factor Margin %
10.00% 1.10 9.09%
15.00% 1.15 13.04%
20.00% 1.20 16.66%
25.00% 1.25 20.00%
33.33% 1.33 25.00%
40.00% 1.40 28.57%
50.00% 1.50 33.33%

As you can see, the margin mark-up disparity increases as the mark-up increases. So remember, to get your 25% margin, you need to mark-up by 33.33%. By doing that you increase you profit by 5%.

You can down load a fuller version of this table here.

Training is an Investment not an Expense!

2009-10-09T10:51:00.002-04:00

On my web-site, http://www.trainmetobeaceo.com , I have posted several new articles which you will find both interesting and informative. The one I want to highlight deals with training.

All to often, new business owners will spend money on various assets, and yet will avoid spending money on the training they need to protect those assets. I want to assure you that getting the knowledge you need to run your business well is the best investment you will ever make. It will pay for itself in a very short time, but the best part is that it will continue to pay for itself over and over again. Knowledge is an asset that never depreciates.

Give it some thought, and go read this and the other thought provoking articles at articles .

Your AR is your cash in someone else’s bank account.

2009-09-24T10:28:00.001-04:00

In the over 50 clients I worked with over the past three years, not one did not have a problem with receivables. (Receivables are those invoices for work or services you have performed or delivered, but have not yet been paid.) The common response to the question was “They are such a good customer, we don’t want to upset them.”

My response to that is “Why should it upset them if you ask for your money”. But be that as it may, the real issue is that getting paid is part of the job. It is part of customer service and if it is viewed that way it is so much easier. The key therefore is not to wait till an invoice is past due, by then it is getting too late. Before due date make a customer service call and ensure there are no problems.

If you do that, when the invoice becomes due, there are no excuses for it not to be paid.

Much more on this subject in the CEO training you get here.

Why use QuickBooks?

2009-09-21T15:31:00.002-04:00

I'm not out there trying to sell you on QuickBooks, but I am an advocate mainly because it is so simple. I have been able to get a small business with no current accounting system up and running, writing checks, and collecting cost data in less than a day. (Now in fairness, there was a bunch of clean up to do later, but for some businesses just being able to keep the cashbook current is a major advance.)

Now remember, no accounting system has everything you want, and QuickBooks is no exception, but I am sure most businesses doing less than $1,000,000 a year will be quite happy with what it does for you.

One word of warning, if you already do computerised accounting, think twice before changing systems. It is easy to say you will get better results with another system, but the disruption can be traumatic.

The Power of the Percentage!

2009-09-16T10:37:00.003-04:00

As you will begin to realise as we proceed down this road together, I advocate getting your accounting in order not because I want to see history but because I want to use the data to project the future, and thereby help us manage the business.

Let us use the numbers we have developed in the last few posts to create an example. Let us say our business was just breaking even at $40,000 sales per month, GM% is 25% and overheads $10,000. No point in that continuing, so we say to ourselves, "Gotta make $2,500 a month profit!". We saw that one way to do this was to increase sales by $10,000 per month. But there are two other ways as well. The first is to cut overheads by $2,500. (Usually it is possible to trim overhead by some amount.)

The third and final way to achieve the desired profit is to increase gross margin. If we get the gross margin up to 31.25% with sales remaining at $40,000 per month we achieve the same result, achieving our $2,500 profit.

The net result of all this is that we have quantified what possible actions we could use to create the change we need. Now we use our experience to select between the options.

So next time you talk to your accounting staff don't ask "How did we do last month?" Ask instead, "What do we have to do to do better next month?" Do this and you start to turn accounting into a resource not an expense.

Using Break-even to set Targets.

2009-09-12T10:23:00.003-04:00

Targets! Why? Well, if you don't tell your people what you expect them to do, don't be surprised if they don't do it. So set targets.

In the last post we showed how you calculate break even for a month. The same calculation can be used to set targets. Let us use the same figures as before, $10,000 a month fixed cost, and GM% of 25%. But let us now add the fact you want to make $2,500 profit. Profit is also a fixed cost. So we now divide $12,500 fixed cost by our GM% of 25%, to get $50,000.

So the sales target becomes $50,000 per month at GM% 0f 25%. If we achieve that target, we automatically achieve our profit goal.

Say it again Sam, "If you don't tell your people what you expect them to do, don't be surprised if they don't do it."

Back to Break Even

2009-09-11T10:33:00.002-04:00

One of the early posts to this blog was how to calculate break even. The formula is:

Break-Even = Fixed Cost/Gross Margin %

So now we see the key metrics beginning to help us manage. Let us say your fixed costs per month are $10,000, your GM% is 25%, you calculate your monthly break even is $40,000. So you now know that you must sell more than $40,000 each month Before You Start To Make A Profit.

It doesn't make it any easier, but at least you know what you have to do.

What is Gross Margin?

2009-09-08T09:41:00.002-04:00

If you run a toy store, you buy a game for $3.00, sell it for $4.00, you have a gross margin of $1.00. Business used to use the term "Gross Profit" instead of "Gross Margin", but this has the connotation that the business has made money. This may not be true! More about that later.

So from our accounting process, how do we determine "Gross Margin". The example above should give us a clue! The formula is:

Gross Margin = Gross Revenue from Sales - Direct Costs of Sales.

From this we get the most important metric in business, Gross Margin Percent, or GM%. The formula is:

GM% = (Gross Margin/Gross Revenue from Sales) X 100.

In our toy store example that gives us a GM% of 25%. You should ensure that you know your GM% of your monthly P&L, of your year to date P&L, of your last weeks operations, of each and every department, of each and every job. Simply put, you need to know the GM% of every single thing you do in your business.

And you need to know it today!

New Seminar Schedule Announced!

2009-09-07T12:52:00.003-04:00

The"Train me to be a CEO" website has announced the fall season seminar schedule. Seminars are available in Toronto, ON in October and December, and Fort Myers, FL in November. For details of the schedule go to Seminar Schedule.

Let's talk about your P&L

2009-09-02T15:18:00.003-04:00

In the last post we introduced you to the Profit and Loss account or P&L.

The three items which make up the main divisions of your Profit and Loss Account are:

1. Revenue or Sales. You can subdivide this into several categories such as product and service etc.

2. Direct cost of Sales. Direct cost of sales, sometimes called variable cost or simply cost of goods (COGS). They are called variable costs because they go up and down as your sales go up and down. In a store, direct cost of sales is easy to recognize as the amount you pay for the items you sell, but in most businesses it is not so simple. The easiest way to look at it is any cost that you would not have incurred if you had not made the sale. It includes things like materials, direct labor, sales commissions etc.

3. Fixed or overhead Costs. As it sounds, these costs do not change as your sales change. They include such items as rent, accounting salaries and fees, insurance etc.

As stated before, it is most important that you clearly define these categories, and use them consistently. In fact consistency is the most important part. If you include gasoline as a direct cost one month or on one job, you must do the same on every month and every job. Only by doing this will your numbers be comparable, and trends will be found.

A chart of accounts.

2009-08-29T16:12:00.003-04:00

When you set up your accounting system, you need to make a list of the categories into which you want to collect data. This list is called "The chart of accounts"

The simplest chart would look like this:

Cash and Other Assets

Owners Equity and other Liabilities
(These first two items make up the balance sheet)

Sales Revenue

Direct cost of Sales

Fixed or overhead Costs
(These three items make up the main divisions of your Profit and Loss Account or P&L account)

It is most important that you clearly define these categories, and use them consistently. The reason is simple, these definitions will provide you with the measurements that will be the indicators that you use to run your business.

So, why do you need to do accounting?

2009-08-28T10:40:00.000-04:00

So many business owners take the view, "So long as my bank balance goes up, I can leave accounting to my CPA." The problem is that in so doing, you loose all the information you need to properly run your business. Now don't get me wrong, a good CPA is an important member of your support team, but his main interest is getting your tax return right.

To run your business you need to know things like,

1. What are my fixed costs?
2. What is my gross margin?
3. How best can I price the next bid?
4. Am I really making money?

And you need this information today, not at the end of the month, or as happens so many times, in April next year. The good thing is that with a good accounting system you can do all this with very little sweat, You just need to know how.

That's where we come in. Give us a call

(941) 855-0235 and say

"Train me to be a CEO"

Break-Even: What should I Know?

2009-08-26T10:22:00.000-04:00

The concept of break even is one of the important numbers a CEO needs to know about his business. Understanding it's importance, and how to calculate it will also crystallize several other concepts. So what does break-even mean? Simply put it is that level of gross sales in a certain time period where achieved margin equals fixed cost. So sell less than this amount and you are losing money, sell more than this amount and you are making money. That sounds like a very important number to know!

So let us learn how we find out what the break even for our own company is. On the surface, it is one of the easiest numbers to calculate. The formula is:

Break-Even = Fixed Cost/Gross Margin %

Very simple isn't it. But do you know how and where to get your fixed cost amount, and do you really know what your gross margin is.

Need to know more, call

(941) 855-0235 and say

"Train me to be a CEO"

My new website!

2009-08-23T12:51:00.001-04:00

I have just completed the setup of my new website at http://www.trainmetobeaceo.com.

Please Visit.