The Facts of Business Life (24 page)

Of course, every entrepreneur hopes and believes his or her venture is going to be a successful one. Unfortunately, that's not always the case. In fact, once your business is up and running, there are essentially four possible outcomes—it will be successful, it will be successful initially and then fail, it will be profitable but you will have to struggle before it is, or it will fail. Sometimes which of these scenarios will play out is obvious from the beginning, while sometimes it takes longer to determine what will happen. But regardless of which of these possibilities eventually comes to pass, asset protection inevitably plays an important role.

For example, you can tell early on if you have a good shot at being successful if your sales and net and gross profits are close to what you'd planned. In a situation like this, the best way to protect your assets is to make sure everything continues to operate efficiently and effectively and to look for new ways to maximize your assets. Sometimes, however, an owner can be successful at the start but, after a period of time, see sales and net and gross profit start to slide and losses begin to stack up. In this situation, there are likely to be many problems, but most of them will be centered on the owner's lack of leadership and the company's DNA. To make matters worse, as the business slides backward, the options available to fix it become fewer because the value of your assets and net worth are eroding as the losses pile up. Asset protection in this scenario requires the owner to take quick action to define the major problems and fix them.

However, when a business has a lack of sales, and losses begin to mount right from the start, but the owner still believes firmly in the opportunity, it should be clear that he or she simply executed some important things very badly. The company may have missed the market with its advertising and marketing message, wasn't ready internally to begin operations, was using the wrong pitch to sell the product, or had other problems. Regardless of the exact nature of these problems, in cases like this, cash becomes the issue—that is, whether the company has enough available to wait for the business to turn around—which means that cash will need to be protected above all other assets. Finally, some businesses start out poorly for any number of reasons, and despite the owner's best efforts are never able to be turned around. In situations like this, the best thing to do is to face the facts and bail out as soon as you can. Doing so will enable you to sell whatever assets you have at a higher value than you might at some time in the future, and you will be preserving cash you will need to pay off debt, both of which represent asset protection.

The Benefits of Protecting Your Assets at Level 3

• Understanding the need to protect your assets enables you to realize that you must continuously revisit Levels 1 and 2 in order to find opportunities through which you can maximize those assets.
  
• Understanding the need to protect your assets helps you appreciate the importance of doing so regardless of your situation.
  
• Understanding the need to protect your assets enables you to recognize that you cannot focus entirely on sales and profits at the expense of those assets.
  
• Understanding the need to protect your assets helps you realize that when you begin to maximize their usage, opportunities you may not have considered will present themselves.
  
• Understanding the need to protect your assets will help if you get off to a bad start by allowing you to hang on longer and either “right the ship” or, at the very least, get the maximum value for those assets if you have to close the business.
  
• Understanding the need to protect your assets enables you to recognize that changes in the market or changes in your tangible assets will require you to revise your intangible assets if you want to maximize them.
  
• Understanding the need to protect your assets helps you recognize when you have to change some of the processes by which you operate your business.
  

Staying on top of your business at Level 3 is a considerable challenge. You are putting your tangible assets to work, implementing your intangible assets as your customers and employees interact with each other, testing your product, analyzing information, and doing all the other things that must be done when a company is just starting out, expanding, or being reengineered. In other words, there is a lot going on at the same time—some expected and some unexpected—and for a period of time there is no “normal.” As the business begins to move along the spectrum from survival to success, staying ahead of the game takes ownership skill, discipline, and leadership. Given everything that's going on, you have to make an effort to keep asset protection in the front of your mind because it can easily get lost in the shuffle. That's largely because, important as it is, it's not as much fun as selling and making money.

Once the business is operating, proactively protecting assets centers on three efforts, all of which ultimately lead owners to reviewing Levels 1 and 2:

• Making sure the tangible assets you have are doing what you want them to do, and finding ways to maximize their capacity.
  
• Confirming that the tangible assets on your balance sheet are worth what the numbers say they are because it's very hard to manage assets if you don't have accurate information.
  
• Ensuring that your intangible assets are meeting the customers' expectations, not restricting sales or interfering with the business's internal efficiency, and being used to take advantage of appropriate market opportunities.
  

Where protecting tangible assets is concerned, your company's balance sheet and cash flow statements are the best friends you can have, as long as they are accurate. Cash flow statements are particularly useful tools for owners whose businesses are new, growing, or being reengineered. Cash availability is always important, but knowing how much there is, and how it has been used, is a critical tool when making decisions. For example, even if your business is successful and meeting your objectives you can still go broke by spending more money than your net profits. If, however, you check your cash flow statement, you can avoid taking too much money out of the business or spending it on things that don't produce immediate profits.

Intangible assets—such as the processes you developed at Level 2—can also play an important role in asset protection. If, for example, you have a customer who hasn't paid you for 60 days when he was supposed to pay you within 30, a properly designed process would let you know about it before you sold him anything else and exposed yourself to additional risk. Similarly, you can set up a process in which any cash received is counted twice at day's end, once in the department and then again in the office to confirm it's correct, and take action if it isn't. Because intangible assets like these protect the tangible assets and alert owners and key employees to potential problems, it's particularly important at Level 3 that they be continuously inspected for accuracy and to make sure they are doing what they were designed to do.

Neither the importance of products or services nor the importance of protecting them can be understated. However, at Level 3, product protection isn't necessarily what most people would think it is—that is, making sure the product is available and ready when a customer wants it and that it's never exposed to theft. Rather, protecting products and services is primarily offensive in that it centers and focuses the owner on protecting the product or service's market share and enlarging it. In other words, the best way to protect your product or service is to sell it and then protect its market position. This is essentially a proactive effort based on the concept that the best defense is a good offense, which is consistent with overall asset protection.

Since whatever you sell is integral to your company's success, your business as well as your products or services have to stake a claim in the market and then defend it. For example, if you own a family restaurant, the neighborhood it's in is your primary market because of its location. And if you want to become successful and continue to be, you have to have a strong market presence there. Then, if you want to expand your sales and profits, using your base you can begin to widen your turf to draw more customers from neighboring areas. If, however, a direct competitor were to open a restaurant close to yours, you would not be able to ignore the challenge. You would have to attack, drawing on your creative skills of marketing and advertising, and developing a very aggressive war zone mentality to compete with this new restaurant on every possible level. This could include things like hiring their best cook or waiters, providing larger portions, developing specials, and on and on. Assuming you are successful in defending your turf, you will eventually reach a point where your location is a concern for only some of your customers, while others will make the trip to the restaurant regardless of where it is. If and when that happens, you will have maximized your product and more than likely a lot of your assets, which is a good thing, as long as it meets your profit and career goals.

So at Level 3, product protection begins with defining a market turf, owning it, expanding it, and then protecting it from those who want to take it from you. Some of the battles that take place as a business expands are harder than others to win. But when it comes to market battles, the one you cannot lose is the battle for your turf. Losing this, or letting a competitor overpower you and take some of your market away, weakens you and your business. The bottom line for product protection is that once you establish a market that makes the business profitable, you can't give it up because it's too hard to get back.

As with the earlier levels, it's important at this level to maintain a balance in the customer–owner–employee relationship, because its impact on the business can be very considerable. For example, when your customers aren't happy, you can see it immediately because sales slow down, repeat customers come less frequently, and customer complaints increase. This in turn makes employees start to worry about their future as well as question your intelligence and decision-making ability. In a situation like this, you would also probably become frustrated because sales and profits aren't what you need them to be, and upset with your employees because it looks like they don't care about the business or the possibility of its going broke. Obviously, this is not a very good situation; unfortunately, it is not a particularly uncommon one, especially at Level 3.

Conversely, if the business is going well and your customers are coming back time after time, your employees are busy and feel they are part of a winning team. In this kind of situation, you can give out small raises as well as cash bonuses to further motivate your employees and insert some fun and competitiveness into the business. In addition, since you will see the business as a success and be excited about it, your excitement will spread to your staff and in turn be transferred to the customers. As a result, because all of the people assets are satisfied, these assets are being protected.

But how do you make sure all of this happens? The best way to do it is to rely on the ultimate asset protection weapon—gross profit. It may not seem at first that gross profit has anything to do with people assets, but it does. This is because, since gross profit is a major component in net profit, it gives you options for how to operate your business. And without a strong gross profit, there will in all likelihood be an imbalance in the people equation because there will be too many negative forces at play, such as those in the first example. Fixing this obviously requires both leadership skills and overall ownership talent, but if you can do it, it will give you hope, which can be transferred to your employees through bonuses, better working conditions, and higher salaries, which will improve their attitudes. And their improved attitudes will in turn be transferred to your customers in the form of improved service. And all of this puts the balance back into the customer–owner–employee relationship.

Business owners can essentially operate their businesses any way they want, provided they continue to make a profit. That's because profit is not only the essence of becoming successful but also of remaining successful. What that means, however, is that even after your business has achieved success, the pressure to deliver acceptable profits year after year never decreases. The reason for this continued pressure is that when your business is viewed as a success, your aggressive competitors will all want to take a shot at you. And it's not just your customers and the gross profit attached to them they're after. They're also after your better employees, your systems, and anything else that will help them improve their businesses at your expense. And what that means is, in order to maintain your success, you have to protect your assets—all your assets—from your competitors.

Becoming successful—that is, moving up the survival–success spectrum—is primarily a result of your own efforts. Remaining successful, however, requires you to lead the business through your key employees. You can do this by empowering your employees and delegating both responsibility and authority to them. In fact, empowerment and delegation are especially important for asset protection at Level 4 because, at least in some instances, owners have to protect themselves from themselves. There are basically two reasons for this.

First, asset protection eventually becomes boring for owners, and at times frustrating to manage. Because of this, they tend to put it off and spend their time doing things they find more exciting and interesting, such as creating opportunities and working toward resolving problems. But rather than ignore asset protection, it's far better for owners to develop processes that others can manage and take responsibility for while they continuing to exercise general oversight. Alternatively, owners can delegate some asset protection responsibilities and continue to maintain control over assets that are vital to the company's existence—like products or services or customer retention and satisfaction.