He Has Drive, but . . . : Computer Store Can Run Only so Far on Ambition

By CYNDIA ZWAHLEN

Nov. 26, 1997 12 AM PT

SPECIAL TO THE TIMES

Thinking big is no problem for Craig Burdick, who has a simple business goal: to become a household name in the computer industry.

His NonTech Computers store opened in Torrance just last year, but Burdick is convinced he can make his dream come true.

“To accomplish anything, you have to look at the goals and the outcome,” Burdick said. “If you focus on the speed bumps along the way, you will slow down and stop.”

By nature, and because of the daily demands of a start-up, Burdick has been inclined to ignore the speed bumps--the necessary but time-consuming parts of running a business. Lately, though, he has begun to feel his business may be veering just slightly out of control.

“It’s become more and more nagging,” Burdick said. “I feel like I could crash at any time.” But he’s worried that buckling down and being more realistic, as some have urged, would mean settling for less than his dream to become as well-known as Bill Gates.

“Somebody is going to become a household name,” Burdick said. “If they told Starbucks . . . to have a more realistic outlook, maybe they wouldn’t be where they are today.”

There’s just enough truth in that to be dangerous if taken literally by a starry-eyed small-business owner, said veteran business consultant Eric G. Flamholtz, who, as it turns out, had worked with Starbucks for four years.

“Starbucks has been paying attention to building operational infrastructure since the beginning,” said Flamholtz, president and co-founder of ManagementSystems Consulting Corp. in Los Angeles. Burdick’s situation “is totally different,” he said. “It’s a one-man band, and he didn’t understand . . . some very fundamental things” about running a business.

He gives Burdick credit for intuitively finding a potentially lucrative business niche--helping smart people who feel dumb about computers in a nonthreatening, “hand-holding” environment. Burdick sells, repairs and designs computer systems and offers training geared to the nontechnical user.

But people skills and technical ability, which Burdick prides himself on, will take any business owner only so far, said Flamholtz, who also is a professor of management at UCLA’s Anderson School.

The consultant uses six variables to judge the state of a business, as outlined in his book “Growing Pains: How to Make the Transition from an Entrepreneurship to a Professionally Managed Firm” (Joey-Bass Inc., 1990), written with the assistance of Yvonne Randle, a vice president in his consulting firm.

Burdick has navigated the first two--finding a market niche and developing a viable product. The third--acquiring resources--isn’t yet a problem, said Flamholtz, who gave the business owner a copy of his book. Burdick’s parents lend a hand with the business--his mother in the store and his father with the books. And NonTech isn’t ready for expansion financing, Flamholtz said.

Burdick has devoted little time, though, to the fourth, and in his case critical, step: developing the core operational systems a business needs to survive.

“He needs to put the operating systems, especially financial and accounting systems, in place while he’s small and still knows what’s going on intuitively, when costs and problems are simple,” Flamholtz said. Burdick’s business is too small for him to worry about the final variables: management systems and corporate culture.

Start with the basics of an operating system, Flamholtz recommended. First, Burdick needs to work out a personal budget showing what he needs on a weekly and monthly basis, then he should take an appropriate, fixed salary.

He praised Burdick for keeping his personal expenses at rock bottom, about $1,000 a month, but noted, for instance, that charging his automobile insurance to the business was a no-no.

Commingling personal and business funds is a common problem for start-up business owners, the consultant said. But a lack of financial discipline on a personal level can endanger a business, he cautioned.

Once personal expenses are accounted for, Burdick needs to put together the basic parts of a financial system: a sales forecast, a profit forecast, monthly financial reports that will show how well the business is meeting those projections, and a break-even analysis.

Flamholtz offered the owner a work sheet to help create a monthly sales forecast for the business for one year. Then the two sat down to work on a profit budget, which would show, based on expected sales, how much money NonTech Computers would make or lose each month.

They estimated the business made about 14 sales a month, averaging $1,800 each. Of the $25,200 in monthly sales, Burdick estimated his inventory costs to be $19,600. That left him with a gross profit margin of $5,600, or 20%, the two calculated. That’s not all gravy, though. Fixed costs such as rent, utilities and Burdick’s base salary must come out of that sum, then he has to subtract 40% to 50% for taxes. Not until then does the actual profit, the net income, show up. In Burdick’s case, it’s about $1,200 to $1,400 a month. It’s out of that much-reduced figure that any bonus, reinvestment in the business or new equipment must come.

It looks clear enough when laid out in black-and-white, Flamholtz said, but many new business owners struggle to understand the idea that banking, say, $25,200 in monthly sales does not mean they have $25,200 to spend any way they like. Not if they want to stay in business. People confuse cash and profit, Flamholtz said.

“It’s a critical difference,” Flamholtz said. “People have to realize the money [from sales] has to go back into inventory.”

He also suggested Burdick update his break-even analysis. That shows how many units a business needs to sell in order to meet expenses and start making money, and, based on sales forecasts, when that break-even point will be reached.

The final piece of the operations infrastructure Burdick should focus on is the monthly financial statement, Flamholtz said. It will provide the information he needs to manage his business and plan for the future: revenue, cost of goods, fixed costs, gross margins, net income, etc., for the current month, compared with the month-ago and year-ago periods. The report can be created with basic business accounting software.

Burdick also could benefit from the services of a certified financial planner who specializes in small businesses, Flamholtz said.

Tools such as financial forecasts and a monthly report will give Burdick the help he wanted in getting the financial side of his business on track.

“My organizational skills are not what they should be,” Burdick said. “. . . It’s an uncomfortable zone for me. I’m a good people person, but I’m not a real highly responsible person by nature.”

Once he has his operational systems in place, Burdick can focus on business survival, Flamholtz said. That is to develop a business plan and a three-year strategic plan designed to get him on the road to meeting his long-term goals, unrealistic as becoming a household name may seem as an objective.

“That sounds nice, but it’s not going to happen for a firm like this, certainly not for at least 10 to 20 years,” Flamholtz said. “And not with what he knows about how to run a business.”

Which leads to the last of Flamholtz’s recommendations for Burdick: ongoing business education. In addition to business books and audiotapes, Burdick could take classes, such as finance for nonfinancial managers, and attend an entrepreneur program at a local university, Flamholtz said.

“I know in the back of my head that businesses that fail, fail largely because of the reasons I’m lacking,” Burdick said. He plans to find qualified help to navigate the “speed bumps” ahead, which he now realizes are there for a purpose: the safety of his business on its way to reaching his big goal.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Meet the Consultant

Eric G. Flamholtz, who has written several books on organizational management and development, is a professor of management at UCLA’s Anderson School.

He co-founded ManagementSystems Consulting Corp. in Los Angeles in 1978 and serves as its president.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

This Week’s Company Make-Over

* Name: NonTech Computers

* Headquarters: Torrance

* Type of business: Computer sales, repair and training; systems design.

* Status: Sole proprietorship

* Owner: Craig Burdick

* Financing: $25,000 start-up loan from parents

* Sales: $131,600 in 1996; roughly $100,000 through June 1997

* Employees: Two part-time technicians

* Founded: March 1996