Collecting seed corn for your small business

I grew up in a rural area. Our nearest neighbor owned a working farm. The oldest boy was my age, so I frequented the farm to ride horses, feed the cows, and assorted other activities.

One day the farmer was taking the kernels off of a load of harvested corn. He had usually stored the corn without doing this, which he then fed to his animals. I asked about this activity. “This is my seed corn,” he said. I still didn’t understand. “Next spring I will need to plant another crop of corn. If I don’t save some of my harvest from this year, I won’t have anything to plant. These are the seeds for next year’s crop.”

So it is with a small business—if we don’t save some of today’s harvest, we won’t have any seed corn for next year. If we don’t save some of this year’s harvest, we cannot grow our business.

In the case of our business, cash is the seed corn. Cash allows us to advertise, to purchase and maintain equipment, to invest in training, to save for a rainy day. Cash allows us to invest in our business and provide benefits. Cash allows us to grow our business. Just as a farmer can’t grow a crop without his seed corn, a business can’t grow without cash.

The farmer gets his seed corn from today’s crop. The businessman gets his cash from today’s sales—but only if it is built into his price. If his price does not include seed corn the cash will not be available. If he does not anticipate tomorrow’s needs he will not be able to meet tomorrow’s expenses.

The farmer plants more corn than he needs today. The excess becomes his seed corn. The businessman must charge more than he needs for today’s expenses, and the excess becomes his seed corn.

I see many small business owners focus on their immediate income and expenses. This short-term approach denies them seed corn. For what will they do when equipment needs replacing? How will they advertise? How will they weather a temporary lull in business? Without seed corn, they can’t. As a result, they get locked into a vicious cycle of feast or famine.

Those who do not collect seed corn will have nothing with which to plant next year’s crop. And without a crop, there will be nothing to harvest come the fall.

Pricing and image

Nobody likes to pay more for a product or service than they need to. Each of us loves to find a good deal. But as a small business owner we must always remember that our pricing conveys a certain image about the products and services we are selling.

While consumers certainly like to think that they are getting a good deal, they also know that they get what they pay for. When you visit McDonald’s you do not expect the same hamburger that you will get at Fuddrucker’s. If you want more value, you understand that you must pay a higher price.

The same is true of your customers. If your prices were half of your competitors, consumers would be suspicious. They would wonder about the quality of your widgets. They would be concerned whether you would be in business to service their product. Your price would convey a specific image regarding the quality and stability of your business.

This is not to say that we should charge outrageous prices simply to convey quality. Our products and services must truly offer value. If we charge more, we must also offer more. And we can offer more in a variety of ways, from better quality to greater convenience, from superior service to a broader selection.

Certainly there are consumers who are more price conscious than others. And there are products and services–commodities for example–that are more price sensitive. But this doesn’t change the fact that cheap prices can convey an image of cheap quality.

Know your numbers

Imagine playing a basketball game and not knowing the score. You are in the final minute, but don’t know whether you need to score more points or attempt to run out the clock. Victory or defeat depends on your decision, yet you don’t know what actions to take.

Imagine running your business in that manner. Sounds silly doesn’t it? Yet many small business owners do exactly that. They don’t know their numbers, and numbers are the scorecard for their business.

For example, do you know your true overhead costs? If you claim you have no overhead you are sadly mistaken. Do you advertise, have signs, or business cards? If so, those are overhead expenses.

Do you carry insurance? If so, that is an overhead expense.

Do you own a vehicle? If so, the wear and tear (depreciation), gas, insurance, maintenance, etc. are overhead expenses.

Do you have equipment? If so, the wear and tear (depreciation), gas, maintenance, etc. are overhead expenses.

Do you use any paper, or forms, or postage, or office supplies to conduct business? If so, these are overhead expenses.

If you do not know your true overhead then you cannot recover that overhead in your pricing. Which means, you are not charging enough money. Which means, your business is not as profitable as it could be and should be.

Do you know the return on investment for your advertising? If not, how do you decide which advertising is worth continuing and which should be dropped?

Do you know your gross profit? Do you know your net profit? Do you know your closing rate? Do you know your cost per lead. Do you know your average sale price? If not, how do you make decisions? How do you know whether to run out the clock or attempt to score?

If you are like most small business owners, your answers to many of these questions is “no”. If you are like most small business owners you don’t know your numbers. If you are like most small business owners, you are making decisions blindly.

It is possible to make money without knowing your numbers. It is also possible to win a basketball game without knowing the score. But your business is not a game and the consequences are much more serious.

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