BusinessTN

At 23, Robert Russell dreamed of touring the country with a rock-n-roll band in a luxury tour bus. He didn't play guitar, or sing, or even play drums, but he could drive. In 1995, Russell founded Russell Coach Company, a busing and coach service in Knoxville that caters to entertainers.

"I put $25,000 down on my first bus and started from there. I wore all the hats, from driver to head mechanic," Russell says, who after 14 years remains the sole proprietor.

A business as fickle as entertainment demands a level head, even when business is booming. "When I first started out, I thought, 'Hey this is pretty cool, driving a rock 'n' roll bus around. I have so-and-so in my bus. I'm a big deal,'" Russell says, laughing. "But at the end of the day, people don't need a tour bus. It's humbling to remember that."

Keeping a realistic outlook on his business is what has helped Russell's business thrive. Determination and optimism are two of the most common traits among small business owners, but the owner who refuses to face facts about his business can be caught off guard when an industry or economy takes a downturn.

Kathy Watts and Mickey Hannon see far too many business owners who stare at the trees and miss the forest when it comes to financial planning. Hannon and Watts work for Horne LLC in the Memphis area, helping small business owners get finances back in order after what can be years of neglect.

"We typically see clients who are good entrepreneurs with a good internal gauge of how their business is doing, but who are not always good at evaluating financial statements accurately," Hannon says. "All the data is in their heads."

The key to spotting trouble early on, according to Watts and Hannon, is to follow the numbers.

That can be easier said than done for some small businesses.
Mike Costello, CPA with Decosimo in Chattanooga, says that the top mistake in record-keeping is not having a sales forecast included in budgeting. If you can't tell what business will look like month to month, Costello warns, you won't recognize the danger signs when they first appear.

Too many business owners believe that future sales and expenses are impossible to predict, but Costello stresses that a strong relationship with customers is usually all it takes. "If you work with other businesses, don't hesitate to ask what their plans are for doing business with you in the future," Costello suggests.

Retail may be a harder industry to gauge directly, but Costello points out that trade associations offer plenty of information on buying patterns. "Know your customers, and you know your future," Costello says.

Robert Russell's customer base is in constant flux. "Through the years, the older stars are touring less, and newer ones are on the road more. My business reinvents itself every two years," Russell says.

Customers change out year to year, but even demand waxes and wanes.

"I can pretty well tell that if I don't have a tour booked in November that will last into mid-December, December will be dead. January is always dead, February will have some good weekend stuff, and by summer, business is booming."

But Russell also keeps an eye on the competition, and notices trends among other companies with new technologies. One example might be letting the larger competitors work out the bugs of a new engine before investing in an upgrade. It pays to keep an eye on industry-spanning trends, as well. Hannon and Watts point out that transportation in general is one of the first businesses hit in a slowing economy, and trucking companies reducing fleet size is a sure sign of trouble on the horizon. Costello points to back-to-school sales as a good benchmark in retail, as well. "If people aren't shopping at the big retailers one year, it doesn't look good for small business," he says.

Keeping track of sales is only the tip of the iceberg, however, as aging accounts receivable can turn into a liability for a small business, warn Hannon and Watts. Most small businesses run on a credit line that covers the gap between paying their bills and getting paid by customers, they explain, and the cash flow cycle with an increasing gap between bills paid and payments received is a warning sign that something is wrong. "And these days we're seeing pressure from banks on even very good companies," Watts says.

Credit lines may be capped or frozen, and a business will often need a more streamlined customer base. "Business owners need to ask themselves, 'Where do I make money, and where am I just doing what I've always done?'" Hannon advises.

Good customers are those who are reliable on payments, even if they're not doing well at the moment. Avoid what Hannon calls top line growth, where sales increase to combat a sagging economy with no regard to the increased cost of doing more business.

"I see competitors who run buses at a loss,”"Russell says. "They get a little star-struck and think that the big name will get them more attention. But at the end of the day, it's not about sex appeal—it's about returns on investments."

Streamlining customers is one thing, but streamlining an employee base is often something small business owners are hesitant to do.

"We see a lot of business owners who never made cuts in their business model as they went along," Watts says. "They are hesitant to streamline personnel because of the closer relationship a small business owner has with employees."

Keeping costs low and ensuring that employees are exactly who you need, even when times are good, is much better than being forced to let someone go in a bad market, Watts points out. Above all, keep a close eye on month-to-month expenses and returns. "With Quickbooks and other software, it's really so easy there's no excuse for not keeping monthly financial statements," Costello says.

A company may even appear to be growing, but only inventory turnover and accounts receivable are increasing, a rapid growth that Costello warns can be deceptive. And the small business owner who can't plan for and account for growth or loss will have nobody to turn to for help.

Banks are stepping up a common practice for struggling businesses in which they reclassify them to special assets departments, which forces business owners to answer tough questions about their business model. "You go from talking to loan officers to talking to analysts, from making monthly financial statements to collecting key operating details like customers each month compared with the same month last year and so on," Hannon explains.

The special assets department may feel like a punishment, but the point of it is to put a small business under such scrutiny that the business owner will apply the same scrutiny in the long term.

"Special assets is a launching pad for either turning your business around or seeing it fail," Hannon says.

Ideally, a small business need never worry about classification as a special asset, and with small business development offices and chambers across the state, there is plenty of free advice as well as free software available for keeping track of finances before trouble starts.

"If a part breaks down on a bus, I know far in advance what it will cost me to get it repaired," Russell says, adding, "When you get down to the nuts and bolts of it, in all businesses you just have to plan and keep track of things."

After all, the business owner that keeps an eye on what's down the road is less likely to have his journey interrupted by accidents or delays.