Author Archive | Daniel E

Business Restructuring Process | How to Restructure Successfully During COVID-19

Business Restructuring Process COVID-19 business process restructuring blog photo

We are now experiencing the worst global pandemic in 100 years. COVID-19 hit the U.S.A. in Q1 2020 and businesses were forced to either slow down, shut down, or change the process of how they do business. Now is a critical time to understand the business restructuring process.

Most businesses, large and small, have been affected in some way, mostly negatively. On top of that, the price of oil came crashing down once again. This brought a parallel downturn in the oil and gas industry causing companies to consider a business restructuring process.

Since 2015 business restructurings were at an all-time low.

Just a few months ago businesses were booming, companies were having record years in 2018 and 2019, low-interest rates, access to capital, strong GDP, unemployment low, decent companies had good margins and cash was flowing. If you would have asked me in December 2019, what are the chances of the world economy to come very close to a complete shut down in a few weeks? I would have told you close to zero. The business restructuring process was far less common.

When margins are high, clients are knocking on the door and cash is flowing it is easy to forget about margins, working capital, and cash flow forecasting. There was a false sense of security in 2018 and 2019. We spoke to several business owners of large and small successful business and they did not have time to talk to us about managing cash flow, KPIs, and margins. If their books closed 3 weeks after the end of the month and on a cash basis, they were fine with that. In good times is easy to forget about the basics and having a backup plan in case you have that “rainy day”. Guess what, now we are all living that “rainy day”, but it is not just one day. It is likely to be a downturn for the entire year of 2020. In addition, very few companies had a backup plan for completely shutting down operations for 2 weeks, 2 months or more.

This was never supposed to happen.

Businesses Push for Survival 

We have seen some businesses push to partially open and survive. We have seen a few businesses take the punch well because they had positive net working capital and cash in the bank. But we have seen many businesses struggle with barely making payroll and meeting its debt obligations.

NET WORKING CAPITAL = the company’s ability to meet its short-term obligations.

More than ever managing net working capital has become very important.

Business Restructuring Process

Throughout my career, I have helped companies successfully restructure their business because they were impacted by an event that caused them to be in financial distress. As a recent example, there were layoffs and a division of a company was shut down. The remainder of the company was profitable, smaller, and had a future and was able to survive.

How to Successfully Restructure your Business During a Global Pandemic

This blog is intended for all business owners out there, so we all have a chance of survival. Over my 30 years as a professional, I have witnessed countless financially distressed businesses go from struggling to surviving from a successful restructuring process.

The term restructuring can have several different meanings and can be used in different ways.

Restructuring can mean…

  • changing the management team
  • entering a different industry
  • shuffling people around within an organization
  • reorganization of your debt and operations out-of-court
  • filing for bankruptcy and reorganizing with court protection

Restructuring your Capital Structure and Debt

In a case where a company was impacted by an unforeseen event such as a global pandemic (COVID-19), the business was a healthy business in a healthy market, and from no fault of their own, they have now faced a situation of financial distress because of lost revenue, and debt on their balance sheet.

If it were not for COVID-19, restructuring would have not been needed. Restructuring can happen out-of-court, that means without filing for bankruptcy protection, or through a court process where a company files for bankruptcy protection.

Business Restructuring Process| Out-of-Court Restructuring 

Without Filing for Bankruptcy | Out-of-Court Restructuring Process

Out-of-Court Restructuring is where a company attempts to reorganize its debt with creditors without filing for bankruptcy. In order for a business restructuring process to be successful, a Financial Advisor is hired to assist the business owners to restructure their debt with secured and unsecured creditors. This could also include raising capital to recapitalize your business.

In order for an out-of-court restructuring to be successful, it means that everyone wants to play ball. The parties involved are willing and able to enter into discussions to restructure the debtor’s liabilities and support the company with its future business plan. It only takes one major third party to object and this kills the opportunity for the out of court restructuring process to be successful. Also, keep in mind that in an out-of-court restructuring the business has no protection and can be hurt by aggressive creditors.

Business Restructuring Process | In-Court Restructuring

Filing for Bankruptcy | In-Court Restructuring Process

In-Court process, filing for bankruptcy; this is a formal process where the law provides the debtors with statutory protections. Assuming your business is a viable candidate for a Chapter 11 bankruptcy, your business will have the time and opportunity to negotiate and reorganize your debt and capital structure. The company will present a plan of reorganization, a business plan, that shows the court and creditors how the business will survive as a viable business after the bankruptcy.

A Second Chance at Survival for Businesses

The bankruptcy process is long, expensive, and takes a lot out of an organization. But if done correctly it gives the business a second chance to survive and probably with less debt. In bankruptcy, you will be dealing with things you have never dealt with before such as:

  • Bankruptcy attorneys
  • A court and judge
  • Possibly a creditors committee
  • Financial advisors
  • Strict reporting requirements and deadlines for reporting
  • Possibly a Trustee

The Beauty of the Bankruptcy Process

The beauty of the bankruptcy process, specifically Chapter 11, is that if the process and filing are well planned out there is a very good chance of success and emerging the other side with a strong company producing cash flow.

Kicking the Can Down the Road | Hardworking, proud, and out of control?

Common attributes of CEO’s, business owners/entrepreneurs are hardworking, proud, and they have always been in control. This is the first time for many business owners and CEOs not to be in control, it is the first time for feeling financial distress. So many of them “kick the can down the road” and avoid what their balance sheet and P&L are telling them.

The Debt is Not Going Away

Yes, it is true that many banks are being “kind” during the COVID-19 process, and maybe providing waivers for strict financial covenants related to the debt. But the reality is the debt is not going away, and there is still a lot of uncertainty around what is normal and will be the “new norm” for business.

Reclaim Control | Business Restructuring Process

Now more than ever it is critical that your financial statements are on an accrual basis. A cash-basis balance sheet will NOT tell you what your real net working capital is, and you will only be lying to yourself.

Take Corrective Action

Corrective action – talk to a financial professional to determine if you might need to have your company restructured. Your financial professional is NOT the CPA that prepares your tax returns.

A Trusted Advisor

We can provide an analysis and recommendation and walk you through the restructuring process, out-of-court, or in-court through a bankruptcy process. Give us a call and find out how we can become your trusted financial advisor through this difficult time.

Download the free External Analysis whitepaper that guides you through overcoming obstacles and preparing how your company is going to react to external factors.

Business Restructuring Process | How to Restructure Successfully During COVID-19

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Margin vs Markup

See Also:
Gross Profit Margin Analysis
Retail Markup
Chart of Accounts (COA)
Margin Percentage Calculation
Markup Percentage Calculation

Margin vs Markup Differences

Is there a difference between margin vs markup? Absolutely. More and more in today’s environment, these two terms are being used interchangeably to mean gross margin, but that misunderstanding may be the menace of the bottom line. Markup and profit are not the same! Also, the accounting for margin vs markup are different! A clear understanding and application of the two within a pricing model can have a drastic impact on the bottom line. Terminology speaking, markup is the gross profit percentage on cost prices or cost of goods sold, while margin is the gross profit percentage on selling price or sales.

Effective Ways to Optimize Profitability

So, who rules when seeking effective ways to optimize profitability?. Many mistakenly believe that if a product or service is marked up, say 25%, the result will be a 25% gross margin on the income statement. However, a 25% markup rate produces a gross margin percentage of only 20%.


NOTE: Want the Pricing for Profit Inspection Guide? It walks you through a step-by-step process to maximizing your profits on each sale. Get it here!

Download The Pricing for Profit Inspection Guide


Markup vs Gross Margin: Which is Preferable?

Though markup is often used by operations or sales departments to set prices it often overstates the profitability of the transaction. Mathematically, markup is always a larger number when compared to the gross margin. Consequently, non-financial individuals think they are obtaining a larger profit than is often the case. By calculating sales prices in gross margin terms they can compare the profitability of that transaction to the economics of the financial statements.

(Try the calculators at the bottom of the page to discover for yourself which is better!)

Steps to Minimize Markup vs Margin Mistakes

Terminology and calculations aside, it is very important to remember that there are more factors that affect the selling price than merely cost. What the market will bear, or what the customer is willing to pay, will ultimately impact the selling price. The key is to find the price that optimizes profits while maintaining a competitive advantage. Below are steps you can take to avoid confusion when working with markup rates vs margin rates:

Establish a Price

Still deciding whether to use margin or markup to establish a price? Easily discover if your company has a pricing problem and fix it with either margin or markup. Download the free Pricing for Profit Inspection Guide to learn how to price profitably.

margin vs markup, Effective Ways to Optimize Profitability

Strategic CFO Lab Member Extra

Access your Strategic Pricing Model Execution Plan in SCFO Lab. The step-by-step plan to set your prices to maximize profits.

Click here to access your Execution Plan. Not a Lab Member?

Click here to learn more about SCFO Labs

Effective Ways to Optimize Profitability, margin vs markup

Margin vs Markup Chart

15% Markup = 13.0% Gross Profit
20% Markup = 16.7% Gross Profit
25% Markup = 20.0% Gross Profit
30% Markup = 23.0% Gross Profit
33.3% Markup = 25.0% Gross Profit
40% Markup = 28.6% Gross Profit
43% Markup = 30.0% Gross Profit
50% Markup = 33.0% Gross Profit
75% Markup = 42.9% Gross Profit
100% Markup = 50.0% Gross Profit

Margin Calculator

Markup Calculator

(Originally published by Jim Wilkinson on July 24, 2013)

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Markup Percentage Calculation

See Also:
Margin vs Markup
Margin Percentage Calculation
Retail Markup
Gross Profit Margin Ratio Analysis
Operating Profit Margin Ratio Analysis

Markup Percentage Definition

Define the markup percentage as the increase on the cost price. The markup sales are expressed as a percentage increase as to try and ensure that a company can receive the proper amount of gross profit. Furthermore, markups are normally used in retail or wholesale business as it is an easy way to price items when a store contains several different goods. Now, look at the markup percentage calculation.

Markup is great. But if you aren’t intentionally pricing for profit, then you’re missing out on some opportunities for big improvements. Click here to download your free Pricing for Profit Inspection Guide now.

How to Calculate Markup Percentage

By definition, the markup percentage calculation is cost X markup percentage. Then add that to the original unit cost to arrive at the sales price. The markup equation or markup formula is given below in several different formats. For example, if a product costs $100, then the selling price with a 25% markup would be $125.

Gross Profit = Sales Price – Unit Cost = $125 – $100 = $25

Now that you have found the gross profit, let’s look at the markup percentage calculation:

Markup Percentage = Gross Profit/Unit Cost = $25/$100 = 25%

The purpose of markup percentage is to find the ideal sales price for your products and/or services. Use the following formula to calculate sales price:

Sales Price = Cost X Markup Percentage + Cost = $100 X 25% + $100 = $125

As with most things, there are good and bad things about using markup percentage. One of the pitfalls in using the markup percentage to calculate your prices is that it is difficult to ensure that you have taken into consideration all of your costs. By using a simple rule of thumb calculation, you often miss out on indirect costs.

(NOTE: Want the Pricing for Profit Inspection Guide? It walks you through a step-by-step process to maximizing your profits on each sale. Get it here!)

Markup Percentage Calculation Example

For example, Glen started a company that specializes in the setup of office computers and software. He decided that he would like to earn a markup percentage of 20% over the cost of the computers to ensure that he makes the proper amount of profit. Furthermore, Glen has recently received a job to set up a large office space. He estimates that he will need 25 computers at a cost of $600 a piece. In addition, Glen will need to set up the company software in the building. The cost of the software to run all the computers is around $2,000. If Glen wants to earn the desired 20% markup percentage for the job, then what will he need to charge the company?

(Looking for more examples of markup? If so, then click here to access a retail markup example.)

Step 1

First, Glen must calculate the total cost of the project which is equal to the cost of software plus the cost of the computers. Find the markup percentage calculation example below.

$2,000 + ($600*25) = $17,000

Step 2

Then, Glen must find his selling price by using his desired markup of 20% and the cost calculated for the project. The formula to find the sales price is as follows:

Sales Price = (Cost * Markup Percentage) + Cost
or
Sales Price = ($17,000 * 20%) + $17,000 = $20,400

In conclusion, Glen must charge the company $20,400 to earn the return desired on cost. This is the equivalent of a profit margin of 16.7%. For a list of markup percentages and their profit margin equivalents scroll down to the bottom of the Margin vs Markup page, or you can find them using the above markup formula. Using what you’ve learned the markup percentage calculation, the next step is to download the free Pricing for Profit Inspection Guide. Easily discover if your company has a pricing problem and fix it.

markup percentage calculation, Markup Percentage

Strategic CFO Lab Member Extra

Access your Strategic Pricing Model Execution Plan in SCFO Lab. The step-by-step plan to set your prices to maximize profits.

Click here to access your Execution Plan. Not a Lab Member?

Click here to learn more about SCFO Labs

markup percentage calculation, Markup Percentage

(Originally published by Jim Wilkinson on July 24, 2013.)

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Pitfalls to Avoid When Growing Your Business

A strong economy drives business growth. I think most of us can agree on that. Growth is usually good…

But if it is not controlled growth, it simply will not be sustainable.

In this blog, I outline several pitfalls to avoid when growing your business (especially in a high growth scenario). It’s all about managing the growth properly.

We have two current clients that are experiencing high growth, and they can barely make payroll.

With a pipeline of huge sales, how can this be possible…?

Their lack of planning on systems and procedures has also caused the management to not sleep well at night.

SCFO Lab Members: The reason most income statement projections fail is because of a lack of ability to accurately project sales! Start the Sales Genie EP now.

What Happens in a High Growth Scenario?

So, what happens in a high growth scenario? It should be all good news… The problem is that many times the decision maker(s) of a high growth company have never experienced high growth. Sometimes, these can be startups or a business that developed a new product.

If you have not experienced it, then it really is hard to imagine all the things that can take place.

Example of a High Growth Scenario

Let’s look at an example of a high growth scenario in a made-up company…

You are a manufacturer of widgets and you own a manufacturing facility. You have 50 employees before the company is about to explode in growth.

Your VP of Business Development or VP of Sales brings you new contracts that will significantly change the size of your company.  These contracts will double, triple, or even quadruple your business in the next 18-24 months.

So no worry about generating sales….

But there are several questions that need to be asked and pitfalls to avoid in this company.

Pitfalls to Avoid When Growing Your Business

Inventory: How are you going to fill all those orders?

You need to purchase a lot of inventory of raw material. In addition, your purchasing transactions just tripled in dollars and quantity. Finally, you have enough machines to manufacture items for the next 12 months… But next year, you will need to acquire more machines to keep up with demand.

Labor: What about labor?

The purchasing person is working already 50 hour weeks, and you know you will need to hire another purchasing person. Your plant labor needs to increase to compensate with the increased workload.

Right now, your 3 person accounting team includes 2 bookkeepers and a controller. You realize you need a cost accountant.

Systems, Process and Procedures

You have used a basic accounting system for 10 years, but you realize that you have outgrown the accounting system. It is not the right system because it does not handle cost accounting or standard costs. You want to integrate purchasing and inventory modules.

For years, you kept inventory and work-in-process on spreadsheets. Now, the dozens of spreadsheets are not reconciling. It’s time to automate inventory.

The once per year physical count of inventory is no longer enough. You need to have cycle counts and maybe at least a full physical count quarterly.

For years, you have operated informally, but you now you realize you need to have written policies and procedures.

Accounting

You have run your business on a hybrid cash/accrual system, never really got to full accrual accounting, and never really worried about GAAP financial statements. Maybe you should…

You never considered having your financial statements audited; however, with all this growth, you might sell one day. Having your financial statements audited would add value to your business.

Your company is growing so much, you need more than financial statements that tell you what happened in the past. Now, you need projections, budgets, and dashboards.

It’s time for a strategic financial partner. It’s time for a CFO.

Click here to access our Goldilocks Sales Method, and learn how to build your sales pipeline and project accurately.

Human Resources

Your admin person that did a great job all these years is now dealing with 3 or 4 times as many employees. It’s time to hire someone that has a good understanding of labor laws.

Payroll was done in house. Now with so many hourly people and manual time sheets, it’s time to upgrade and integrate payroll to the accounting system or have it outsourced.

Consider automated time keeping and get away from the multiple spreadsheets.

Legal and Tax

Your new sales take you out of State. Now, you are selling in 5 different States.

Have you created nexus in these other States? They have State taxes… Oops!

You had to hire a few people on the ground in the other States; your labor laws just got really complicated.

Sales and Use tax… Are you paying the correct taxes, not paying them, or over paying them?

You developed a new process or Intellectual Property (“I.P.”). Did you register this? Did your attorney suggest maybe creating a new legal entity that has the I.P.?

By creating the new legal entity or new legal entities, did you realize you just created a lot of complex accounting work by having all those legal entities?

Note: We recently had a client that created 19 legal entities because their attorney wanted to “protect” them from everything. Now, they had to consolidate all those entities with hundreds of intercompany transactions.

What is your Exit Strategy?

You will be quadrupling the size of your business in the next 2-3 years. You thought to yourself one day… I might want to sell this business.

What does it take to sell your larger company?

It takes time to set a strategy for an exit. It takes time to “professionalize” management and your back office.

Do you have a succession plan so that the business does not look like a one man show?

Do you have a 3-year budget with projections?

SCFO Lab Members: If you want to build your exit strategy and/or access your readiness for market, check out the Exit Strategy EP

How to Have Sustainable High Growth

I have hit on some of the basic topics that come up in a high growth scenario. There are many more things to consider.

The first thing that comes to mind is how are you going to pay for all this?

Do you have sufficient working capital?

Sometimes, you can manage working capital and have sustainable growth.

Many times, you need some sort of financing because of the timing differences in working capital. You cannot afford to sustain this high growth with out the financing.

Cash and working capital are key to the sustainable growth.

But just as important is having the right people. Not just having the right people on the bus… But having them in the right seat on the bus is critical. Not everyone is meant to sit in the same seat in a larger company. This applies to the management team as well as employees.

I have actually seen situations in high growth companies where the person that really needed to be fired was the owner or CEO.  Because the CEO of a $5 million dollar company is not necessarily the same CEO of a $50 million dollar company.

Don’t get me wrong… The ownership does not have to change. You can still own the business. But that does not mean you need to be an employee running the business.

Summary

In order to have sustainable high growth that will allow you to sleep well at night consider the above items but you must have the following…

  • Enough working capital
  • The right people in the right seats “on the bus”
  • More and different systems, process, and procedures
  • A strategic plan that will allow you to have a sustainable bigger company

Projections are a helpful way to grow sustainably and avoid an uncontrollable high growth scenario. Download our free Goldilocks Sales Method to start building your pipeline and projecting accurately.

Pitfalls to Avoid When Growing Your Business

Pitfalls to Avoid When Growing Your Business

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Selling Your Business to a Private Equity Group

Private Equity companies are companies that have raised capital from investors and they have created funds. Each fund may have its own legal mandate. These are common examples of mandates:

  • Invests only in oil and gas companies
  • Is agnostic to what industry it invests in
  • Invests only in companies it controls

Private Equity companies come in many different colors and flavors.

They can be a very good resource for capital when an owner is looking to exit, or partially exit (“take some money off of the table”).

Oftentimes, entrepreneurs or founders (the seller) never thought of or did not know that Private Equity was an alternative; thus, I wanted to cover how selling your business to a private equity group may be a good option for you in this Blog.

Private Equity as a Buyer

Private Equity firms (“PE”) can be a very good alternative and buyer for your business.

They have liquidity…

They have talented financial and operational professionals on staff…

And they can usually get a deal/transaction completed in a very reasonable period of time.

Most PE will not waste your time.

They will tell you up front after one or two meetings if they are a “real” buyer.

In the past year, I saw some statistics that quoted that there is nearly one trillion dollars in PE dollars on the sidelines ready to invest. That is an incredible amount of money ready to invest.

But this is what you need to know if you are thinking about selling your business to a private equity group. This is critical and can make your life pleasant or miserable.

Once you find the PE firm that is purchasing your company, most likely they are purchasing the majority of the equity in the business and they are purchasing a controlling interest.

As an entrepreneur, founder, and business owner, you have lived in your company for many years.

You have enjoyed a comfortable life style…

You have the management reports that you need and you felt were enough…

And you have set your own agenda.

Most importantly, you do not answer to anyone!

LIFE IS GOOD.

If you are selling your business to a private equity group, then consider getting rid of any destroyers in your business that may be destroying value. Download the Top 10 Destroyers of Value to learn what those destroyers are and how to get rid of them.

Stages of a Private Equity Relationship

In my 30 plus years of experience, these are the stages of a private equity relationship that I have observed for some entrepreneurs. It’s a lot like marriage!

Dating Stage

The private equity firm approaches you and your business. There are some really nice dinners, great friendly meetings. There are multiple tours of your business. People understand each other. Everything looks like this is a great fit!

Engagement Stage

After many visits, conference calls, and review of some basic company and financial information, you sign the Letter of Intent “LOI”. You find your self engaged to the PE firm.

It’s all good.

There is a big prize on the horizon, and you can’t wait for the deal to close.

This stage might last between 60 days to 6 months.

Married Stage

The deal has closed! Yeah, it’s all good…

The cash has hit your bank account for your 70% of the business, and you still maintain 30% of the business. The PE group has promised a great relationship and lots of capital if you ever need it for growth.

Wow!

From now on, you can only double your money. Life is still good!

But now… You get the first request to deliver a monthly reporting package on a timely basis.

That means that you – the CEO of a company you own 30% of – must deliver on the 10th day of the following month a report to the PE group. You better have good numbers, and you better explain any variances to the penny.

Remember, you are dealing with very smart, analytical professionals that can smell BS a mile away.

So, BS will not cut it.

Month 3, 4, and 5 have now passed…

You have had many Board meetings where you are now the subject of interrogation. You have to come up with answers to variance from budget, but you sometimes cannot explain them because for the last 20 years, you have run the business based on a gut feeling and it has worked.

Now, you have a room of MBAs in their 30s asking you questions.

Stress starts to build.

Month 6, 7, and 8…

Yikes! You hate the thought of the next Board meeting.

You are starting to question the relationship you have with the PE firm. Those great expensive dinners during the dating stage are meaningless.

What have you done?

You are not enjoying going to work every day.

As a matter of fact, you now have to take calls on weekends and get permission to take a vacation!

Divorce

Finally, we reach the last stage…

One or two years have passed since the close of the transaction. You have had countless Board meetings, and you have suffered though all the interrogation. They have treated you like a kid and someone thirty years younger than you who is new to the business is telling you how to run “your business”.

The company you built.

You now only own 30%.

And you want out…

Reality

Selling to a PE firm is still a great option. In the U.S., PE firms have a lot of liquidity and can get a deal done. They can afford to pay you a reasonable price for your business, or part of your business.

There is nothing wrong with any of that.

What is wrong is that the business owner, founder, and/or seller does not understand what the requirements are after the sale process.

Requirements After Selling Your Business to a Private Equity Group

So, what is required after selling your business to a private equity group?

  • Professional environment
  • Detailed, reliable, timely financial statements
  • Board meetings where you (the seller) provide answers to questions and any variances
  • You as the CEO with now only 30% will be held accountable to respond to the PE group that as the majority owner
  • The CEO will be questioned and interrogated by the controlling owners of the business
  • You can not take off and head to the ranch on Thursday… You need to behave as a responsible EMPLOYEE of the business
  • Be humble
  • Your _ _ _ is on the line to respond to the owners that now control your business.
  • You sold your business. You are an employee.  Most likely, you have never been an employee.
  • If you can honestly accept this new role, you will be fine. If you think you still call the shots after the closing of the transaction, you will be hating life.

Selling to PE Firms can be a wonderful experience if you know what is on the other side and if you are willing to take on a new role, one as an employee.

If you are not open to being the employee that answers questions and will be held accountable, then pause and consider what it takes to sell to a PE Group.

If you are considering selling your business to a private equity group, then first see if there are any “destroyers” in your business that may be taking value away. Read through our free Top 10 Destroyers of Value whitepaper to learn more.

Selling Your Business to a Private Equity Group

Selling Your Business to a Private Equity Group

 

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How to Lead an ERP/Accounting System Implementation

In my 28+ year career, I have seen countless ERP system implementations and accounting system implementations.

While some have been very successful and made a huge difference in the company, I have seen disasters.

Millions of dollars spent over budget.

Complete failure for the system implementation.

This is one of my “hot boxes” when I hear consulting clients, coaching participants, colleagues, and companies in my network considering new systems.

If you follow my steps on how to lead an ERP system selection process (included in this blog), then you will save thousands to millions of dollars depending on the size of your company.

The biggest disaster was with a company that did not follow any of the steps listed below. Their original budget of $8 million went to over $30 million, and if that wasn’t bad enough, they lost nearly half their revenue because of that bad system implementation.

Reasons For Selecting a New ERP System

Before I go into how to lead an ERP system selection process, let’s look at some reasons for selecting a new ERP system.  I will use the term ERP to include accounting systems as well (although they can be two different things). But they do have common challenges and I refer to them as one in this blog.

There are many reasons why you may be shopping for a new system.

Some reasons include:

  • Buying your first system
  • Outgrowing your current your system
  • Entering a different industry through growth or acquisition
  • Wanting better technology

The system selection process and system implementation process can be very expensive – thus tying up you cash flow. Learn about other ways to improve your cash flow. 

Download the 25 Ways to Improve Cash Flow


Mistakes Made During ERP System Selection Process

Over the years, I have seen or been involved with so many different systems being implemented. While I am not an implementation expert by any means, I have been involved with enough of them that I feel very strong about the right way to implement a system. When I have seen failed system implementations, they all have many common variables.

So, I came up with my list of “must haves” for a system implementation.

As a financial leader, you need to be spearheading the ERP selection process.  You want to make sure it is done right because it is well documented that a system implementation gone wrong can cost millions of dollars of over run and precious time.

11 Tips on Avoiding a Failed Implementation

Critical items that will spare you from a failed implementation:

  1. Do not set arbitrary dates for “Go Live”; be flexible
  2. A new system is NOT an I.T. project. This is a very common mistake made. Do not allow your I.T. Manager to serve as the project manager. They will have some involvement, but it must be measured.
  3. Go through a System Selection Process
  4. After you select a system, make sure the implementer blue prints your process and system, and you sign off on it
  5. Be open to changing how you operate/process; if you do not, then you will want the system to fit your process and this will cost you dearly in customization fees
  6. Have a designated Project Manager that represents your interest, not the software company’s
  7. Avoid customization; remember, you will pay up front for customization, and you will pay again when ever there is a update in version or technology because now you are stuck with a customized system
  8. Test the system, and process thoroughly in a sandbox environment; do not proceed until the system does what you want
  9. Consider running parallel old system and new systems for at least 1 or two closes
  10. Provide substantial training to your employees
  11. Be prepared to change your go live date

Go Through System Selection Process

There are many firms that do the system selection process for you.

They come in and evaluate your requirements for this system.

Then they narrow down the choices from dozens to a handful.

This not only helps the company not get overwhelmed by the number of choices, but it also helps the company find solutions they may not have known to look for. These system selection firms are experts in this field. If you want to do it right, then hire an outside firm.

It is worth every penny and will likely save you a lot of money in the future.

Assign a Project Manager for ERP Implementation

Because this is a huge undertaking, it cannot be managed by someone who…

a) does not represent your interest

b) is in your I.T. department

c) does not understand your operation and processes.

This can be someone for your organization, but you might have to hire someone from the outside.

Run a Blue Print / Test Before ERP Implementation

The Blue Print designed represents your operations and process, so you must fully understand it and sign off on it.

This is part of your contract for the new system.

Once you sign off on it, the burden is on you.

Test your new system in a sandbox environment. This testing can also be incorporated with training your staff. Making errors in the sandbox environment will not affect your business.

Errors post Go Live will affect your business.

Be Open to Change

While you are working with the system selection firm, you may not check everything off your list. While it’s tempting to just say customize it, it may be better (and less expensive) to change the way you do things to fit the system. When you customize these systems, you increase the chances of it breaking when there are updates, requiring more support, and being harder to adjust when you need it to.

By customizing your system, you are significantly increasing the cost of the implementation and future maintenance of the system.

Be open to change how you do things today and try to adapt to the system.

Provide Expensive Training

Now that you have invested in the system and started the actual implementation, you need to provide extensive (and expensive) training for your team BEFORE YOU GO LIVE.

The training should be on site, not remote.

They will always offer remote training because it is cheaper, but it is not the same as on site training.

The last thing that you want to run into is not investing in training and no one using the system.

This training will not be given in a couple hours; it will probably take weeks. Invest in it to get the greatest return on investment. Or you risk them using the system and making mistakes because they were not properly trained. I have seen way too many examples of systems implemented and little to know remote training.

Run 1 or 2 Closes Parallel

What I recommend to every client and company implementing a new system is to run 1 or 2 month end closes parallel. This will help avoid disasters by getting rid of the existing system prematurely and smooth out any kinks or breaks in the new system.

I always get the same response… “this is a lot of work and will cost me more man hours”.

Yes, it will.

But you will avoid a blow up in the future.


Running 2 systems for 2 months can be costly – restricting your cash flow. To find other ways to improve cash flow when leading an ERP implementation, click the button below to download our 25 Ways to Improve Cash Flow whitepaper.

Download the 25 Ways to Improve Cash Flow


Be Flexible with the “Go Live” Date

Many times, the CEO or another executive driving the investment sets an arbitrary “go live” date.

I have seen many cases where a CEO wants to launch the new system January 1 and has 50 people working around the clock…

That’s a sure way to create a disaster.

Have a goal… But do not have a hard deadline because there will always be something you did not plan for. 

I recently spoke to a CFO of a successful company, and she was telling me about their recent new system implementation. I was ready to hear another horror story… But she surprised me!

She told me it was a great experience. They had no real big issues and stayed with in the budget and timeline.

I asked her to please tell me what they did to be successful.

She basically listed the items 1-11 above.  It is a coincidence that I have listed those items for years now.

But it proved my point.

Implementing a new ERP system is expensive, so if you’re company isn’t cash rich, then you may need to improve cash flow in other areas of your business to keep you afloat. Download our 25 Ways to Improve Cash Flow whitepaper and start making a big impact on cash flow.

ERP Selection Process, ERP System Selection Process 

ERP Selection Process, ERP System Selection Process 

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Quotes Every Financial Leader Needs to Read

A few weeks ago, I started another series of our Financial Leadership Workshop, and in Day 1, we discuss that paradigm shift that needs to take place to go from accounting to financial leadershipSo, I compiled all the quotes from all of my curriculum that make me think… How can I lead my company differently? What can I do to better serve my clients? Take a look at following quotes every financial leader needs to read. Leave a comment below to suggest any other quotes and/or your take on the quotes I listed.

Quotes Every Financial Leader Needs to Read

While each of the following quotes is focused on a specific need or issue, I believe that every CFO, CEO, and financial leader needs to explore what each of these quotes mean.

Having a Plan

So often, entrepreneurs do not have a plan. We hear horror stories of executives telling their teams that there is no plan. Having no plan is a plan and it usually ends in disaster. Or maybe you have a plan but it is in your head and not documented.  You must get your plan down in writing.  Do you remember Captain Sullenberger landing the plane in the Hudson River on that chilly winter day? Here’s his take on having a plan.

“During every minute of the flight, I was confident I can solve the next problem. My first officer, Jeff Skiles, and I did what airline pilots do: we followed our training, and our philosophy of life. We never gave up.  Having a plan enabled us to keep our hope alive. There’s always a way out of even the toughest spot. You can survive.” – Capt. Chesley B. Sullenberger III

Role of a Leader

Do you know the role of a leader? Condoleezza Rice, former Secretary of State, said the following about a leader’s role.

“The role of a leader is to inspire people to a common goal and enable them to get there.”– Condoleezza Rice


Are you financially leading your company (or trying to)? We are starting a new series of our Financial Leadership Workshop this March 2019. Click the button below to learn more about what this coaching workshop is all about.

Learn More About the Financial Leadership Workshop


Leadership Habits

“The 8th Habit is to find your voice and inspire others to find theirs.” – Stephen R. Covey

Attraction

“The iron rule of nature is: you get what you reward for. If you want ants to come, you put sugar on the floor”– Charles Mundger

The Rest is Just Details

Our very own founder, Jim Wilkinson, had this saying that business is pretty simple… It’s all about sales! When a financial leader is able to shift their mindset from accounting to supporting sales and enabling sales to grow, then you become a whole lot more effective. Read more about this phrase here.

“It’s all about sales; the rest is just details!” – Jim Wilkinson, founder of The Strategic CFO

Budgeting

There are several budgeting quotes every financial leader needs to read.

“A well-constructed numerical estimate is worth a thousand words.”  – Charles Schultze, former Director of the US Bureau of Budget

Budgeting is the bane of corporate America.”  – Jack Welch, former CEO of GE

“Without a yardstick, there is no measurement And without measurement, there is no control.”  – Pravin Shah

The Hedgehog concept – created by Jim Collins – is when companies identify what they do best and focus on that. For example, a hedgehog knows how to defend itself. That’s what it does best! It does not try to expend time or energy hiding or fighting.

“The purpose of budgeting in a good-to-great company is not to decide how much each activity gets, but to decide which areas fit the hedgehog concept and should be full funded and which should not be funded at all.” – Jim Collins

“The only things that saves us from the bureaucracy is its inefficiency.” – Eugene McCarthy, US Senator

Problem Solving

Equip yourself with multiple tools, and more specifically, the right tool.

“If the only tool you have is a hammer, then every problem looks like a nail!” – Abraham Maslow

My Own Quotes

Here are two of my own quotes I use with entrepreneurs and coaching participants over the years:

“I do not believe in sacred cows.”

Working capital is like your diet; if you do not manage it, then it can kill you.”

What other quotes have changed the way you lead your company? Leave them in the comments below. Also, click to access our 7 Habits of Highly Effective CFOs – this is everything CEOs have told us what they want from their CFO.

quotes every financial leader needs to read

Quotes Every Financial Leader Needs to Read

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