Partners Need to Get Under the Hood of Strategic Plan

Stacks of uncashed paychecks made out to the company owners are an unhappy reminder of the cash-flow squeeze at Velocity Sport Tuning Inc., a mail-order auto parts supplier.

While sales have grown in the seven years the Carson company has been in business, profit has been more problematic.

Sloppy record keeping and a lack of financial training had overtaken owners Jeremy Wolf and Jeffrey B. Moss when they discovered they were $100,000 in debt at the end of 1996. That’s a big chunk of change for a company with annual sales at the time of about $500,000.

They have managed to whittle away all but $20,000 of the debt. But the men know that disorganization and uncertainty about how to manage cash flow will continue to hamper their efforts, despite their ability to produce technically superior products.

The bottom line: They still can’t cash their paychecks. That has become more of an issue as the owners leave their 20s and personal responsibilities pile up. Moss, who turns 30 this year, was married recently. Wolf, who’s just turned 30, has a mortgage and a wedding date set for later this year.

“It’s a sore subject with wife and girlfriend,” Moss said of their paycheck collection.

The business partners counted on lean times in the beginning, when they were in their relatively carefree 20s. By now, though, they expected “to be zillionaires,” said Moss, who started the business fixing late-model Volkswagens in his parents’ garage. Despite the bumpy road to date, neither of them wants to bail out. Unless they win the lottery, both men figure Velocity Sport Tuning is their only ticket to financial success.

They largely blame anemic cash flow and a lack of capitalization for putting the brakes on company growth.

Not so, says consultant Michael Russo. Money is not the problem. Although most businesses blame a dearth of funds for their poor performance, more often it’s a lack of owner business skills.

“Money just lets you go a little longer till you fail,” said Russo, a certified public accountant.

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Velocity Sport does suffer from gaps in its owners’ business skills, and it needs a strategic plan, he said. But more important, Moss and Wolf need to address their lack of accountability and commitment, said Russo, principal of Michael Russo & Co. in Los Angeles.

“These kids live in excuses,” Russo said. “You don’t get to live there and create a successful business.”

Business partners often play a no-win game of “I won’t hold you responsible if you don’t hold me responsible,” he said. If there are no consequences for failing, failure will happen. Once Moss and Wolf learn to hold each other accountable for meeting commitments, their efforts to build a successful company will have the necessary underpinnings, he said.

Cleaning up the past is the next step, Russo said. Aging projects, including attempts to update financial records, create a new catalog of their late-model Volkswagen and Audi parts and finish the Web site, are sapping the owners’ time and drive, he said.

Wolf, the chief financial officer, needs to draw up an action list, set deadlines and work overtime, if necessary, with Moss to clear up these old obligations. The company should consider hiring a part-time bookkeeper to get the books up to date and keep them current. It’s hard to plan a future while stuck in the past, Russo said.

Moss, chief executive and company founder, is the technical side of the business. He needs to wind up the work he’s doing on customer cars and concentrate on expanding the company’s budding private-label line, which has a higher profit margin than the outside lines Velocity Sport carries, Russo said.

Moss knows it is much more lucrative for the company if he spends his time on a new line--testing and improving parts performance--rather than working on customer cars. But he has a hard time saying no to the longtime customers who still want him to soup up their cars.

Russo has a trio of entrepreneurial tenets that he said apply to Moss and Wolf.

First, successful entrepreneurs run businesses, they don’t “do business,” he said. Whether they have a dry-cleaning shop, a dress-manufacturing plant or a mail-order auto parts business, owners can’t get lost in the details of daily work at the expense of creating a larger vision for the company. Otherwise, they’ll tread water, suspended in survival mode.

Second, although it’s nice to love one’s work, successful entrepreneurs don’t necessarily get to do what they want to do.

“An entrepreneur does what has to be done or causes what has to [happen],” Russo said. “He doesn’t get to do what he feels like doing because if he did he’d stay in bed all day.”

Third, successful entrepreneurs don’t build on the past. They make a leap into the future by deciding what they want their company to be, outlining a plan to get there, then committing to the steps necessary to accomplish the plan. That can involve some uncomfortable choices, Russo said. Most business owners, he said, have difficulty accepting his contention that the state of their business is exactly what they want it to be, on some level. Otherwise, they’d be doing something differently.

“If we want something else, we have to change who we are. And that’s a process of setting goals and locking them in so you can’t weasel out,” Russo said.

Russo suggested that Wolf and Moss put together a business plan, but he cautioned against letting it become one more unfinished project.

“A business plan is not a 50-page document all typed up and pretty. You can do it in an hour or two,” Russo said.

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The content is what counts. And the point is not to raise money or even make money, he said. The company has to have a commitment to a bigger vision; otherwise day-to-day decisions about money will potentially rip apart the partnership, Russo said. A commitment to solving customer problems is one way to go, he suggested.

The company should build its reputation for reasonably priced but technically superior products and solutions as a way to differentiate itself from the competition, Russo said. As a key part of that, Moss should commit to rolling out a line of product innovations during the next 12 to 18 months, he said.

Part of writing the business plan will involve honing the message of technical know-how and deciding on a marketing strategy to communicate it across all aspects of the company’s operations, he said.

Financial projections are a critical part of any business plan. They allow owners to compare actual performance with expected results and make adjustments before, for example, $100,000 in debt piles up.

If the owners don’t know exactly what’s going on financially, they don’t have the opportunity to change and cause better sales, service and profit, Russo said. In his own business, he said, he gets weekly financial statements and daily reports from his staff.

Moss and Wolf have the ability to run a successful company; they’ve just never been trained to, Russo said. The technical ability is already there. “These guys are potentially cutting-edge people,” he said. “They are able to come out with products that no one else has.”

Once the owners wrap up old projects and lay out a plan for the company’s future, building sales and profit momentum will be easier, the consultant said.

“It’s a lot of work,” Russo said, “but once you get over the hump, it’s fun.”

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This Week’s Company Make-Over

* Name: Velocity Sport Tuning Inc.

* Headquarters: Carson

* Type of business: Automotive parts supplier

* Status: Corporation

* Owners: Jeffrey B. Moss and Jeremy Wolf

* Founded: 1992

* Start-up financing: $32,000 from personal savings

* 1998 sales: $750,000

* Employees: 1 full-time; 3 part-time

* Customers/clients: Mail order

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Main Business Problem

Lack of cash flow, expansion pains and general disorganization

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Goals

To obtain capitalization to fund growth, to manage cash flow so owners can take salaries and to write a business plan

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Recommendations

* Hold each other responsible for meeting deadlines and commitments

* Set and meet deadlines to finish aging projects

* Raise the bar for future financial performance

* Communicate message of technically superior products

* Roll out line of innovative products within two years

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Meet the Consultant

Michael Russo, a certified public accountant and business consultant, is creator of the Extraordinary Results business transformation program. He founded Michael Russo & Co. in Los Angeles in 1984.