Charlotte Property Management Weekly: Thankful for an Awful Year: Next Top 2 Business Takeaways from 2009 (Part 2)

“I thwink… 2010 will be a treeemendous year… I mean, it’s gotta, just Gotta (with a capital “G”) be better than this one… you know what I’m sayin’? Hey, honey, pass me another glass…” (Drunken Charlotte business owner bypassing the shot of hemlock for some more red wine)

“The MacArthur Foundation gave out its annual genius awards. This year’s awards went to a journalist, a mental health scientist, and a couple who sold their house three years ago.” (Conan O’Brien from The Tonight Show with Conan O’Brien)

“Have yourself a merry little Christmas. Let your heart be light.” (Ralph Blane)

In last “Charlotte Property Management Weekly’s” episode, I discussed the first two takeaways from businesses looking to survive this tough economic environment. This article will focus on the other top two business adjustments I’ve seen businesses take in 2009. Without further ado, they are:

1. Revenue hedging became important. By this, I mean that business models adapted. Let’s look at real estate. People need to live somewhere, right? If they are not buying and selling homes, they’ll be renting. Businesses made sure they were in position to benefit no matter what their potential customers chose to do.

2. Cash was promoted from “King” to “High and Mighty Emperor.” Before banks completely shut off the loan faucet, forward-looking businesses took the maximum out of their lines of credit and put the cash into interest-bearing accounts; their cost of accessing capital was the interest spread between the borrowed money and the short-term certificate of deposits. Smart move! Banks cut everyone else’s lines of credit to tighten their balance sheets. So what did businesses do so they would have sufficient working capital to pay people?

Small business became like big business. They played with their accounts payable (paid their vendors later) and accounts receivable (provided incentives to customers to get paid earlier). What does this mean? Here are examples:

· Accounts payable: You pay your vendors an average of $1K/day and wait 15 days to pay invoices. However, if you started paying invoices in 20 days, you would now have $5K more in your bank account (5 days X $1K/day = $5K).
· Accounts receivable: You take in $2K/day in revenue and your customers pay you in 30 days on average. If you can get them to pay you in 27 days, then you would add $6K to your bank account balance (3 days X $2K = $6K).

It has been said that 90% of all businesses fail for lack of cash flow. Take these steps to stay in the game. And be thankful that the tough economy, though presently painful, ultimately makes your business stronger (think of how tired the Karate Kid was washing all of Mr. Miyagi’s cars)! When economic times get better, you will be very thankful (think a beaten-down Daniel-Son taking down Johnny Lawrence with the “Crane Kick” to win the All Valley Karate Tournament!)!

Thank you for your readership and I look forward to dishing on more of our business issues in 2010. Have a wonderful holiday!

Brett Furniss is the President & Owner of BDF Realty, “Charlotte’s Most Innovative Property Management & Investment Company”specializing in rent-to-own (lease options) and rent-to-sell homes. You can follow his Twitter thoughts on the Charlotte real estate market by clicking on http://Twitter.com/BDFRealty. He is the author of the FREE E-Manual entitled “How to Rent-To-Sell Your Own Home” (http://www.RentToSell.com/RTS-Book.html) which details how to get the most potential buyers to your home in this challenging real estate market.

Charlotte Property Management Weekly: Thankful for an Awful Year: Top 2 Business Takeaways from 2009 (Part 1)

“Oh… Deck the halls with boughs of holly (picked for free from the yard), fa la la la la, la la, la, la… ‘Tis the season to (fake) be(ing) jolly, fa la la la la, la la, la, la… (“Unthankful” Charlotte Business Owner)

“…give thanks in all circumstances…” (1 Thessalonians 5:18)

“Left a good job in the city
Working for the man every night and day
And I never lost one minute of sleep
Worryin' 'bout the way things might have been”
(Proud Mary by Credence Clearwater Revival)

Wow! It’s been a tough year for traditional real estate brokerage. In Charlotte, the year-over-year statistics for closings and home prices have gone down every month (except this past month when closings were up 1%- woohoo!). Many of the people who left their jobs to become Realtors and contributed to the real estate boom are now wondering what they were thinking. The same can be said of business owners who took the leap and are struggling to make payroll every week.

When I’ve talked to other business owners prior to this year, I would always hear about how “great” things are. Things are “great”, sales are “great”, “employees are great” (this is the first clue that they are lying), my wife thinks I’m doing “great” (second clue), and have you been to “the club” recently? Unfortunately, I have no idea what “the club” is. I try to pull the Groucho Marx “I wouldn’t join a club that would have me as a member” line and then try to change the subject. That’s always followed with “Who the heck is Groucho Marx? Is he a member of the club too?”

Now, things are very different. “Brett, I’m not making any money.” “This economy %&**#!!” (meaning “not great”) “Are you going to finish those?” Entrepreneurs are eternal optimists but I suppose that can only go on for so long. Scraping by every month is tough and the business lines of credit that provided some comfort have been cut, bagged, and appear on the back of milk cartons.

But like all negative things, there are silver linings. Tough times make businesses adapt and strengthen. For this we should be thankful! If “pain is weakness leaving the body” then the same can be said of financial struggles for a business. When money is tight, you’ve got to be creative to improve (and survive!). The top two business improvements I’ve seen as a result of this economy are (drum roll please):

1. The elimination of unnecessary fixed costs. These were much more than anyone thought. Old assumptions on this were challenged: With technology improvements, do employees need to work out of an office all the time? Any of the time? Do I need to pay salespeople before they sell anything? What can be outsourced to make it a variable expense? What costs can be shifted away from an employee to (much cheaper) technology?

2. The return of “return on investment”. Our old friend, ROI, made a comeback and it was brutal. If an expense wasn’t generating any revenue, it was eliminated. The “pay for play” model became much more dominant. You had to prove it, too! No longer was money hurled at marketing with no tracking capabilities. Employees had to prove they were part of revenue generation to keep their jobs. The pay-per-click Google model was emblematic of this; you didn’t need to pay marketers so people saw your ad, you would only pay when someone clicked on your ad. (On a side note, I see this being taken further. You really should only pay when someone actually clicks on your ad and purchases something from you. I mean, why do I pay you if they click on my ad and don’t give me any money? The only barrier to this is how to track it, but I see this obstacle being eliminated over the next year or two.)

These two business practices are now commonplace among the firms that are still open. So you’re still in business and never made any changes along these lines? Count your lucky stars! But remember as they say on Wall Street, “the market can stay irrational longer than you can remain solvent.” And the three-word advice of the late NC State basketball coach, Jim Valvano, on the key to staying alive in the NCAA Tournament. “Survive and advance.”

Part two of this article will discuss the other top takeaways from this year. Have a wonderful holiday season!

Brett Furniss is the President & Owner of BDF Realty, “Charlotte’s Most Innovative Property Management & Investment Company”specializing in rent-to-own (lease options) and rent-to-sell homes. You can follow his Twitter thoughts on the Charlotte real estate market by clicking on http://Twitter.com/BDFRealty. He is the author of the FREE E-Manual entitled “How to Rent-To-Sell Your Own Home” (http://www.RentToSell.com/RTS-Book.html) which details how to get the most potential buyers to your home in this challenging real estate market.

Charlotte Property Management Weekly: Jack Welch is Envious of Your Real Estate Firm?

“I’m not sure what we are going to do… Revenue is down and costs are the same. We are scraping by on a few first-time home buyer sales that come through. Worst of all, my employees are having a hard time making a living in this traditional brokerage business model.” (Frustrated Charlotte Real Estate Firm Owner)

“Most small companies are uncomplicated, simple, informal. They grow on good ideas regardless of their source. They need everyone, involve everyone, and reward or remove people based on their contribution to winning.

We love the way small companies communicate with simple, straight-forward, passionate argument rather than jargon-filled means.

Everyone in a small company knows the customers- their likes, dislikes, and needs. Small companies have to face into the reality of the market everyday, and when they move, they have to move with speed. Their survival is on the line.” (Jack Welch, former CEO of General Electric from 1981 - 2001)

Jack Welch was one of the most successful businessmen in the 20th Century. Under his leadership at GE, he took the company from $14B in market value (1980) to $410B (2004). He helped create the largest and most valuable company in the world.

Welch felt that while being big was good and had its advantages, GE would only be successful if it maintained the traits of a small business. These traits included personally knowing their customer base, shifting to meet changing customer needs, and the ability to nimbly reposition their services efficiently to serve niches of customers before their larger competitors. And they had to do it quickly!

The problem was that any major initiative GE undertook would go on for years; it was the nature of their sheer size. When you have hundreds of thousands of employees, it takes a long time to disseminate information, train employees, and get things working correctly; just fighting through layers of bureaucracy is a time-consuming ordeal! Welch hated this and wished he could move at the speed of the market.

Big real estate firms have this same issue. They made billions of dollars in a buy and sell market and positioned themselves in the public’s minds as the place to go for brokerage. Their agents were trained killers that were negotiating offers, putting up listings, and putting ads all over the country. Unfortunately, as the pure brokerage market began to fade and real estate revenue sources moved elsewhere, they ran into the same issues as GE.

Besides being costly and time-consuming, repositioning a large company’s value proposition to customers is risky! The risk is in confusing the public about what they do well. For decades, big real estate companies told the public (with many, many ads!) that they were good at helping people buy homes; this year they are telling different stories. Some are saying that they are expert property managers now? Some are now good at finding foreclosure and REO properties for investors? Short sale specialists?

Here’s the rub. Name one company that says they do multiple things well- it’s tough! You just don’t see this in today’s marketplace because this type of marketing message doesn’t work! Customers do not like generalists; they go to specialists. Think about it. When you shop for shoes, do you go to Wal-Mart or a shoe store? Most people actually go farther than this. They’ll visit a very specialized shoe store (women’s dress shoes only stores, running store for running shoes, etc.), rather than a regular show store. Customers feel that if you say you are good at many things, you are actually mediocre and not an expert at anything!

In a changing market, small businesses are in the best position to capitalize. They can reposition their business to specialize in growing customer segments, get employees up-to-speed quickly and inexpensively, and communicate to their existing customer bases what they are doing. There is no red tape. Today you can be “Charlotte Brokerage, Inc.”, and tomorrow you can morph into “Short Sales 4 U, Inc.”, “Distressed Properties R US, LLC”, or “Rent-To-Own Rock Stars, Inc.”

You can innovate and implement today with little hassle. This is why Jack Welch is envious of your small business!

Brett Furniss is the President & Owner of BDF Realty, “Charlotte’s Most Innovative Property Management & Investment Company”specializing in rent-to-own (lease options) and rent-to-sell homes. You can follow his Twitter thoughts on the Charlotte real estate market by clicking on http://Twitter.com/BDFRealty. He is the author of the FREE E-Manual entitled “How to Rent-To-Sell Your Own Home” (http://www.RentToSell.com/RTS-Book.html) which details how to get the most potential buyers to your home in this challenging real estate market.