15 Business Rules of Thumb
Business lessons are sometimes learned easily. Sometimes we learn the hard way! There are business rules of thumb.
Let our team know what you think about these lessons or lessons you’ve learned. Send your comments to henry@thecatholicceo.com. Contact me to discuss how we can help you build these into your regular daily work. There is a Catholic approach to each one!
1. Don’t run out of cash!
An old friend from Florida used to tell me (in his unique southern accent)… “Cash ain't cash unless it’s cash!” Set up a weekly dashboard that signals your cash on hand every Friday night.
2. Valuation = EBITDA times 3 to 5.
Work into your financial statements a regular way of measuring your company’s valuation. Earnings before interest, taxes, depreciation and amortization, sometimes called earnings or pre-tax revenues, multiplied by 3 to 5 is a useful multiplier and indicator of value – as are comparable sales, net present value of the future stream of income, money in, last round, etc. If you don’t know what I am talking about -- well, let’s talk because it’s vital to your success.
3. Which hat are you wearing?
A Family business is quite prone to communication problems because people forget whether they are speaking or reacting as a family member (son, daughter, sister, brother, etc.) or a member of the work team, which is a different than that of the family.
4. Sales funnel analysis often makes bad assumptions.
Create a probability of closing at various stages along the way and then multiply the value of the final sale by that percentage. That’s more realistic than trying to guess the value of a sales pipeline.
5. Not for profit boards tend towards micro-management.
Watch out for this. You may think that not for profit boards are benevolent, but they are run by humans who have a vested interest in the project, so they will tend more towards micro-management.
6. The hierarchy in a family business is the same as that of any corporation.
It’s not the same as that of your family.
7. Never give up more than 30% of equity in any capital round.
If you do, you’ll dilute yourself out of control before your exit.
8. Create a weekly dashboard of metrics.
Use 5 to 7 key indictors that come to your computer or mobile device at the end of every week. Code them red light, yellow light, and green light to give you a true picture of what’s going on.
9. Calculate the lifetime value of a customer.
Do this to improve stickiness, to make you appreciate and cherish customers and to avoid the high cost of finding new customers.
10. Don't hire too quickly or fire too slowly.
Your business needs to escape this old HR trap.
11. Praise in public; correct in private.
It works in business and in family life!
12. Success is from your team; failures are because of you.
When things are going well or you are having success it’s because of your staff, your team. If you are having some failures or setbacks, it’s your fault!
13. Implement the 12 key question pitch deck.
It is a way to answer the questions of your potential investor, customer or client in the same order as their minds lay out questions of inquiry when you are making a pitch. Also, the 12 key question pitch deck provides a complete analysis. It’s proven. Watch for our upcoming course on investor readiness and the smart pitch deck.
14. The Catholic business leader is reverent.
Pray before any work. Make the sign of the cross when you pass a Catholic church. Say grace in the restaurant. Go to Mass at least on Sundays and Holy Days of Obligation. Go to confession monthly. You know what I mean.
15. Learn the most important key ratios in a business.
Know how to measure them. Five good ones are:
- Current ratio: current assets/current liabilities.
- Quick ratio: (cash + AR)/current liabilities.
- Debt to equity: total liabilities/total equity.
- ROE: (net income/total equity) x 100.
- Gross profit margin: net (sales - COGS)/net sales x 100