Managing Cost Centers

One of Bailey's initial concerns was how to attract top-rate employees with highly competitive pay packages, while also keeping salary and benefit costs in check. To that end, he decided to create a new compensation plan that used profit — not revenue — as a key measure of success. He also included all his staff, not just his salesforce, in the new plan, which quickly received rave reviews from his employees.

At the same time, he began to share important financial details with them, such as the costs involved in hiring a new employee. "My team didn't realize how much it actually cost to have someone work with us," he said at the time. As they grew to understand the financial picture better, NationLink's employees began to be more cost conscious.

"A lot of owners hesitate to share numbers with their employees, [even] when they're the ones who can come up with ideas to make things better and make things happen," said O'Berry.

Bailey's newfound openness was put to the test when two administrative staff members asked to turn a part-time hourly person into a full-time employee. Bailey discussed the cost of adding new employees and explained that NationLink could not hire anyone unless it could match the cost with additional revenue. He asked the staff members to analyze two options: improving efficiency while keeping the employee part-time or increasing revenue and hiring the worker full-time.

Tracking Progress

Before the 6 for '06 project, Bailey had always managed his business on a profit-and-loss basis. Typically, he determined how many lines of service or new activations the company needed to do in a given 30-day period to break even, and simply aimed to top those figures as much as possible.

"At the end of the month, we looked at the results and moved on without ever thinking how to get cash in quicker or have more on hand," Bailey said. "We knew what we had to do to cover our expenses because we'd been doing it that way for 13 years."

In that respect, O'Berry said, Bailey was like most small business owners. "He knew how much he had to do each month to meet cash-flow requirements. But those details end up cluttering an owner's mind. If you want to really manage your cash flow, you have to look at the big picture, not on a daily or monthly basis, but six months or a year down the road."

With O'Berry's help, Bailey and his wife began working on a cash-flow budget. To O'Berry, a cash-flow budget — a projection of the cash a company will receive and spend in a given month — is invaluable for providing "a consistent picture of your cash flow and what you'll have in the bank at any given time." It is also a great way of analyzing your company's costs and seeing where cuts can be made.

The value of the cash-flow budget, Bailey now recognizes, is that it gives management and the board of directors a sense of where the company is financially. "If we put money into Web site development, we can track what it produces over time," Bailey says. "And in retrospect, if you see something doesn't work, you can ask why and make adjustments so maybe it does.

"If you're a small business that doesn't have a cash-flow budget, sit down and make yourself one," Bailey says. "You'll be able to see your history, where you are today and in the future. You can quickly make adjustments to improve your chances of accomplishing what you want."