Today's topic: Start making a plan
Today's topic has three simple sections:
1) Get off your butt. Start making a plan.
2) Rules and Policies
3) Know What You Know About What You Sell
Let's do it:
1) Get off your butt
The most important element of your success in this project is: Do it. Don't hesitate. Don't waste time.
Get started today and don't stop.
You'll need to set aside some time every day. Carry a tablet of paper with you and write down your ideas, thoughts, and decisions.
Remember: Don't waste time. Make decisions and then implement them.
And don't be afraid. Every decision is reversible.
Start Making A Plan. Look ahead. Keep the upcoming process in mind. You're going to reformulate what you offer and standardize it. You are probably going to raise your rates.
You're going to get rid of some clients. Start thinking about who you'll pass them off to. You're going to write one or two service agreements. Take notes about what you want to include.
Consider your new pricing plan. What will it look like?
Review your thoughts about practice management software and remote management/patch management software.
You don't have to make all these decisions today. Just start considering them seriously and write down notes.
2) Rules and Policies
Here are some suggestions to make your life easier and your business run more smoothly. If you haven't implemented these rules and policies already, I highly recommend that you do so.
These rules have to do with cash flow, which can kill your business if you grow too fast and don't have a system in place to get your money up front.
Many consultants work on terms of 20 or 30 days. You can't do this with Software and Hardware any more. Don't assume you'll lose sales. Assume clients will simply say "okay." After all, if they don't buy from you, they'll have to use a credit card online.
Here are the new policies going forward:
1. Hardware and software must be prepaid. The process is simple. You'll give the client a quote. The client will sign the quote and fax it back to you with credit card information. Or the client will mail a check. Once you have payment, you order the equipment.
2. All contracts must be prepaid. Option one is credit card, to be billed on the first of the month. Option two is by check, to be prepaid three months in advance.
You'll still have hourly labor for project work (anything outside the flat fee portion of the service agreement). This will be on terms of net 20 days.
3. You will assess finance charges on the firt of each month for all monies past due. You will enforce this. In some states you won't be able to enforce this without a signed agreement.
4. All clients must sign a service agreement. You should have been doing this all along.
Of course you can't do all this over night. But begin today to implement thes simple rules. Clients won't bat an eye as these are very reasonable business processes. The stranger to signs a deal to tune up the copy machine has all these rules in place. You, a trusted partner, will have no problems.
3) Know What You Know About What You Sell
The next step is going to take a bit longer. If you haven't done this kind of financial analysis before, it is a good idea to run these reports at least once a month.
Our goal is to figure out where your money comes from. That is, where it really comes from. We all make assumptions about which clients are "important" and which ones keep the lights on. Every time I put together a list of our "top ten" clients, my staff has some surprises about who's on it.
The following discussion involves QuickBooks because that's what we use. If you use something else, translate and figure out how to do the same reports.
[ Note on collecting the right data ]
When you make sales, you need to use the correct categories so that you can collect the right data. Most people use either too many items or too few. We use the following:
- Other stuff
- Labor - Hourly
- Labor - MSA
If you use the right set of categories when you make sales, you'll be able to get the right data when you run reports. If you don't use an appropriate set of categories, your reports won't be as useful. You'll have to dig a little deeper.
Start setting up and using these categories right away. Ask your accountant for assistance, if you need it.
[ / Note on collecting data ]
So now let's get some data out of the system. Adjust as needed. Translate per your existing categories.
Report One: Sales by item.
Goal: Where do you make your money? Look at your data and figure out the most important pieces of your income.
We're primarily interested in labor. The assumption is that hardware and software are sold at a premium and excluded from any service agreements you sign with clients.
So, inside the labor category, how much is hourly and how much is flat fee or fixed price?
Report Two: Sales by Client.
Goal: From Whom do you make your money?
Simply put, who is your largest client? What percent of your revenue comes from them? And your second largest? Percent? etc.
Most consultants can name their top client. But most canNOT name their top ten. And most are surprised that #5 or #6 is even in the top ten! Remember, you psychologically raise a client's perceived importance when that client complains a lot, takes a lot of attention, or someone convinces you that they're important. But if, at the end of the year, they're worth less than a client who pays the bill and never complains about anything, you need to focus on the reality instead of the perception.
Report Three: Create a custom report: Labor Sales for One Client.
Goal: For labor only, who are your largest clients?
- Create a report based on "Sales by customer detail." Modify the filters as follows. For Items, select your labor items only. For Name, select one client. On the display tab, cut out all the columns you don't need (left margin, balance, etc.). Change the date to be the last 12 full months.
Run this report for one client. This gives you the total they spent on labor in the last twelve months. Do this for each client.
Create a table so you can look at this information:
ABC Company $ 27,955
DEF Company $ 24,345
GHI Company $ 24,290
JKL Company $ 23,210
MNO Company $ 21,230
You get the point.
The results will be information about what your clients really spend. There are sure to be some surprises. We have clients who, when we did this, everyone thought they weren't top-tier clients. Turns out they spend money on a regular basis and don't whine about it. We want more of those folks!
Sort your clients in descending order based on amount spent on labor. Make sure you have a total percent column.
Now start at the top and see where you draw the line for top 10% of all sales, top 20%, top 30%, etc.
Most SMB Consultants will find that the top ten clients constitute more than 50% of all income. For some it's 90%.
Draw some nice dark lines: If you have clients who are simply not paying you anything, but take some effort, you need to drop those clients. Give them to other consultants who want to focus on that business.
Some lines will be vary obvious. If you have one $100,000 client, then a $50,000 and a $25,000, your top tier is pretty clear. Similarly, you might draw lines at $1,000, $2,000, and $3,000. How small do you want your smallest client to be?
You don't have to make decisions right now. But run these reports and others you can think of. Get a realistic picture of where your money comes from. Start looking at your clients from a financial perspective.
Run that last report for each client. Keep these reports. When it comes time to start signing service agreements, they're going to askt the question "What did I spend last year?" That does not mean you have to come up with a lower figure. In fact, when you schedule the meeting, their assumption will be that you are raising your rates. The only question is, how high?
These numbers will also help you come up with a three-tiered service offering that's in line with what clients expect.
Lots of work here. Get to it.
Don't make excuses and don't delay.
If you don't have this information, don't worry about it. Go buy QuickBooks and start using it today.
Remember, if you don't have this information, it simply means you need to go through this "Managed Services in a Month" program and get these processes in place.