Everybody knows that IQ stands for Intelligence Quotient and some of you might even know what your IQ is. More recently, there have been many articles and books written about our EQ or Emotional Quotient, and if you picked up Cosmopolitan or GQ, you might even have taken a test to try and find out what your EQ is.
But what is your FQ, your Financial Quotient?
If you are a book publisher or distributor, it is highly likely that you did not go to business school. As a publisher and entrepreneur, you probably take great pride in the seat-of-your-pants way you run your business and continue to expand, make payroll, and turn out great work. Financial statements and projections are just “not your thing.” You figure that you can always hire a bookkeeper, accountant, or chief financial officer. You are an entrepreneur — a big picture kind of guy/gal… No bean counting for you!
The truth is that in business a low FQ can kill you. Bam! Smash! Road kill!
The worst thing is that you will probably never see it coming. And it can destroy you and your dreams in so many ways. Poor financial planning, overborrowing, runaway costs, and bad record-keeping can drain the lifeblood out of your company like so many leaches on a fish.
Our firm sells publishing companies, and the saddest, most difficult cases we get are the brave entrepreneurs who drag their little companies in like broken toys without a clue as to how to fix them. “If only someone would put some marketing money behind my books,” says one. “If only someone could get our costs down,” says another. These are not people with low IQs. These are bright, intelligent, educated people — whose only fault is a lack of financial foresight.
Does this sound at all like you?
The difference between an entrepreneur with a high FQ and one with a low FQ is like night and day.You have a high FQ if you:
- Do monthly financial statements.
- Track your revenue by source. Segregate revenues by divisions and source.
- Track and segment your job costs and all expenses against their corresponding books.
- Review and fight for low pricing by printers, outside services, reps, and contractors on a regular basis.
- Have a business plan.
- Maintain relationships with many different potential funding sources (banks, investors, financiers).
- Make budgets for projects and company.
- Benchmark your company against others in the publishing industry and know what your competitors are up to.
- Despise the very idea of carrying inventory.
- Hold a tight line on royalties and discounts by distributors and reps.
- Watch your overhead and marketing costs “like a hawk.”
- Always look to retool or improve your business model.
You have a low FQ if you:
- Don’t have a business plan.
- Only do annual financial statements.
- Lump all your revenue sources into one big “sales” category.
- Choose vendors based on convenience over price and rarely if ever change vendors.
- Never make budgets.
- Don’t pay attention to your expenses.
- Don’t try and negotiate lower royalties, commissions, or discounts.
- Don’t fight for concessions from your vendors.
- Carry too much inventory.
- Never change your business model.
It’s not a betrayal of your mission to put making a profit at the head of your priorities. You will only achieve your goals and complete your mission if your company survives and flourishes.
How many dreams have been crushed on the highway of life under the four tires of poor planning, undercapitalization, narrow vision, and naive optimism. Most entrepreneurs who are chasing a dream, sooner or later, run off of a cliff. The problem is that they often take their investors, friends, and family members down with them.
If you recognize that you have a dangerously low FQ, what do you do?
Fortunately, unlike your IQ, you can greatly improve your FQ. This is despite the fact that, for English and most psychology majors, this might require brain surgery to reroute some neural pathways.
You start by making yourself accountable for everything that happens at your company.
What about MQ (the Marketing Quotient)?
Just a word or two on your Marketing Quotient or MQ. Don’t be afraid of changing your business model if the one you have embarked upon is not working. For example: If you can’t make a profit with a line of books on gerbil breeding, change your model. What’s hot, what’s selling? Don’t just keep putting out better gerbil books in hopes that one will make it. Maybe you should be doing books on chinchillas or hamsters if that’s what’s selling.
Repeat after me: It’s not acceptable to blame wholesalers, distributors, reps, the school system, or any other channel or institution for your company’s distribution problems. A company with a high MQ recognizes that every intellectual property must have four or five pathways to the end user. Despite what you may have heard, it’s not the rep’s or distributor’s job to get your products on the retail racks, library shelves, or in the hands of end users. Retailers, reps, and distributors are merely the extension of your distribution system. In short, they are the fingers, but you are the arms and hands. It’s always your job.
Even Profitable Companies
Can Have Low FQs
Some of the most profitable publishing companies actually have the lowest FQs. What? Yes, because high profits tend to paper over a multitude of sins. So, don’t think that you have to be losing money to have a low FQ. Even if your business is making huge margins, someday the immutable laws of supply and demand will catch up to you — and these laws assure us that only the strong will survive. Fat and happy little companies rarely stay that way for long.
Our firm has been consulting with a $100 million association with a $16 million publishing business. They thought that they were pretty well on top of their financial picture until we started digging. In truth, they could not come up with individual book sales, in-house versus distributor numbers, know if their book publishing efforts were making or losing money, nor could they track sales by channel of distribution (professional, trade, library, etc.).
Most people need to fight to overcome their old lazy habits and start monitoring and collecting the business data that makes their companies tick. Quick, can you tell me what your 10 best-selling titles were in 1998 in dollars and units? Now, do you know what each of those titles cost you to produce and what your profit margin was? If you cannot answer those two fundamental questions, you have a low FQ.
Five Steps for Raising Your FQ
I would not identify the problem without proposing a solution. If you have a high IQ, you will recognize that you can raise your FQ and begin to make your company a big profit maker and a magnet for investors. Here are five steps to get you started.
1. Keep better records. We’re not talking LPs versus 78s here. We are talking sales by product, by territory, by channel, and by marketing method (direct mail, print advertising, catalog, etc.). Also, watch printing, shipping, mailing, and packaging costs. In short, start tracking everything.
2. Review all of your vendors, contracts, and royalty agreements to see where you can cut costs and get better terms.
3. Start making budgets and write up a real honest-to-goodness business plan.
4. Get out there and see what the market and your competitors are doing. You may think you know your market, but that might have been 10 years ago. What is happening now?
5. Get to know your banker, the CEO of your distributor, your printer, and the publishing industry investment community. Someday you may need to call on them in a hurry.
Many publishers still believe that all they have to do is produce good works of artistic or literary merit and they are assured a place in the Valhalla of the publishing industry. Please review the four tires that will flatten you on the road to Valhalla: poor planning, undercapitalization, narrow vision, and naive optimism. Only proper planning, strong financing, a broad vision, and pragmatic thinking will carry you and your company up into the top. You can choose to be one of the survivors or road kill.Stephen J. Kerr is President of Business Marketing Consultants, a firm engaged in mergers and acquisitions in the communicating arts industry. He may be reached at 2588-F El Camino Real, Ste. 287, Carlsbad, CA 92008, 888/615-9727, fax 760/967-6806, or e-mail: email@example.com. He will be speaking on Thursday, April 29th, at 10:00 am at the 1999 PMA Publishing University, Session 6G, on mergers and acquisitions.
This article is from thePMA Newsletterfor March, 1999, and is reprinted with permission of Publishers Marketing Association.