“You need to work on your business, not just in your business.”
Made popular by The E-Myth Revisited author Michael Gerber, it’s advice I’m sure you’ve heard dozens of times over the years (I certainly have). But despite being told over and over again, many small business owners still don’t seem to truly understand what it means.
Let’s look at a common scenario.
Bill is into making things out of wood. He loved woodwork at high school, and was pretty good at it too. And while Bill has a ‘regular’ job during the week, he also does quite well selling his product at the weekend markets.
If fact, he’s been thinking about making a career of it for a while. And after a particularly bad day at work (which ends with him giving his boss some directions about “where he should go”), Bill decides to give it a go. He finds a place to set up shop, hires someone to deal with all the paperwork and other business stuff, and soon after Good with Wood is open for business.
At last Bill is ‘living the dream’ and ‘following his passion’. He’s earning a living doing something he enjoys and gets to be his own boss, which he loves. He doesn’t have to fill out timesheets or attend boring meetings. He can just spend his days sawing, hammering, planing and sanding to his heart’s content.
It’s perfect, right?
Bill’s situation is a classic example of what Gerber calls ‘an entrepreneurial seizure’. Someone gets the urge to ‘be their own boss’ but then (to quote Gerber) “goes to work for a maniac”—themselves.
The business owner ends up spending all their time working in their business. Now in Bill’s case he gets to do what he loves. But it isn’t long before he realizes there’s a lot more to business than just making and selling products.
And unless Bill effectively deals with those other aspects of running a business as well, he won’t have a business for much longer.
In his classic book The E-Myth Revisited (the ‘E’ stands for ‘Entrepreneurial’), Gerber describes this type of person as the technician of the business. They’re an expert in their craft, and love doing what they do. Unfortunately, it’s often at the expense of everything else associated with running a business.
Gerber describes three archetypes when it comes to business owners:
- Technicians love doing the technical work.
- Managers manage the technicians to ensure the work gets done.
- Entrepreneurs design a business that can work without them, and then hire managers to run it, who in turn hire technicians to deliver the work.
In Bill’s Good with Wood scenario:
- The Technician does the woodwork to create the products.
- The Manager does all the ‘stuff’ the technician sees as ‘necessary evils’, such as:
- ordering materials
- entering orders and doing the bookkeeping
- tracking the work-in-progress
- handling customer payments and banking
- paying the bills
- ensuring they comply with tax and other compliance matters.
- The Entrepreneur looks at the big picture, and makes strategic decisions about things such as:
- what the business should sell
- who they should target as customers
- how they should price their products
- what their business model should be
- how the business should be structured.
As you can see, technicians and managers work in the business and an entrepreneur works on the business.
An entrepreneur’s focus is to design a business that can work without their own personal exertion on a daily basis. Their objective is not to be ‘self-employed’, or to create a job for themselves. They think of a business as a machine that can be designed, built and eventually sold.
That doesn’t mean all entrepreneurs aim to sell their business in the short term. Some like to build and then hold onto their ‘cash cow’ businesses over the long term.
- Does your business rely on your personal daily work at the technician and/or manager level?
- Do you believe only you are capable of doing that work to the level required?
If so, you’re chained to your business. And it’s unlikely to become one you can sell when it comes time to move on or retire.
Let’s think about Bill’s Good with Wood business. What happens if he’s sick or injured for a month or more? Sure, some insurances will replace income and pay lump sums in certain circumstances. But what about the business? Orders need to be delivered. Customers need to be satisfied. The business would grind to a halt, and its reputation would be tarnished.
Clearly, being your business’ operational linchpin isn’t so great.
In fact, it’s the opposite of what you want. You want a business that isn’t ‘key person dependent’. You don’t want your business to rely on any one person— especially not you.
In Bill’s case, he needs to step away from the hands-on work. (He can still do some of it, but the business shouldn’t rely on him as a key technician.)
What are some of the things Bill could do?
- He could bring an apprentice on board, and get them up to speed on how everything is made.
- He could write procedures manuals and create training videos to explain the details of every item the business produces.
- He could document all the processes for managing the business.
By doing these things, Bill could get to a point where his business produces the same goods to the same quality whether he’s there or not. And quite profitably.
Bill would be working on his business, not just in it. He’d be an entrepreneur.
Other things Bill could focus on to build his business include:
- Marketing: Researching trends, looking at what competitors are doing, attending trade shows, speaking with customers and prospective customers, exploring ideas for new markets and new products.
- Operations: Looking at ways processes could be made more efficient, negotiating deals with suppliers, researching new technology, looking at what can be eliminated, automated or further delegated.
- Leadership: Mentoring the technicians and managers within the business, attracting high-quality employees to the business, ensuring new staff members are inducted and well trained, making sure team members have career paths and incentives that retain them long term.
- Financial Control: Understanding the business’ cash cycle, knowing which are the most profitable products and areas of the business, understanding which expenses are worthwhile and produce a worthwhile return, identifying areas of waste to be reduced or eliminated, managing debtors and improving processes for collecting payments.
As you can see, the things Good with Wood needs to do as a business go far beyond ‘making things out of wood’—the thing that motivated Bill to start his business in the first place.
This entrepreneurial perspective doesn’t mean Bill won’t get to enjoy the sweet smell of sawdust. On the contrary, by learning how to build a business—and a team—to create his products, he’ll enjoy success and satisfaction on a scale far more rewarding than (to quote Gerber again) simply “doing it, doing it, doing it” as the business’ main technician.
So, what about you? Are you still ‘on the tools’? Or are you designing and building a business that can eventually work without you so you don’t have to keep “doing it, doing it, doing it”?
If you want to build something great with your business, let’s talk. Make a time to sit down with us to map out your plan for working on your business so you don’t get trapped in it.
The hardest part of creating a budget is getting started. QuickBooks Online provides tools that can jump-start the process.
You know you should have a budget. You’re aware that it can help you stay on track with your company’s income and expenses throughout the year. Maybe you’ve even tried to make one before, but you got discouraged by the mechanics or by the difficulty of estimating money in and out for the next 12 months.
June may not be the beginning of your fiscal year, but that doesn’t mean you can’t make a serious effort to start building a budget that can help you rein in expenses and set revenue goals.
Here’s a look at QuickBooks Online’s budgeting features.
Creating the Framework
Before you begin, you’ll want to make sure that your fiscal year is set correctly in QuickBooks Online. Click the gear icon in the upper right, then click Your Company | Account and Settings | Advanced. If the First month of fiscal year isn’t correct, click the pencil icon over to the right and change it. Then click Save and exit out of this window.
Click the gear icon again and select Budgeting, then click Add budget in the upper right.
QuickBooks Online asks you the questions that need to be answered before you start filling in your budget grid.
The first thing you’ll do is give your budget a descriptive name by entering it in the Name field. Next, open the drop-down list under Fiscal year and select the correct 12-month period. You can create your budget in one of three intervals: Monthly, Quarterly, or Yearly. If you want to populate your budget with numbers from this year or last, make that selection in the Pre-fill data? field.
There’s one more option at the top of the Budgets Grid screen that’s not shown in the image above. You can Subdivide by Customer, Class, or Location. This can be useful if you want to view budget data specific to a subset of entries in each of those categories. You could, for example, choose three customers and view only their numbers in the grid individually, one at a time.
Providing Your Numbers
Once you’re satisfied with the selections you’ve made, click Create Budget in the lower right. The screen will refresh and display a grid that you can edit.
Let’s say you’re working on a budget for the second half of 2018. QuickBooks Online brought in your numbers for January-May. You see that the numbers don’t vary much from month to month on one specific line item, so you’re going to assume that they will continue to be true (unless you know something that will affect it after May). You could enter a rough average of the first five months in the JUN field.
Hover your cursor over the arrow to the side of that field, and this sentence appears in a small bubble: Click to copy the value across on the row. QuickBooks Online will then enter that number in the JUL through DEC fields.
QuickBooks Online can save you some time as you enter data in your budget grid fields.
When you’re done entering data in all of the fields relevant to your business, click Save in the lower right and close the window. Your budget will now show up in the list.
Tip: If you have multiple blank rows and don’t want them to be displayed, click the gear icon in the upper right corner of your budget page. Click in the box in front of Hide blank rows to create a checkmark.
The Hard Part
QuickBooks Online simplifies the mechanics of creating a budget, but it’s up to you to supply the numbers. There’s lots of common-sense advice that experts offer for this process, like:
• Remember seasonal upswings and downswings.
• Make your goals as realistic as possible. You might want to create separate budgets for “needs” and “wants.”
• Track your expenses carefully for a period of time so you can estimate more confidently.
• Create reports regularly that compare your budget vs actuals.
QuickBooks Online can help you with that last piece of advice; it offers a report called Budget vs. Actuals. You’ll find it in the Business Overview group.
We can help, too. Once we understand a little more about your business structure and goals, we can take a look at your income and expense history and make some personalized recommendations. Connect with us soon, and we can start you on the path to a more focused financial future.
Last month, we created QuickBooks Online service items. This month, we’ll explore how they’re used on the site.
If you ever did your accounting manually, you probably remember how tired you got of writing or typing the same things over and over. You may have had your customers’ addresses practically memorized, and your product price list was always close at hand, though you knew that by heart, too.
QuickBooks Online eliminates that duplicate data entry, saving time and reducing errors dramatically. Because of the service records you’ve created, completing sales and purchase forms can now be an easy, accurate task. You’ll also have fast access to information about your inventory levels and the profit you make on items. You’ll know what’s selling and what’s not, and when it’s time to reorder.
Much of your accounting work probably consists of filling out forms. Whenever you create one of these invoices or sales receipts or purchase orders, you already know that you can open a drop-down list and select the name of a customer or vendor. QuickBooks Online lets you enter data about what is being bought or sold in the same way.
To see how this works, open an invoice form and complete and/or verify the fields at the top (customer, date, terms, etc.). Click in the first PRODUCT/SERVICE field, and then click the down arrow to see the list of items and services you sell.
When you create a sales or purchase form, you’ll be able to select the appropriate service item from the drop-down list – or add a new one.
When you select an item, the description and price will fill in automatically. You’ll have to add the quantity and click in the box below the column labeled Tax (if applicable). QuickBooks Online will calculate the total cost of the service item on that line. If you need to enter additional sales, proceed to the PRODUCT/SERVICE field in the second line and repeat those actions until you’re done and can save the transaction.
Working with Items
What do you do when you need more information about a specific product than just its description and price? Do you have to return to its individual record?
No. QuickBooks Online includes a great tool that provides real-time updates on your inventory items and lets you work with them. Click the Sales tab in the left vertical menu, and then on the Products and Services tab at the top. The table that opens displays numbers for every item’s quantity on hand and reorder point. Look at the end of each line, and you’ll see a drop-down list labeled Edit that looks like this:
QuickBooks Online’s Products and Services page provides real-time inventory updates, as well as item-management tools.
As you can see, there are a number of actions you can take here on individual products.
Warning: If you think there’s a reason you should Adjust quantity or Adjust starting value, please talk to us first. Your inventory records need to be precise. We can schedule a session to go over this and other concepts you need to understand in order to keep inventory counts accurate.
You can take some of these actions on multiple items simultaneously. Click the down arrow in the Batch actions field above this Edit menu. Click the boxes in front of the products you want to work with and select the desired activity (unavailable ones will be grayed out in the list). Take extra care with this mass modification tool.
QuickBooks Online contains templates for numerous inventory-related reports that you can customize.
QuickBooks Online’s Product and Services screen may be all you need in your daily work, but there will be times when you need more analytical assistance. You can turn to the site’s specialized reports for more in-depth scrutiny. Click the Reports tab in the left vertical pane. Make sure the All Reports list is active and select Manage Products and Inventory to see what’s available, including:
- Inventory Valuation Detail.
- Sales by Product/Service Detail.
- Physical Inventory Worksheet.
Reports are easy to run but can be difficult to customize correctly and interpret. If we’re not working with you already on the complex standard financial reports that should be reviewed monthly or quarterly, talk to us. The more you understand about the financial status of your company, the better your decisions will be.