Halftime: Preparing to Finish Well Using a Mid-Year Review

financial

Halftime. I’ve written about this before, but, the year is half over, and it’s a great time to schedule a mid-year review to look at your business’s first-half performance, take what you’ve learned, and re-forecast for a strong second half of your year.

I know a lot of people are going on vacations, but for me, while it’s wise to take a short break, mid-year is a time to contemplate my client’s performances and develop a plan to come out strong for the rest of the year. In fact, for some, an offsite half or full-day session is a perfect means for this exercise.

I have had a couple of full-day, offsite sessions with my clients already this year, and while it’s not absolutely necessary to carve out a full day, whatever time you can set aside is valuable for reviewing information, and re-forecasting the business plan.  Plus, it helps you distill Q3 action plans into several big quarterly goals and get the entire team on the same page.

A quick and thorough financial close process is essential in order to have the information you need.  We’ve talked a lot about that in the past, but a strong quick close paves the way for better decision-making. It gives you more confidence in the numbers and is more efficient. Regularly gather your performance statistics: sales by segment, gross margin, expense comparisons to budget and to prior years, and any capital /investment needs for the rest of the year.

At your halftime meeting or offsite, evaluate your team and have candid conversations to maximize performance.  Look at your sales department’s performance and marketing successes/failures.  Take a close look at the current data and strengthen your plan for the rest of the year.  Gather the facts, reevaluate your assumptions, and get your team all focused and rowing in the same direction. 

Whether you decide to have an offsite, or just take some time in the office, here is a Second Half Checklist to help you prepare for a proper halftime business review:

  • Gather overall 5 Performance Stats actual versus plan: Sales, Gross margin, Operating expenses, Net income, Asset velocity
  • Update the Org Chart
  • Obtain your Income statement by month – 2021
  • Download your Balance sheet by month – 2021
  • Print out your 2021 Budget by Month (original)
  • Collect an invoice register download or sales by segment data
  • Prepare documents for an Income statement comparisons: month to date versus budget versus last year: quarter to date versus budget versus last year, year to date versus budget versus last year.

Don’t miss the halftime opportunity to take stock, reevaluate, and develop action plans to improve performance, net income and cash flow.

I’d love to see if I can help! Contact me!

Improving Your Backroom

accounting

The “Backroom” (your finance and accounting department) has always been a vital piece of a company’s framework.  I’ve been pushing backroom efficiency since I was with KPMG 30 years ago.

Back then, most internal control and accounting processes were manual and spreadsheets were just coming on the scene.  Manual methods were often inefficient, inaccurate, and boring. The larger the company, the larger the accounting department needed to be. We needed enough people just to bill customers and post cash to accounts receivable.  Things have changed significantly now; we have automated solutions where we scale differently and efficiently.

Most businesses consider that their value comes from sales and marketing. They are always thinking about how to create customer value. The finance department exists to support the business’s value creation, and we need to operate it as effectively and efficiently as possible.

In my years of work in the turnaround and profit improvement space, I’ve encountered many bloated finance departments that have grown over the years, some because of company growth, but some because of using outdated and inefficient processes.

Companies should regularly evaluate the needed functions in the company’s admin support and backroom.  Take the employee’s names out of it, and create lists of what needs to be done and what positions should be accountable for it.  You can talk with the employee(s) who currently own the process … they may have ideas about streamlining or automating processes – or even let you know if they’d rather be doing something else!

Evaluation often leads to change, and some people handle change better than others. I’ve worked with several companies where the employee is unwilling to change – they aren’t interested in learning new ways to do things, like their routine, or lack confidence.  If an employee just won’t change or isn’t willing to grow, the best way to improve the process may be to change the person who does it.

I’m currently working with a company to create a start-to-finish process manual from the ground up. We are documenting every process.  We just finished tweaking the billing process to improve efficiency.  Implementing this improved process led to an immediate improvement in cash flow ($200,000!), a reduction in one full-time equivalent, and a much better forward-facing process for the customer.

Change like this is both rewarding and difficult. It’s not an easy decision to streamline staff, yet a healthy company cannot hang onto employees just for the sake of having people around that they like or that they don’t want to upset.  Are there other positions that person is a better fit for? Or have they contributed all they can and are unwilling to grow and change with the company? In the long run, it may be healthier for them, too, to find a better fit.

Evaluating, polishing, and documenting your backroom processes can also do the following:

  • Improve leadership skills – it makes owners and the leadership team step up and pay attention to what is taking time and money
  • Mitigate distractions – a step-by-step process helps employees stay focused, and if they happen to get distracted, be more quickly able to pick up where they left off
  • Provide a planning calendar – accounting processes are often tied to a calendar, so you’ll be building a planning tool that will  help you in the future
  • Create weekly checklists – having these written out will help if the current process owner suddenly isn’t available. It’s a tool for cross-training and prepping new employees to take on this task.
  • Encourage discipline – repeated routines help create needed “muscle memory” and could free up mental space for employees to problem-solve
  • Build efficiency – who doesn’t want a more efficient company? Comprehensive and documented processes streamline tasks for everyone involved and helps you avoid individuals adding their own, possibly unneeded, steps. (i.e. do you really need to make photocopies of everything if there is a computerized record – and backup – available?)

Does the idea of streamlining your backroom intrigue you? Let’s chat. My experience can help!

Five Good Reasons for Documenting Your Procedures

You repeat your core accounting processes on a daily, weekly, monthly, and yearly basis.  For some of you, they are so ingrained, you could almost do them in your sleep.  However, that’s not the best way to handle such important tasks, even if they are routine.  ±

Here are Five Good Reasons for Documenting Your Procedures

  1. Assist with cross-training and backup. If you depend on one person to take care of your accounting every month, what are you going to do if that person leaves the company, has to stop work due to health, or worse? If processes are well documented, you at least have a fighting chance to bring someone in to continue these routines with minimal interruption.
  2. Help you discover bottlenecks and inefficiencies.  While you (or your accounting staff) may do things as “we’ve always done it”, having to document each step may point out what could be eliminated, or what may need to be added.
  3. Give you the opportunity to do the required evaluation and documentation of your internal controls (steps required by accounting standards.)
  4. Align team accountabilities by addressing the who, what, where, when, why, and how.
  5. Ensure consistency. A checklist of steps in the order they should be taken streamlines processes and helps you avoid omissions.

 

Here are some procedures you should document:

  • Revenue Cycle, including receivables, receipts, and collections.
  • Disbursement Cycle, including purchases, payables, and disbursements.
  • Inventory and asset accounting
  • Payroll, HR tasks
  • Month-end close, journal entry process, and financial reporting

 

Steps to Documenting Well

For larger organizations, there is software to assist.  For smaller companies, a manual approach works well.  I like to prepare an overall flowchart of the process to ensure I’ve captured all the related source documents and systems, then prepare a general outline of the steps to complete the process, adding a brief narrative to supplement the flowchart.  To visualize this, see the EOS process documenter.

When documenting …

  • Interview process owners and record step-by-step instruction (using a tool like Screencastify can provide a great visual aid.)
  • Source documents to the general ledger.
  • Develop an overarching flowchart.
  • Walk back thru the process steps with the process owner(s).
  • Evaluated for process alignment and efficiency – eliminate any unnecessary steps.
  • Ensure the process is followed by all.
  • Regularly reassess for alignment and improvement

While documenting, you can also ensure that

  • There is a segregation of duties of risk areas and a one over one review plan.
  • Accounting systems have access controls.
  • Your physical assets are handled in a safe and secure manner.
  • Account Reconciliations are done regularly.
  • You have competent personnel in these roles.
  • There is a structure of approval authority.

While a tedious process, documented procedures help companies become more efficient and scalable.  It is well worth the time invested in a project like this.  If I can help, contact me!

Gear-up For Q2

Well, happy spring!  I hope you had a successful first quarter.

Now that Q1 is over – how did you make out with your first quarter goals?  For me, the year-end CPA audits are done, my “big rock” goals were completed, and my teams are ready to jump into the second quarter.  It feels good to finish strong, and I hope you did too.

If you didn’t finish as strong as you hoped, I urge you to get your first-quarter financial results wrapped up early and do a solid comparison to your projections.  Take another look at your 1-year plan to ensure that you are on target.

Also, set up a meeting with your banker to ensure they are up-to-date with your financials.  A strong relationship with your bank can be so important in good and bad times.  Banks don’t like surprises and will appreciate you being proactive. Review your year-end financials, first-quarter numbers, and forecast for the future so they can have a clear view and be confident that you know what you’re doing.

As the second quarter kicks off, it is a great time to evaluate your team. How did they perform over the quarter? Are the right people on the bus and in the right seats?  I’m currently going through an exercise with one of my clients to evaluate the finance team.  We are reviewing the org chart based only on accountabilities, not names.  We will be making some adjustments. We are starting with what needs to be done, then ensuring we have the right people in the right spots.

As I look back, Verbeck Associates and my clients had some huge goals for Q1 that seemed unreachable at the time … and yet … we nailed them.  We held each other accountable, reviewing the ‘Weekly Big 3’ weekly, and if someone is behind, we help them with resources and reprioritize priorities so we hit the targets.  That process was the key to our reaching those ambitious Q1 goals.

Let’s check on your progress:

Compare your Q1 financial results to your Q1 budget and to Q1 last year. Look at sales and gross margin by segment, overhead and payroll expenses, and cash flow. How did the quarter stack up compared to your plan and to last year?

If you’re behind on your goals – be honest – face it head-on and up your discipline. Don’t use the excuse you didn’t have enough time. There’s never enough time. You need to make time and keep your focus on the important things.

Now, set up your next 90 days. Set your “big rock” goals in place and get to it!

 

Q1 Review Time: Goals, Closing, Tasks

It’s almost the end of the first quarter of 2021. Hard to believe. That was quick!

Let’s take a look at a few things you should be reviewing as the quarter comes to a close.

Goals and Targets

Business leaders who want to have strong and profitable businesses tend to set big goals for the year, and often, per quarter.  How did you do with your goals?  I’m slightly behind on a couple of the “Rocks” (high priorities) that I intended to get done by the end of this quarter.  I still have a couple of weeks to turn up the heat and get them done, and so do you!

How are your financial results so far? Are you close to where you thought you’d be? There’s still time!

Q1 is tough for us accounting types. There’s a lot of activity, including closing the prior year, meetings with your CPA, preparing for taxes, finalizing your budget and goals, and communicating with your team.  It’s not unusual to miss some targets in Q1, even significantly.

There are three options if you are missing your targets already:

  • Realign
  • Refocus
  • Give up

Option three is already off the table for an intentional business leader. But realign if you discover that your sights were set too high, and refocus if you came close but didn’t quite make it. Perhaps there are a few details you can narrow in on for the next couple of weeks to hit the target.

Financials and Recordkeeping

I’m amazed at how few companies and organizations have a solid financial close process and still don’t use a simple closing checklist – every month.  I know it’s easy to try to wing it, but from experience, things will slip – not all balance sheet accounts will get reconciled, dates will pass without action, and the overall accuracy will degrade.  I’ve experienced this myself.  We need to maintain the monthly discipline of following a checklist – every month.

A monthly close should take no more than 10 days, and should actually take less time than that. Huge companies can do it – GE, a 95 BILLION dollar company with 250,000 employees, can close in three days.

I have one client that has a complex billing process.  When I began working with them, their month-end close took 30 days.  Not only did the slow billing process affect the close, but it also caused delays in customer payments and cash flow. By focusing on changing the process, we were not only able to improve the close timing, but accounts receivable turnover also increased significantly.

If you are having closing in 10 days or less, investigate what’s slowing the process down.  A recent survey indicated the month-end close (close to disclose) process has slowed due to internal levels of review, growing need to identify and consolidate more detail for financial statements and more time to check for errors.  While these all sound good, the problem seems to be that the close is run by memory rather than clear and specific protocols and checklists

With the quarter ending – plan now to get back to basics.  Get your financials closed quickly (download the closing checklist), compare to your forecasted results, determine what is necessary to get back on track, and plan out an action plan to get back on course.

Tasks and To-Dos

All work isn’t created equal, despite it all feeling urgent.  Step back and ask yourself

What is of highest value right now?

Sometimes, I will look for the path of least resistance.  I can still feel productive checking my email or knocking a small task or two off my list. But deep down, I know I’m avoiding the significant project or important initiative I should be working on.  I have found the following three actions helpful when this occurs, and suggest the following for you:

  1. Delegate routine tasks. An administrative assistant (in person or virtual) can help with recurring tasks so you can focus on what only YOU can do.
  2. Batch tasks. Try to do your “lower value” tasks in batches. Schedule time to process email, read professional development articles, clean up files, etc. as one appointment block so you can knock off a lot of administrative tasks at one time.
  3. Automate.  When possible, utilize apps and other systems to take care of routine details. Automatic payments help you avoid late charges. Weekly reminders through tools like Outlook or Google Assistant help you stop the “try not to forget to …” thoughts swirling in your head. Using tools that snooze email to a more appropriate time can keep you from feeling distracted by a full email inbox.

A quarterly review is invaluable in helping you, and your company, succeed.  I love to help clients grow stronger in their review/closing process. Is it time for some extra help? Schedule a free strategy call today!

 

Planning Sessions Lead to Success in Business

It seems like I’ve just finished my annual planning sessions with my clients and now the first month of the year is already a wrap!  I always come off these sessions excited about a new year.

The format of these sessions varies somewhat, but all have these basic elements:

  • Looking at the past year and acknowledging the good and the bad
  • Checking our numbers to see how they compare to what we projected last year
  • Asking ourselves if we accomplished the big goals we had set the previous year
  • Ensuring that we all have the same vision and look ahead three years, asking “Where do we want to be?”
  • Turning back to the annual plan to set revenue and net income targets so we can achieve the 3-year vision
  • Drilling down to establish what we want to accomplish in the next 90 days.

The teams I work with generally have 4-6 people on the leadership team.  We make an effort to block out two consecutive days with little interruption, to allow time for deep focus on these vital steps.  But you don’t have to have a team or two full days.

If you haven’t had an annual planning session (even if with yourself), get it done now. Evaluate your team to ensure that you have the right people in the right seats, and develop a two-page annual plan (20-page business plans tend to take a lot of time and generally end up sitting on a shelf collecting dust.)  Your two-page plan should contain:

Page 1:

  • Core values
  • Mission Statement
  • 3-year and 10-year vision (What do we look like in 3/10 years?)

Page 2:

  • One-year targets
  • Next 90 days goals
  • List of issues to address

The annual plan is just the start.  You should then book times for a quarterly review. At those meetings, ensure that you review your current 90-day goals and update/list new goals and issues to address over the coming 90 days.

With the correct team environment, these quarterly meetings and the annual in-depth meeting become essential and valuable components to a successful organization.

So now that month-one is under your belt, ask yourself

  • How am I/how are we performing?
  • Have I/we made progress on our 90-day goals?
  • Are January financials closed yet?
  • Did we send our December 31 trial balance to our CPA?
  • Have we been using a weekly scorecard for visibility and to ensure our leading performance indicators are tracking?
  • If we are off track, what are we doing to get back on? (If you get off track in the first months of the year, you will have a much harder time getting on track later in the year.)

It’s vital to make sure that you have closed your January financials timely and develop your strategic plan to conquer the upcoming year.  Utilizing these tools will help get an accurate picture of where you are and how you can do better.  Download the month-end closing checklist to verify that you are positioned well for success.

Set Your Business Up for Success: Three Important Things to Do in the New Year

Goal plan success

Happy New Year! As we turn away from 2020, we take many lessons into 2021.

I’m going into the new year with confidence that we will see life improve, in part because of the intense growth many of us had to go through while navigating uncharted territory in 2020.

Hopefully, we’ve all become stronger and more resilient and can apply these freshened skills and attitudes to our business and lives this year. Here are three important things to do in this new year.

Year-End Books

For the business owners, controllers, and finance staff, it’s year-end. It is vital to get your year-end books closed quickly and accurately. And get your CPA audit started as soon as possible. This will position you to make more informed decisions this year. Speed is essential because the longer you procrastinate, the less value this report card has.

I have a current client where we are having trouble getting the CPA audit completed – we are 12 months later than expected. This delay was initially due to sloppy bookkeeping, but now it’s a delay due to CPA scheduling and some subsequent event issues (COVID, PPP, etc.) that now need to be disclosed in the footnotes. If we would have gotten these completed on time, we would have avoided major headaches, extended time – and more professional fees.

Don’t let that happen to you. Banks generally give you 90 days to submit your financial statements, but earlier is best (and if you happen to need a covenant waiver due to ratio misses, the sooner you address it with your lender, the better.) It all starts with a disciplined approach. Get your year-end checklist out and assign expected dates and who is responsible. Push to get your year-end reconciliations done and the books finalized. Do your planning with your CPA and if appropriate schedule the review/audit now. Get it on the calendar. Do the following to have a quicker, more accurate year-end close:

  • Use a month-end checklist – see my resource page for a downloadable sample.
  • Delegate as appropriate and assign expected completion dates and deadlines – don’t leave this to chance.
  • Meet with your finance staff now and review progress often.
  • Make sure all reconciliations are done early. Some could have been completed prior to year-end.
  • Prepare the roll-forward schedules with fixed assets and debt now.
  • Review your leases and know lease accounting (ASC 842) is changing for all companies after this year. This change needs to be considered with bank covenants. Consult your CPA in your year-end planning.

 

For us smaller LLC companies, update your QuickBooks. It’s a discipline of successful companies. It’s a pain for us smaller businesses, but you need to update and look at your QuickBooks.

Income Taxes

Your final tax estimate for 2020 is due January 15th.

I hope you have an income tax problem. That means you’ve had a profitable year. Yes, we want to keep our tax liability as low as possible, but having an income tax “problem” is a good thing because it means you’ve had a steady income. The “problem” surfaces because we’re inclined not to think about taxes until it’s time to pay them. I’ve seen clients scratching on April 15th to come up with the $40,000 in taxes that they owe, (plus the Q1 estimated taxes for the following year.) Ouch. So let me give you a word of important advice for 2021 – if you don’t already have a plan in place to handle estimated income tax, make that a priority this year. Here’s a practical way I do this for my business. It’s a model you could follow, too.

Based on the “profit first” concept, have a separate bank account for owner’s compensation, operating expenses, income taxes and profit.

I take a percentage of each of my revenue sources and physically fund my income tax account. My income tax account is fully funded which works for me.

Those employed by others are already familiar with taxes being taken out of each of their paychecks. Those in business for themselves need to do the same thing. I have colleagues that do essentially the same thing with their small businesses. And every time estimated taxes come due, guess what? None of us lose any sleep over taxes. We simply draw from the set-aside money, pay the taxes, and move on with our business lives. No panic, no frustration, no stress.

PPP Loan

Many of us thankfully received PPP loans in 2020. These were essential for all the companies I’m dealing with, helping them through a period of emergency. My clients have applied for loan forgiveness, but unless and until this is approved by the SBA, these loans are reflected in the books as a liability and will be recorded as revenue when the forgiveness is approved. I was glad (and relieved) to see that PPP is going to be deemed tax free. That was the initial intent, and I feel Congress made the right decision to stick with that. Also, PPP Round 2 is here. If you qualify, contact your bank, and apply! Here are some details on my resource page.

Bonus: A Professional Development Tip

If you’re looking to start 2021 off on the right foot, I suggest all business owners read the book Profit First by Mike Michalowicz. This is an extremely helpful book for getting into the proper mindset as a business owner. There is nothing wrong with making a profit—a priority.

Contact me if I can help you in any way. Here’s to starting strong and seeing 2021 be one of your best business years, ever! Cheers!

/jon

Deep Cuts: Have you Restructured Enough?

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

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?

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.