Business and life lesson from an Orchestra

Most people today enjoy listening to music, albeit singers, bands or a full orchestra. To me in orchestral music we can learn much about how to run an effective business. So what is an orchestra? 

An orchestra - an instrumental ensemble, usually fairly large with string, brass, woodwind sections, and possibly a percussion section as well. The term orchestra derives from the name for the area in front of an ancient Greek stage reserved for the Greek chorus. The orchestra grew by accretion throughout the eighteenth and nineteenth centuries, but changed very little in composition during the course of the twentieth century. 

In a growing business concern either through employees or contractors you as the owners work to create an organization to accomplish the mission of servicing your customers and/or clients. An orchestra performs a work of music for their audience (customers/clients). So, what lessons are here? 

• A conductor – leads the orchestra in performance and rehearsals, determining as the leader the musical works being performed as well as the tempo (speed and rhythm) at which the work will be performed.
• An orchestra exists to perform music – not engineering, law, auto repair – they are focused.
• An musician plays from common sheet music
• Each instrument in the organization has a unique sound and make no effort to serve in other rolls albeit vocal, winds, wood wind, string, percussion (does not pretent to be what isit not)
• Each instrument has its own strengths and limitations
• Each instrument works to compliment the others in the orchestra
• All orchestra members practice to ensure a professional performance
• Each musician learns to master their instrument before joining the orchestra
• Each musician follows the first chair, section leader and ultimately the conductor
• Each musician learns to read sheet music if only by sight and follow what it dictates
• Each musician understands the importance of keeping their commitments
• No member works to outshine the group unless the music calls for is and only when asked to do so
• Each member agrees to the uniform of the organization
• Even when performing in unison the musicians play within the range octaves of their instruments – i.e. c is still c but in the octave of their instrument
• Each member musician is treated with respect
• Each musician maintains and respects the instruments (equipment)
• Each musician understands the importance of self control
• The success of the orchestra is based on who well each section gel and work together – the failure of a single section is a failure of the whole 
  
• The fun is when all of the hard work comes together for a successful and well received performance
  

Are there any lessons you would like to add?

How to sabotage your business

I have not been feeling well the past few days – between my allergies, weather, and other issues have not been myself and have not been resting well. While recovering this topic has whirled around in my head.

As many of you know ethics and morals are my thing – just because something is legal does not make it moral or ethical and I believe because so many have lost sight of this. Without trust no business can be conducted. In fact trust is the basis on which all business is built at all levels and when it no longer is present business cannot and will not exist.

• What is the quickest way to build your sustainable business – establish trust and credibility
  
• What is the most effective way to decimate your business – erode trust
  

This post begins a series on exploring the various ways to destroy trust and credibility thus any hopes of your running or growing a profitable and successful business

• Childlike immature unprofessional behavior
  
• Betrayal and failing to keep your promises
  
• Lack of respect
  
• Dishonesty (lying) this includes misdirection
  
• Avoidance
  
• Stealing/theft
  
• Being defensive, critical and/or argumentative
  
• Being self-absorbed and/or self-centered
  
• Not accepting responsibility for your behaviors
  
• Control/power struggles
  
• Over estimating yourself (having to high an opinion of your value)
  
• Poor listening skills
  
• Not listening to the needs of your clients, suppliers, or employers
  

These topics may be organized slightly differently as each are explored – however it is important to understand regardless of your ability – if your business or services are views as a detriment to anyone you are doing business with – client, supplier, employee, employer due to their negative impact then those relationships will be terminated. Do not worry I will continue to scatter tech updates, reviews and related posts.

Before I begin I have a question – do you think this series will be helpful to you as a business owner?

Understanding How Cash Flow Works

Source: Business Owners ToolKit

In its simplest form, cash flow is the movement of money in and out of your business. It could be described as the process in which your business uses cash to generate goods or services for the sale to your customers, collects the cash from the sales, and then completes this cycle all over again.

Inflows. Inflows are the movement of money into your cash flow. Inflows are most likely from the sale of your goods or services to your customers. If you extend credit to your customers and allow them to charge the sale of the goods or services to their account, then an inflow occurs as you collect on the customers' accounts. The proceeds from a bank loan is also a cash inflow.

Outflows. Outflows are the movement of money out of your business. Outflows are generally the result of paying expenses. If your business involves reselling goods, then your largest outflow is most likely to be for the purchase of retail inventory. A manufacturing business's largest outflows will mostly likely be for the purchases of raw materials and other components needed for the manufacturing of the final product. Purchasing fixed assets, paying back loans, and paying accounts payableare also cash outflows.

It is important to manage your cash flow because:

• Smart cash flow management is vital to the health of your business. Hopefully, each time through the cycle, a little more money is put back into the cash flow cycle than flows out.
• Our case study illustrates what can happen to your business if you don't carefully monitor your cash flow, and take corrective action when necessary.
• Your profit is not the same as your cash flow. It's possible to show a healthy profit at the end of the year, and yet face a significant money squeeze at various points during the year.

What Is Cash Flow Management?

If you were able to do business in a perfect world, you'd probably like to have a cash inflow (a cash sale) occur every time you experience a cash outflow (pay an expense). But you know all too well that business takes place in the real world, and things just don't happen like that.

Instead, cash outflows and inflows occur at different times, and never actually occur together. More often than not, cash inflows lag behind your cash outflows, leaving your business short of money. Think of this money shortage as your cash flow gap. The cash flow gap represents an excessive outflow of cash that may not be covered by a cash inflow for weeks, months, or even years.

Managing your cash flow allows you to narrow or completely close your cash flow gap. It does this by examining the different items that affect the cash flow of your business. Examining your cash inflows and outflows, and looking at the different components that have a direct effect on your cash flow, allows you to answer the following questions:

• How much cash does my business have?
• How much cash does my business need to operate, and when is it needed?
• Where does my business get its cash, and spend its cash?
• How do my income and expenses affect the amount of cash I need to expand my business?

If you can answer these questions, you're managing your cash flow!

If you need any more convincing that cash flow management deserves your utmost attention, consider our case study illustrating what can happen if you have a cash flow gap.

Case Study: The Cash Flow Gap

This example shows how easily a cash flow gap can occur in a small business. A cash flow gap is a shortage of cash caused by the mismatching of cash outflows and cash inflows.

John makes custom furniture for professional decorators and furniture retail shops. In addition to himself, John has two other employees. John pays himself and his employees every other week (bi-weekly). When a customer places an order for a piece of furniture, John receives a 10 percent down payment of the total sales price. The customer is then billed for the remainder of the sale after the furniture is completed and delivered.

The total sales price of a recently ordered dining room set is $10,000. The material needed for this job is priced at $2,500 and will come from one supplier. This supplier offers a 2 percent discount if John pays for the supplies within 10 days after receiving them. John always takes advantage of early payment discounts.

The following graphic, illustrating the cash flow effects of the sale from start to finish, will help you identify John's cash flow gap. (Click on each of the blue or yellow bars to see a detailed explanation of business events affecting John's cash flow each week.)

Breaking down the sale of the dining room set, and tracing it step-by-step through the cash flow, identifies John's cash flow gap. In John's case, a cash flow gap starts on day 13 and continues to grow, reaching $4,450 just prior to collecting the customer's account. Although this example has been simplified, it's typical of the cash flow gap that occurs in many small businesses.

The cash flow gap creates the need for effective cash flow management. Effective cash flow management can help reduce the amount of time between John's cash inflows and cash outflows. This in turn, will help reduce or close John's cash flow gaps.

Profit vs. Cash Flow

A good way to learn respect for the concept of cash flow is to compare it to the idea of profit. As a business owner, you understand and strive to make a profit. If a retail business is able to buy a retail item for $1,000 and sell it for $2,000, then it has made a $1,000 profit. But what if the buyer of the retail item is slow to pay his or her bill, and six months pass before the bill is paid? Using accrual accounting, the retail business still shows a profit, but what about the bills it has to pay during the six months that pass? It will not have the cash to pay them, despite the profit earned on the sale.

As you can see, profit and cash flow are two entirely different concepts, each with entirely different results. The concept of profit is somewhat narrow, and only looks at income and expenses at a certain point in time. Cash flow, on the other hand, is more dynamic. It is concerned with the movement of money in and out of a business. More importantly, it is concerned with the time at which the movement of the money takes place. You might even say the concept of cash flow is more in line with reality! If you use the accrual accounting method, it is helpful to know how to convert your accrual profit to your cash flow profit.

To fully understand the difference, you need to become familiar with:

• accrual accounting vs. cash accounting
• converting accrual profit to cash flow profit
• changes in accounts receivable
• changes in inventory
• changes in accounts payable
• changes in notes payable
• case study — profit vs. cash flow