Deep Cuts: Have you Restructured Enough?

Is it time to make deep cuts

There is a saying in the turnaround world that when you cut staff, cut deep and deeper than you think – but only make the cuts once. This approach helps reinforce the morale of the remaining team members, reassuring them that no additional cuts are expected.  I’ve worked with turnarounds for 20+ years and almost every time, we didn’t cut deep enough.  There was always a rationalization as to why we need to keep this person or that person. In the end though, the majority of the time, we wish we’d made the deeper cuts, difficult as they would have been.

With the crazy 2020 economy, all of my clients have restructured in some way.   Business as we knew it changed, and we are all doing things differently than we did a year ago.

But now as we move into the new year, we need to ask the question, “Have we restructured enough?”  When advising clients, I recommend they think from the viewpoint: “If we started this company today, what would we want it to look like?”  Most admit they would want a leaner and stronger team.  Often, there’s a “Sally” who has been there for years but didn’t adapt as the company grew and remains difficult to work with.  Or a “Bob” who was enthusiastic when the company began, but has settled in and coasted for too long now.

My clients often would not have the same systems and processes, either. It’s natural for these to evolve over time. If they don’t, that’s actually concerning. While you don’t have to jump on the latest technology crazes or change a smooth operations procedure frequently, you could be missing out on productivity if you don’t at least stay aware of how you can adapt and take advantage of new tools and ideas.

Now is the time to take a look at staffing, process, and systems, with the new year coming quickly.  If you don’t, you may experience what a business-owner friend did.

He tried to keep things the way they were.  Their business was significantly impacted by the C-19 virus.  He had trouble facing reality.  He told himself, “Things will come back. I want to keep Bob and Jean, I’ll need them.”  He bled through all the excess cash on payroll and rent.  When his cash started to run out he called me.

We looked at his business as if it was a brand new start-up.  Would he need Bob and Jean if he was starting the business today? It was a definite “no.”  He also wouldn’t need his beautiful, but now 3/4 empty office.  He could do 100% remote if necessary.  He was focusing 100% of his time on worry and expense reduction rather than 90% of his time on revenue generation and strengthening his team—key roles for the CEO of a small business.

To be fair, these considerations aren’t easy.  And to his credit, he did the following:

  • He started to work within the 80/20 principle, giving 80% of his effort to the top 20% of priorities for the company.
  • He adopted the 13-Week Cash flow process, and stopped the cash bleed.
  • He gave serious consideration to his business plans and budgets for 2021, even if some decisions wouldn’t be easy.

Things still aren’t perfect for him, but his business is surviving. And these days, a surviving business can almost be considered a thriving one.

How about you? Do you need to make some deep cuts? Do some hard thinking? Make some significant changes? It’s not easy, but being a business owner often isn’t. There are ways to handle these decisions with grace and helping your people adapt or even find new places to spread their wings if your company isn’t the best fit for them anymore. You all may find you come out of this global difficulty a little stronger and better positioned for the future.  Let me know if I can help.

Budget Time – Time to Reflect, Review, Refocus

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It’s budget season.  Time to get your budget process started and formalize your plan for 2021.  (And before you panic and say, But I’m Not an Accountant! remember that all executive leaders need to develop at least a basic understanding of the financial outlook for the companies they own or help to manage to make wise decisions! Use this as an opportunity to learn and enhance your leadership skills.)

It’s also a good time to reflect, review, and re-focus before you actually start crunching numbers.

When I help business owner clients with budgeting, I do the following:

  • Reflect: We take a look back to where they were five years ago (in this case, 2015).
  • Review: We look at the transformation (or not) from 2015 to now and determine where things stand right NOW.
  • Refocus: We look at where they want to be five years from now and tighten our focus on those goals.

The look-back is important to appreciate where we are. The lessons are, yes, painful at times, but are good for us in developing as individuals and successful business owners. The look forward primes us to seize what is ahead and make it count.

This exercise helps us develop goals to move toward the five-year vision. We look at sales and marketing, operations, profitability, working capital, EBITDA, and lifestyle. This helps clarify the vision. It’s a simple, but very effective exercise. This helps us activate our brain’s reticulate activating system to do the right things to move toward that five-year vision.

After the reflect, review, refocus process comes the nuts-and-bolts part–creating the budget.

As you start forming your 2021 budget, use the following as a guide to having the budget finalized by the end of November.

  • Sales Budget: The overall company budget starts with the Sales budget. Look at customers’ sales and gross profit history. Synergistically work with your sales team to develop what is possible for your business. Look at your current customers. Set targets for new customers. Look at your current segments–are there any new segments for 2021? Put your customer data into a size/profitability matrix. If possible consider fully absorbed gross margin (i.e. some customers use more operating expenses than others). Consider allocating variable operating expenses to your cost of goods sold by customers. Understand your average transaction size and number of transactions per customer. Fact: Super-successful companies focus on sales growth more so than expense reduction. Make that your focus too. What are your planned sales by segment by month for 2021? What are your gross margins by month?
  • Production Budget: This depends on what type of business you’re running. The production plan must be able to support the sales plan. For example: Do you need to adjust shipping schedules? Is production driving revenue or is revenue-driving production? Focus on lean, smooth, and efficient processes.
  • Personnel Plan: Plan your organization chart with salary dollars and key responsibilities. Here’s a Personnel Plan (on my resource page) you can use.
  • Operating Expenses: Look at your trailing 12 month-by-month to see any seasonality or sales relationships. Forecast each line item by month and document the assumptions in a summary of significant assumptions document.
  • Interest Expense: Calculate planned debt usage. Ensure all debt on your balance sheet ties out to an amortization schedule. Plan to meet with your bankers to improve your borrowing capacity.
  • Depreciation: Plan your capital expenditure budget. What fixed assets are you buying, when, and how (lease/buy, cash/finance)? Use your fixed asset register to forecast your current depreciation for 2021 and needed fixed asset additions.
  • Cash Flow: Can you make improvements in your DSO or Inventory Turnover to improve cash flow? Your forecasted balance sheet will be driven by your cash flow drivers.
  • Calendar Your Quarterly Accountability: I use a Year-at-a-Glance Calendar and schedule everything: holidays, important dates, vacations, quarterly meetings, etc. It’s a good idea to get this drafted now.

A step-by-step budgeting process preceded by a “Reflect, Review, Refocus” exercise can help you tackle this sometimes intimidating but very necessary project in preparation for the new year. If you need help, contact me!

Image by Gerd Altmann from Pixabay

Discretion or Open-Book: Is There a Better Approach to Culture?

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The culture of a business emanates directly from its primary leader(s)—the business owner, CEO, or leadership team.

In my work with a variety of companies, I help provide an atmosphere for high performance primarily through improving financial and operating plans, performance driver tracking and accountability. Even though I bring in my own system for making these improvements, my framework needs to fit into the overall culture of the company. I also personally choose to not work for businesses that don’t have a positive, trustworthy and “desire-to-improve” culture.  Beyond those core principles though, I find that companies have cultures that vary.

Two distinct cultures I have noticed are what I call “Trustworthy Open Book” cultures and “Trustworthy Discretion” cultures.

The Trustworthy Discretion Culture

One of my longest-running clients sold her business last year (which turned out to be perfect timing.) She’d been very successful running it, and enjoyed the satisfaction of selling it at a premium.  Her approach to culture was “trustworthy discretion.”

She was very protective of the company’s numbers, even with the top leaders.  The company was primarily blue-collar with a strong family culture.  Everyone trusted her as owner to do what was best for everyone.  When she pulled me in to help (which provided the discretion of a third-party non-employee working with the numbers) we were able to double the size of the company.  It grew to roughtly $80mm with strong EBITDA, thus commanding a premium selling price.

The Trustworthy Open-Book Culture

I have another client who has gone to an open-book format. All numbers are discussed with the teams and we hold a monthly all-hands meeting to discuss monthly results whether they be good, bad, or ugly.  Everyone is seeing everything and all oars are in the water rowing the same direction. Sales and profits are at an all-time high.

Does that mean either culture can work? Yes, provided three things are in play:

  1. The top leader/leaders set the bar of being completely trustworthy.  In both examples above, the leaders were trusted. One for how she ran the company, the other for how open he has been about the state of the company.  Both built trusting relationships with the people who work for them.
  2. The culture remains consistent.  Inconsistencies lead to lack of trust, even if they aren’t intentional. If you have an open-book culture, then shift slowly OR suddenly to hiding more and more information, you are going to break trust with your team. Alternatively, if you suddenly open up, your team may take a while to feel comfortable with the approach or even feel unsettled that there are going to be other major changes to navigate.  Whatever you choose, be consistent.
  3.  The approach is relevant to the type of business.  Some industries lend themselves to open-book more easily than others. If you are manufacturing a proprietary product, your discretion with bookkeeping may be crucial, too.  If you are non-profit needing donations, being transparent about what the money goes for—a more open-book approach— may be appropriate.

Culture is dependent on the CEO and the leadership team. Trust, no matter which type of culture you choose, is the KEY.

 

Inspired to Innovate

Don't Believe Everything You Think

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I get inspired and motivated by working with smart, driven business owners every day.  They have been forced to be innovative to drive their companies and be successful in constantly changing unpredictable times.  Working with them forces ME to be innovative too, which I love.

I don’t like to get too comfortable. I believe we need to be constantly improving and developing our capacity.  Don’t believe everything you currently think.  Sometimes we need to think differently and not do things the same way they’ve always been done anymore.

Some business owners get stuck in their growth path. Maybe it’s the obstacles in the path to progress. Sometimes it’s stubbornness or a desire to stick with the comfortable.

Take a typical organizational structure for example.  As companies grow, the typical structure adds management layers – some which are necessary and important.  We are all very familiar, and often comfortable, with the idea of an org chart.  Don’t forget though that these hierarchical organization charts were developed back in the 1800s as a way to handle the now growing, larger organizations developing from the industrial revolution.  We needed to create more production in factories.  We needed supervisors to make sure the workers were doing their jobs. We needed managers to make sure the supervisors were doing their job. We needed the directors to watch the managers, the VP’s to watch the directors, etc.

Today we need different thinking.  Now, we need to trust our employees and help them develop their capacity to act, which helps improve everyone’s capacity. Equipping our employees doesn’t necessarily mean adding more task-work. Now, it’s more about helping them develop their skills so they can make wise productivity choices.  It’s a different way of thinking that also involves helping our employees understand the culture and environment we want for our organizations. What are our core drivers? Who is our real customer? How can each of us be an important part of a synergistic team?*  We want them to be an active part of moving the company forward, not just respond to a list of tasks daily.

Not only is our thinking changing, but our environments are also.  Many of us had to address re-opening our offices – how to layout the office with proper distancing, adapting smaller meeting rooms, spreading out cubes.  Many companies are still questioning the rationale of returning workers to the office full-time.  I know several business leaders who had been very strongly against remote work who were planning to come back to their office as soon as they could.  Now that they see their business working well (some very well) with employees being more productive, collaborative, and happy working remotely, their growth path has shifted and they are intentionally growing their business with remote teams.

As we focus on a strong finish to Q3 in a very strange year, get ready to look at year-to-date results, re-examine your team, and how you’ve adapted in 2020.  The 2HYBP may need to be freshened up for the fourth quarter to finish strong. Be inspired to innovate!

*By the way – here’s a fantastic book on improving your hiring process so you can get the employees that will respond well to growth.  Who, by Geoff Smart and Randy Street.

Tips for Communication with Outsourced Pros (including the Human Side)

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All CEOs, business owners, and finance execs (CFOs, VP Finance, and controllers) hire and manage outside experts.  Auditors, lawyers, turnaround consultants, IT consultants, HR experts, sales consultants, business consultants, executive coaches and virtual assistants are just some of the roles being filled by independent contractors.  Our current world is opening the door more and more to this type of “gig economy” and the building of virtual teams, some members of which may not be your employees.

In fact, I’m one of those “outside experts” brought in to improve the company’s overall performance. I’ve also worked with hundreds of experts over the years, and I know the importance of working effectively with independent contractors.  For me, it’s all about setting proper expectations and communication – and in today’s world, both are more important than ever.

Having been on all sides, both being hired and doing the hiring for a wide range of projects, I’ve had mostly good experiences, but also a few bumpy ones.

On the good side, an internal control evaluation project I was managing proceeded extremely well.  The project came in on budget, on time and right on scope.  It was a pleasure working with the expert I hired to help with the project.  He was professional, showed up on time, handled the company’s employees well, and delivered a final product that made me look good.

On the bad side, there have been occasions where the professionals I hired didn’t perform anywhere close to where I expected. In one case, they embarrassed me in front of my client’s leadership team.  Then they gave me a bill that blew my socks of, for an incomplete project not even close to what I expected!

I discovered that the most important element for successful projects is clear communication.  I now ensure I have crystal clear objectives with weekly status meetings to ensure everyone is on the same page.  I also continually re-evaluate the situation.  Here are some practical tips to help you navigate your relationship with your outside experts (or manage your relationships with your clients) well:

  1. Start with a clear engagement letter, statement of objectives, or memo of understanding.
  2. Define expectations on all sides so everyone is on the same page.
  3. Conduct a regular review of past, present, future, and future priorities.
  4. Establish a timely invoicing structure. Some outside pros are famous for billing delays which lead to large “lump billings” which can shock a client. (It shouldn’t, but that’s another topic, and even so large billings months later are not best practice.)
  5. Evaluate regularly to make sure the contractor is still adding value, or that you are continuing to add value to the client.  For me, I try to show 10x my fee in better profits for the client. For the virtual executive assistance I contract, we meet almost weekly to discuss objectives and ideas, and she is willing to mention if I’m not making use of a routine service her team is doing for me.  Ensure both sides determine the value and the results and make changes accordingly.

If you’re an outsourced pro, you need to make doing business with you easy and pleasant. You’d want the same from a pro you hire.  Clear expectations and procedures help both sides.

Bonus – since so many of us are working virtually, here are a few additional tips for the human side of communication.

  • Invest time to get to know them your outsourced pro. Start meetings with a bit of chit-chat about how things are in their world.
  • Make them feel part of the team. Ask advice. Include them in team meetings if appropriate.
  • Give feedback on performance – positive or negative, on a regular basis.
  • Understand their other projects. Most outsource pros have more than one client they are serving. Don’t be afraid to show interest and respect to them as a business owner.
  • Pay them market or better – don’t skimp on paying what they’re worth.  You get what you pay for.

You can have extremely successful relationships with outsourced professionals (like me!) if you handle communication intentionally and regularly.

Do you need outsourced CFO help? Contact me!

 

Halftime Report: the Value of Mentoring

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2020 is half over.

For many, it’s a “Don’t let the door hit you on the way out” attitude. Filled with so many unexpected, and primarily negative things happening in our country and world, it’s no wonder many of us would like a do-over.  Technically, we DO get a “do-over” multiple times per year. The halfway point of the year (no matter how good or bad it’s been) is a good time to evaluate and reset ourselves in goals, priorities, and values.  Sometimes, it’s particularly helpful to have a mentor involved in that process (or be one.)

I have felt incredibly inspired lately to be able to be a mentor and coach in some capacity to several of my client controllers and finance team members.  It’s our responsibility as leaders and experts to provide a trusting, enthusiastic and continually developing work environment to the new generation.  I’ve enjoyed passing along my experience and ideas to them, hoping to help them avoid mistakes and make decisions with wisdom and trustworthy information.

But you can’t just immediately jump into a mentor/mentee relationship without developing trust. It’s a process that goes both directions – me with them, them with me. It involves doing what you say, being transparent and honest, delivering results, and confronting some harsh realities.  You have to be willing to establish clear expectations and hold each other accountable. Sometimes that involves having difficult conversations.

I have set weekly meetings with several of my key client controllers to insure I set clear expectations for the immediate,  and quarterly meetings to focus more on the long-term.  The quarterly meetings are where we dive deeper and I provide bi-lateral candid feedback, using a simple checklist to help me help them review both theirs—and MY leadership and management.  The process is remarkably effective to build trust and accountabilty. I’m also working on my listening skills so I can better understand the other person’s perspective.

Mentoring and coaching is about leadership and guidance.  I find sometimes the teacher becomes the student and I’m loving it.

How about you? As you make a halftime report to yourself, can you consider getting involved in a mentor/mentee relationship to help you grow in your leadership skills the second half of 2020?

Thoughts on Courage

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I am so inspired by the courage I see every day recently in front-line workers—the doctors, nurses, grocery store checkout clerks, police officers, etc.  I am also in awe of the bravery and courage of our military personnel.  Courage drips off these people.  I also inspired the people I serve and many of my clients who have really stepped up and demonstrated immense courage and leadership.  It seems like a crisis can bring out the best in people.

With business significantly changing and the ‘new reality’ is completely unknown, courage and trust are so needed today. Our staff needs our leadership and support—which especially now, can take incredible courage to step up and provide leadership to drive our companies forward.

Courage is a combination of knowledge, faith, and action.  We need all three—two without the other generally doesn’t work.   A project team with knowledge and faith gather the data—they know it’s going to work—but without action, it’s paralysis by analysis.  We all suffer from this.  We need to have the facts and believe what in what we’re doing, but we need action to bring the goal, project, or initiative to completion.  However, action and faith without knowledge is generally stupid and short-sighted.   And knowledge and action can work together, but if there isn’t faith in the idea or project, it won’t sell well or create enthusiasm among staff and clients/customers.  We need all three to exercise real courage.

Courage is such an important attribute in our business’s success.  Companies are already perishing at an unbelievable rate – 52% of the Fortune 500 from 2000 to today are gone. (Yes, some through acquisition, but many are outright gone.)  Somewhere the balance of knowledge, faith, and action failed.   This a is scary fact, but learning from it gives companies an opportunity to be different and thrive.

What got us here won’t get us there.  We need to continually work for tomorrow developing ourselves and our teams and mustering the ongoing courage to drive our companies forward, try new things, and learn from mistakes.

We all fear change. We’ve been brought up to keep “safe.”  And indeed, we need to practice safety on practical levels, especially now. But like a caterpillar that eventually turns into a butterfly, we cannot stay cocooned in the “safety net” of how we’ve always done things while the world drastically changes around us.

Here’s to the courage we are seeing, and the courage we are trying to muster up. Our companies, our staff, and our world need it.

 

The 13-Week Cash Flow Forecast

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I’ve been harping on using the 13-week cash flow forecast (13WCFF) process for years.  It is one of the basic tools for the turnaround professional to quickly get a handle on the short-term cash needs.   It forces the business owner to run their business based on cash the typical income statement lens.

The typical monthly balance sheet and income statement are not enough to effectively run your business.  I’ve seen many profitable businesses run out of cash – and conversely, I’ve worked with struggling companies that have stayed alive for months allowing them to the runway needed to return to profitability.

Whatever stage your business is in, I highly recommend implementing a 13wcff process now to help in these extremely uncertain times.

The concept is the 13WCF forecasts cash receipts and cash disbursements by week for a 3-month period.   In a turnaround, the 13WCF is updated constantly, but for a typical business, I like to update it weekly so it’s always a rolling 3-month look forward.

With all the current uncertainty it’s more important than ever to use the 13wcf process to better predict your cash position, see any bumps in the road, and help you sleep better at night.

The 13wcf forces businesses to think in terms of cash vs typical GAAP accounting.

I created this short demonstration video on how to use the 13-Week Cash Flow template in my resource section.  It takes some work to get started and discipline stay with it update it weekly, but I guarantee this process with help your business.

I hope this helps.

As always, if you need help, reach out to me.

Our Changing World – Strange Days Indeed

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The world has changed.  Your world and the economy as you know it has totally changed – and not for the better in the short-term.  We must face facts. The next two quarters will be brutal.  But this is the time to stay focused because we will all get through this.  When you’re in hell, you keep going.

But sometimes, in a crisis, we decide to be honest about our situation (even if it’s not fun), consider the worst-case scenarios (which may not become the case for our business), determine the actual facts of the situation in relation to our unique business (without panic), consider all resources (we may have more than we realize), cut out spending (which isn’t a bad idea even in healthy times) and take appropriate action (that’s what you are in leadership for.)

For many, part of this process will be to take advantage of the Federal Coronavirus Relief Bill.  Work with your CPA, lawyer, and banker now!  See some summary pieces and the simple applications here.

Thoughts On Remote Work

All my clients are now working remotely.  Some companies were progressive and pushed for being ready; others were in denial until the state governors issued stay at home orders.

I’ve been working remotely for the last 15 years as a trusted business advisor and virtual CFO to businesses around the country.  Now everyone is working remotely (or WFH – work from home).  I am lucky to have a great office space above my detached garage.  It’s interesting, with such an increase in video calls, to see how else is using their remote/home space.  Interacting with and leading remote teams is much different for some, where it’s business as usual for those who have been working virtually for years.

Many of my clients are using (and loving) Microsoft Team. I like it too (though I prefer NOZBE Teams.)  Many other tools are now becoming well-known such as Zoom, Asana, Basecamp, and more.

The tool you pick is important, but what’s more important is how you use it.  Try to mirror some of the same standards, schedules, and communication guidelines that would be in place in the on-location office. These virtual tools help you be able to carry on in a similar way … yet do understand that your team is going through a major change that is likely affecting (sometimes deeply) their personal lives, level of distraction, and emotions. Show some grace for a while, while keeping some standards and routines that will provide structure and even, respite, from the onslaught of information and fear.

Let me know if I can be of help to your team during this scary but also potentially beneficial (in some ways) time.  Contact me here.

The Art of the Close

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Controllers and CFOs know that having a quick and accurate financial close is essential to manage your company effectively. Accurate and timely financial statements allow leadership teams to get a view of the organization’s financial picture and allows managers to make changes to improve performance.

We all can become relaxed in our company processes, but the financial close must be attacked with discipline and rigor. It’s early in the year so now is a great time to evaluate your close and improve your close process now so you have the best information as early as possible to make the best decisions. Test your close process this month-end.

I use a closing checklist with all of my clients. See an example here. The checklist lists the closing tasks, who is responsible and the expected completion time-frame. It is a simple process and keeps everyone on the same timeline. Using a closing checklist will improve your accuracy, completeness, and efficiency. You will have better information, sooner.

Once the general ledger is closed and the checklist is complete, a basic (or sometimes not so basic) reporting package can be produced, distributed, discussed, and reviewed.

I know many business owners who don’t look at their monthly financial statements very closely or they don’t fully understand what they are looking at. Some business owners don’t even look at their financial results at all. I believe it’s important to look at your monthly report-card (earlier vs. later) and to fully understand what they are telling you or trending toward. This holds teams accountable, which improves performance and allows you to make changes and improvements earlier to avoid any bumps and improve financial performance.

The other day I met with a very experienced and talented business owner who was surprised by his company’s recent situation – his company was profitable most months, but he was having trouble making his payroll. He didn’t understand the balance sheet very well. His accounts receivable and inventory were using all his cash. After a quick review of his financials and a brief lesson on asset velocity, the balance sheet, and cash flow, he saw his problem. He is developing ideas and solutions to improve this and breathe easier.

Are you experiencing similar challenges? I can help. Contact me!