From Zero to Hero.
You have heard the term; a kind of Rags to Riches phrase.
It has extreme application to this blog. You see Hero as You if you function as a sole trader or commissioned estate agent or bond consultant and certainly, it has application to every business.
The Business [read, if applicable: You] is the Hero. Nothing you do, nothing you say, nothing you commit, no contract or future promise or anything that you spend or save, should be done for you as opposed to your business. Your business is your steed in war, your comfort in distress, your source of funds and funding, your means to grasp opportunity, your tax-breaker and your tax-maker, your alter-ego , your income and cashflow, your means to success, your source of wealth and that of others – your business is the Hero under every circumstance. Keep it alive and you and every dependent upon it, is kept alive. Allow it to fail and you and every person dependent upon it fails. If you are a breadwinner in your family or a significant portion of your household income, You, in your individual capacity, are the Hero. You or your business become the reason for your commercial existence.
Too extreme a view? Consider this. It’s May 2008 and you are about to retrench the first employee. It’s painful, not according to plan, and she is your friend. But all you can say is, even though you have had a very good profit for the month, you know that sub-Prime will shut those profits down within 8 months as the banks pull in their credit granting and go into an underground shelter that only an annuity mortgage business can provide. You have to begin retrenching while you still have the resources to give your people an adequate retrenchment package that profits and cashflow allow. It is horrible to face them but if you keep the company, the Hero, alive you know you have a chance. Cull it and it culls you. We succeeded and the company survives to this day. If the view had been different, a kind of Winner Takes All mentality, the company would have folded and the people would have been seriously hurt. This way, we all felt the pain but everybody was cared for to the best of the company’s ability and we all retained our dignity. A tough, true story.
After a Zero to Hero story, the above shows you that you need not be Hero to Zero on the other side and even in the most extreme of global economic circumstances since the Great Depression in 1929.
On the 31st of October 2016, we received the news of Pravin’s [and his SARS colleagues] release from fraud charges. These little good-news windows, provided by the one-and-only Shaun Abrahams, are an opportunity to take a breather and blow a fresh breath of life into your Hero, your business. Don’t be surprised if the long-winded retraction of the charges, spurred by the Helen Suzman Foundation and Freedom Under Law submissions, is not already being taken into account by Moody’s [open to correction] in their 25 November pronouncement regarding the possible downgrade of their rating. A fight well fought and won – Justice prevailed!
So with that firmly stated, three more things to watch for as Zero remains our stagnant growth path.
Income is obvious to every business but what I want to highlight here are some tips for its measurement. Strangely enough, more is not necessary better. Watch for:
- What proportion of your income comes from one or more sources? You see, a mix of income sources is better than “client reliance.” One or few big clients have the ability to call the shots, and the ability to cripple your income if they leave for whatever reason. The Pareto Principle, 80% of income comes from 20% of clients is as significant in 2016 as it was when Pareto posited the theory. Don’t be caught and lulled into thinking that the “one big client” won’t have you for breakfast one day. A golden rule is to have the courage to deduct a big client’s income and work the business on the balance.
- Your geographical spread is important. The Western Cape is growing, the Northern Province declining and Free State Province and KZN may be in decline. Is your business showing this or not? If not, expand where growth is occurring and be wary where growth may be in decline. You are not special, business follows trends and if not, the note above this one may apply.
- What proportion of your Income is new business versus existing business? Are you dependent on old business? Could it dry up? Have you become complacent that you can hold onto all those existing relationships? Or should you be hunting for a greater proportion of new business? Do your sums and check your stance to them; you may avoid a huge surprise in the near future.
- What proportion are paying customers and what is not? Turnover is a fool’s paradise if cashflow does not result. Debtors are real assets until they are not; then they drain every ounce of resource out of you – your time, your emotions, your facilities [more about this below], and your cash. Your Debtors Ageing Analysis says it all. It is the tool of your past and the measure of your future. When it ages, you age. You have to keep income coming from debtors who are experiencing Zero just like you; tirelessly hunt payment or it will hurt you. Debtors and Rentors are very similar. Either one may not pay you and you need to nip the issue in the bud and get paid or get out.
- Finally, the health of your income lies in the margin. For the traders, your Trading Account says it all. Turnover less Cost of Sales plus Opening Stock less Closing Stock reveals your margin [Gross Operating Margin]. You may keep turnover by reducing margin but the more you allow it, the less your Hero can afford one mistake. Hear me please. The big client with the reduced margin that squeezes you for extended terms – yes, that client – could be the rod that strikes your back. One bounced cheque could be all it takes to reduce your Hero to Zero. And that old fact, played out in so many businesses over the decades, unwinds all the goodwill with bankers and funders built over years. Identify them, and deal with them – at least, having read this, understand the risk you face.
As an old banker, there is a saying that bankers lend you an umbrella in the sunshine and take it away in the rain. True, and the reason is that bankers have a fiduciary duty to the investors and not to their lenders. In the massive size and excellent capitalisation of our banks, we forget this truism. But I can tell you, it is built into their DNA from the day they join the bank, and will come at you in times when you need facilities most. Hero needs to arrange facilities when Hero’s financial figures are good. Yes, the bank can call the facilities in but it is useless you going to the bank when you need the money; it’s just too late. Facilities, well positioned and used from time to time and managed immaculately, are not optional when you need it as Zero growth slowly takes hold of your business. Extend your bond in the good times as a precaution; afford your business facilities when the Income is great. Many of us, who have had to survive the bad times and this consistent “Zero” growth, know that those facilities are life savers if and when you need them. Of course, I’m not suggesting a lack of discipline. Don’t have the facilities, use them to continue to fund your lifestyle and then cry that they are used up when you really need them – Please No!
3. Staff Morale
One thing you know as the steward of Hero is that People Matter. Be careful that you don’t adopt a haughty “if you don’t like it, leave it” attitude with your people. Some of those people are the reason why you are where you are. And so help them, they could become the reason why you end where you don’t want to be. I know a business that is highly dependent on a Rep, another which is highly dependent on an Owner, another that requires a Specialist Team to thrive [I remember the day when the Syfrets traders broke away and formed Coronation Asset managers – and the rest is history], another that has lost key resources and another that needs to address Ageing Ownership in order to survive. All Heroes in their own right, but all dependent on the people who run them.
Don’t think that your people don’t read the papers and get worried about their futures. Ook maar net mens, I could say. But, it is your responsibility to lead them for the benefit of Hero. They deserve to know where Hero is at – going bad, they tighten belts, going good, they benefit. But if you look like you’re against the ropes every day and they don’t hear you trading in Hope, they also become miserable. Bear in mind this truth I have learnt many times: People don’t leave you when they leave, they leave you long before they go. Up to that time, they are expense but when they leave, as much as they may leave a huge hole, they at least don’t cost money. It sounds callous but those of you who have worked in tanker-type Corporates know how much damage an unhappy person can do for so long before they finally leave. How much more pronounced is the effect when in a small company, someone is miserable, unhappy, unproductive, toxic and just plain obstructionist. When Hero is the reason for being there, at least you have a mirror to hold the person to until they get happy or leave. How many times I haven’t said to someone, You can leave but leave a good report behind you. In Zero, people get unhappy; they feel Hero’s strain and pain [in your face!] but it is your responsibility, your sovereign duty, to ensure that the morale of your people is as high as you can make it. As a leader, you trade in Hope and Zero needs you to fulfil that responsibility.
I have written my heart out. Years of boom and bust and Sub-Prime have taught me the little that I share. The quality of your income, long-arranged facilities and motivated people can bring you through, You and Hero, your business.
Just a word on Homeloan Junction. This Hero may not be the biggest but it is a conqueror. October 2003 feels like history but it was founded then in a single garage in Brackendowns. Courage, intelligence, facilities, discipline, trusting relationships, and hard work carried it through. Entrepreneurship of the highest order with inexhaustibility [if that’s a word] kept it alive and made it the success it is today. People always mattered and have been the foundation of all it has achieved. Bottomline, with guts like that, you are well placed as an associate and a client.
Part 3 awaits. Hope you’re gaining some nuggets to think about.
Yours in Property