I've owned several businesses during my career but the one I learned the most from was my sound equipment hire business. We provided sound and lighting equipment and the operators for things like concerts, product launches, conferences etc.
The business made really good profit - some jobs would pay enough to meet the entire month's expenses in just 2 days. The one problem we had was cash flow. You see, all of our competitors offered credit and we had to do the same or lose the work. We always seemed to have a huge amount of money owed to us but not enough in the bank.
We grew aggressively. By the end of the third year we were making as much money from one big job as we had made during the entire first year of being in business. Looking back on it I realize that I was actually crazy to have said yes to some of the jobs we did. I admit that I was in love with the idea of being able to stage my own rock concert. It gave me goosebumps when we fired up a huge sound rig and cranked it up to the maximum volume with the drum solo from Iron Maiden's “Run to the Hills” exploding out of the speakers and setting off car alarms in the parking lot.
The growth was good for the ego but we seemed to always have cash flow problems. Luckily property prices were going up so I re-mortgaged my house and used that money as working capital but even that wasn't enough as I kept buying more equipment and vehicles. I hated chasing money because it felt like a personal insult when someone didn't pay the business. I was also scared that if I pushed too hard I'd seem rude or desperate and my clients would choose someone else.
I ignored the problem and hoped that it would go away as we got bigger. It didn't. The only thing that changed was that we added an extra zero or two to the amount we had to find at the end of each month. This caused a lot of stress. To this day I still feel a little sick when logging into the internet banking website.
Then something wonderful happened...
We signed a contract for some window blinds for the offices. The company we ordered from didn't delver them on time so we got them elsewhere. When the first blind guy showed up we sent him packing and the very next day we received an invoice for the full amount. We ignored it . A week later we got a letter in the post reminding us of the invoice. We ignored that one too. A week after that a final demand letter arrived from his lawyer. We paid.
I realized that in spite of poor service the blind guy had a better business than I did. His system for collecting money was relentless. It operated without human emotion and it worked. He got paid.
I copied what he did and ended up with a large sheet of paper with every outstanding invoice and the next step in the process listed on it. It was clumsy but we got paid. The system cut the average time our clients took to pay our invoices from 87 days to 12 days. We'd do a job and get paid for it within a few days. It felt like Christmas! Our cash flow was healthy and being in business was fun.
We did not lose a single client from the chasing process. We had to get rid of one or two bad apples who were damaging our business by not paying but the improved cash flow made it much easier to spend money marketing for new ones.
Our first manual version of the system was far from perfect:
- It took a lot of work to type letters and make phone calls. Some days it seemed like Chantal (my secretary) did nothing else but chase money.
- It cost me 2% of everything she collected as a bonus to keep her happy doing the horrible job.
- Sometimes other stuff just got in the way and a day or two went by without any work on the debt collecting system.
- I took the letters that worked and loaded them up as templates so nobody has to reinvent the wheel.
- I took the manual process and automated it so you don't have to spend hours doing it yourself or hire someone to do it for you.
- It never forgets, it works quietly in the background so you can focus on the business while the system makes sure you get paid.
- It never offends so you get paid and still keep the client.
Pete fell in love with business during the first week of primary school, when he realized he could make and sell eye-pokingly sharp wooden swords. It took about 3 days for the teachers to shut him down but ever since then he’s loved small business and enjoyed the company of small business owners.
His primary interest now is in using technology to automate the repetitive tasks that have to be done to make your business tick. Business owners get much better results when they’re driving the business rather than being the engine.
Pete has owned student housing, a sound system hire and installation company, a retail plant nursery and a small construction outfit. He has also tried out a bunch of other things that didn’t make any money including making customized sleeping bags, adventure training and exporting African art.
He took a diversion from business to get a degree in civil engineering and manage construction projects all over Southern Africa. Great fun but hard on the body and hard on the family.
Pete moved to seaside Bangor in Northern Ireland in 2007 and has earned his living developing and supporting business on the internet since then.