I founded TV Ears, a company that creates products to help hearing-impaired people listen to television shows. The company grew quickly and I turned day-to-day management over to my staff so I could focus on business development. The trouble was that I removed myself so far from operations that I didn't know we had a major cash flow problem until it was almost too late.
Like many small businesses, we had a bank loan, and ongoing expenses for payroll, manufacturing, and other business needs. Last summer, those burdens all caught up to us at once: We owed our advertiser $750,000, our sole manufacturer $3 million, and our bank $1.4 million.
The company was doing well -- sales were brisk, and our revenue was constantly increasing -- but we didn't have enough cash flow to pay off the debts. And in the difficult economic climate, I was worried that we wouldn't have access to more credit if we needed it. I wanted to get us out of debt before our bad decisions put us under.
Over the past few years, I'd been focused solely on growing the business. I was setting up partnerships and negotiating international distribution deals. In the meantime, I'd neglected the company's domestic operations, and my management team hadn't set up an efficient system for managing our debts. I knew that I needed to take the reins back to restructure our operations and pay off our creditors.
So I sat down at my desk with all of the company's bills in front of me. I committed to spending 12-hour days at the office and making 10 decisions each day to improve our operations.
I immediately saw that government regulations were really hurting us. We're based in California, and our wages are some of the highest in the nation. So I decided to move many of our jobs in customer service, management, and engineering. Some went to other states with lower wages and living expenses, like Tennessee, while others went to other countries. Immediately, that saved between 20 and 30 percent of our payroll expenses.
Another big expense was our accounting package. We'd been using Microsoft's MS Navision tool, and between server costs, IT staff, and the software package, we'd paid $250,000 for the service in the previous 18 months. So I moved us to a cloud-based accounting package called NetSuite. Now we don't need a server or IT assistance and I can view our financial data and make decisions from anywhere in the world. Plus, it knocked our monthly accounting fees down from $15,000 to just $3,000.
Combined, those two moves shaved $400,000 dollars off of our operating budget. Next I turned my attention to our marketing efforts.
A marketing push
We'd been promoting our product primarily through print, but I believed we needed to expand our reach. I decided to focus on extending our presence on the Internet. I hired a young woman who was willing to manage all of our social media profiles for $1,000 a month from her home. She did a great job sparking discussion around our product and promoting new sales through promotions on Facebook and Twitter.
Between the social networking and tuning up our messaging in other mediums like TV and radio, we brought in several million dollars in sales over a 90-day period.
Out of debt
After cutting expenses and boosting our sales so successfully within that short period of time, I was able to pay off all of our debt, including our bank loan. I don't want to borrow money from a bank anymore: I'd rather run our business completely out of cash flow. In this economic climate, it's a better strategy to pay bills as you go and not stick your neck out so much.
That doesn't mean we don't want to expand, though. We just need to use different tactics than a company that relies primarily on credit. For instance, I've built an alliance with our Chinese manufacturer. We've agreed that if I can get a distribution deal with a large client -- say, Walmart -- they'll team up with me and share the profits, rather than take a payment upfront for the manufacturing job. We'll lose some profit that way, but it means we won't need to go back into debt to cover our manufacturing expenses.
All of a sudden, we're very profitable. We made more than $1 million in profits in November and December alone.
My mistake for the last few years was in stepping away from the internal part of the business. It's the founder who makes things happen. Every day, you should be asking yourself, "How do I improve this product?" or "How can I make a better brochure?"
There are a million little decisions in the everyday running of a business, and no one will be as focused on making the right choices as the person who's behind it all. Once I sat down at my desk and began to make decisions, I was amazed at how much I could improve in a single day.
George Dennis founded TV Ears in 1998 as a product for his father, who is hard of hearing.
-- As told to Kathryn Hawkins