Archive | Blog

Don’t put all your eggs into one basket!

don't put all your eggs into one basketEaster was just this past weekend. One of the common traditions of Easter is an Easter Egg Hunt where plastic eggs with candy (or if you’re lucky, money) are hidden for the kids to find and put in their Easter Basket. When I was a boy, I was greedy and piled too many eggs into my basket. All of them fell out as a result of being too full.

We’ve all heard of the saying, “Don’t put all your eggs into one basket.” This saying can be applied to many things, not just your personal choices. In business, you should never put all your eggs in one basket. Eggs ultimately means trust. Don’t place all of your trust into the same vendors, employees, customers, or investments because one day, the world might come crashing down on you with no cushion to fall on.

In this week’s blog, I will explain a few tips about how to prevent putting all your eggs into one basket from my own personal experience.

Signs That Your “Perfect” Customers Might Not Be So Perfect

During the lifetime of your business, you’ve probably gained a few repeat customers (or at least I hope you have!). The sad truth is that these customers aren’t married to you. They don’t have any personal or legal attachment to you or your company. As a financial leader, you have to understand what (and who) is best for your business. Here are a few indications that those “perfect” customers might not be so “perfect”…

They’re Demanding

What do your contracts look like? If you have customers who have great deals, but always demand more, you should pay close attention. How do those customers treat the employees in your company? If they are rude, condescending, or constantly complaining, maybe you should rethink this customer relationship.

“But Jim, they give us a lot of money!” This is where you have to weigh your options and take a look at your financials. In some cases, it may be a better investment to fire your customers. If you don’t, you may be looking at hundreds, or even thousands, of dollars lost.

Would you rather pay for the consequences now, or a year from now when the expenses add up?

They Won’t Renew the Contract

don't put all your eggs into one basketThe customers who are only with you for a short period of time are the ones who were only in it for the deals, not the loyalty. How did you obtain this customer? Did they jump to your company because of a short promotion or sale?

We experience this in our business. Oftentimes, we will promote a “flash sale”, where our SCFO Lab is only $1 for the first month. What we’ve noticed is that a large amount of those customers obtained from the flash sale have unsubscribed after the first month. This shows that only a percentage of lab members find so much value that they continue their subscription for multiple month. However, this isn’t always a negative observation. Our value-adding customers utilize our products, and those are the customers worth investing your time and money in.

(Sound familiar? Pay attention to what’s happening in your company. Check out our Internal Analysis now!)

They’re Checking Out Other Companies

Customer relationships should be built on trust, not on a whim. Chances are, if you spent little-to-no time attracting a customer, that customer will easily leave you for another company for the same reason. Customers often play hard-to-keep by threatening to go to another company, or using their products alongside with yours.

If you notice these kinds of patterns in your customers, it’s time to change your priorities.

How to Obtain More Customers

So you’ve fired your customers… But you need more revenue to cover that cost. How do you obtain more customers to cover the loss? There are four primary ways that you can retain your current customer base and expand it:

  1. Allocate resources to broaden base
  2. Beef up the legal agreements and contracts
  3. Sign Non-Competes
  4. Create a back up plan

Allocate Resources to Broaden Your Customer Base

First, you should take a look at your financials – specifically marketing, advertising, and sales. How much are you allocating? When ramping up your customer base, you need to allocate more funds to marketing, advertising, and sales. This is to not only attract but also manage future customers.

Ask the questions when adapting your strategy… What are their main concerns? What can you do to help them, so that they may refer you?

Spice Up Your Contracts & Vendor Agreements

Trust only goes so far when it comes to customers. Legally, you can’t just trust someone to stay with you for another 2 years. Your contracts will ensure your customer involvement, and eliminates gray area.

In your contract, you should focus on the obligations that you and the other party should fulfill. This means the number of payments you should receive per annum, when you will see those payments, what you are allowed to change, what the customers are responsible for, etc. Basically, you won’t have 100% liability.

Non-Compete, Non-Compete, Non-Compete!

don't put all your eggs into one basketWe’ve been spending a lot of time on customer loyalty, but now let’s look at employee loyalty. Loyalty and trust are two very important attributes in the hiring process. Let’s say you’ve spent years with a customer, but the main point of contact was a salesman. Without a non-compete, it will be very difficult to retain a customer if that salesman/employee started his own similar business. Non-competes provide security for your company and your clients.

(Disclaimer: Non-compete Agreements must adhere to state and national employment regulations, and a labor law attorney should be consulted to verify conditions. You should consider Non-compete Agreements for employees, clients, shareholders, suppliers, and partners. Oftentimes, the buyer will require the seller to sign one as well.)

Always Have a Back-up Plan

Finally, have a back-up plan. Back-up plans ensure that your customers will pay you fully for your services. As mentioned in last week’s blog, credit cards are beneficial to the company because it ensures your cash.

Another good rule of thumb is to have a plan to constantly bring in customers. Sure, you don’t have to allocate all of your resources in a last-minute attempt to attract customers. You should, however, always keep watch for your financials and what might affect them.

Conclusion

In conclusion, don’t put all your eggs into one basket. You don’t really know who you can trust in terms of customers, employees, and vendors. For customers, you aren’t sure whether or not they will be back next year unless you have a legal engagement.

What you can do is make sure they have a useful experience. With vendors, you need to make sure that you get your money’s worth. Contracts are especially convenient when establishing who does what in the relationship. For the security of your company, employees should sign non-competes (another contract). As a financial leader, make wise decisions to take care of your business. In the end of the day, you are the person to reap the consequences. Download the Internal Analysis whitepaper to take a deeper look at how the issues discussed above are impacting your business. Take care of your business.

don't put all your eggs into one basket

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

don't put all your eggs into one basket

Connect with us on Facebook. Follow us on Twitter. Become a Strategic CFO insider

1

Taking Credit Cards for Business: Good or Bad?

taking credit cards for businessPeople, myself included, are generally more hesitant with taking credit cards for business on anything major… and I don’t blame them! There’s typically a 2% charge on sales. However, if you use your credit cards the correct way, it may be worth considering. To save you time and risk, here’s a few things that we learned from using a credit card in a business, and maybe you can, too.

Benefits of Taking Credit Cards

Why are credit cards useful in your company? Credit cards serve several purposes. At The Strategic CFO, we only cut a few checks per month due to the power of credit cards. Our accounting is automated, we experience a boost in productivity, and depending on your business, you might even free up enough liquidity to take advantage of discounts on payables.

Experience a Boost in Productivity

Daily sales outstanding (DSO) is a calculation used by a company to estimate their average collection period. The higher the DSO, the more problematic for a company because your liquidity is tied up in receivables. For example, let’s say you’re a plumber and your average DSO is 45 days. By accepting credit cards as payment, you could potentially reduce your average DSO from 45 days to 15 days… maybe less than that! An extra 30 days’ worth of liquidity can drastically improve a company. If a company averages sales of $2,000 a day, that’s almost $60,000 in your pocket earlier than it would have been! So what will you do with that extra cash? Now, you can pay off bills, invest the money, or take advantage of discounts on payables.

Take discounts on your payables

Certain vendors provide a discount on payables if you pay early. 2/10 net 30 is a popular discount given on payables. Specifically, you can get a 2 percent discount for a payment to a vendor in 10 days, or pay the full amount in 30 days with no discount. This reflects well on your supplier-consumer relationship, because the sooner you have your cash, the sooner they have their cash.

They’re a Good Source of Funding

It is recommended that you use a credit card when you need less than $50,000 and you cannot get a bank loan. One of the biggest benefits of having a credit card is that it is a flexible source of funding. You can buy as little or as much as you need, but only have to pay back a small amount monthly. Used responsibly, it can help establish your business’s credit as well making that next loan a little easier to get.

Dell

One of the best examples of how accepting credit cards can be a game-changer is Dell Computers. Back in 1984, when computer sales were gradually taking credit cards in businesspicking up pace, Michael Dell operated a computer-building business in his dorm room. He was funded $1,000, but how was he supposed to fund the rest? He strategically used the credit card cash to cover the expenses. Dell would take orders over the phone, gather the credit card information from the clients, and then make the computers. As a result, his cash conversion cycle was negative! This is one of many success stories for businesses who use credit cards as a source of funding.

This is one of many ways you can increase and optimize your cash flow. Read the rest in our free guide: 25 Ways to Improve Cash Flow!

Consequences of Credit Card Usage

So we’ve highlighted the benefits of taking credit cards, but be wary. Credit cards are still not universally accepted due to a few reasons. Not all businesses can take credit cards; in fact, some might have to pay more fees than others to even accept them. Here are just a few more reasons why people should be careful when taking credit cards for business…

Businesses Need to Have Reasonable Gross Profit

Let’s say the bulk of your sales are via credit card. If you want to stay in business, your gross profit must be substantial enough to cover the credit card fees. In this case, certain industries should not accept credit cards.

General Contract Work

Contract work such as painters, plumbers, and music teachers make only 3-5% of gross profit. Taking 2% of sales with credit would be too much. That would mean waiting on the customer to receive majority of gross profit. This can affect every other aspect of your business… especially overhead.

Real Estate

Another example of an industry where credit cards don’t make sense is real estate. There tends to be a 10% net operating income within the industry. If you’re generating 10% net operating income, it will hurt your business to have 2% credit sales. Taking a 2% hit would cut the investment down by 20%, which is why you sometimes can’t pay large sums (like rent) with credit cards.

Credit card tactics aren’t the only way to improve cash flow. Check out 24 other ways with this whitepaper!

 

Some properties do accept credit cards, but those tend to be the higher-end properties. Like suppliers, the landlords usually pair the early payments with benefits like points or discount on rent.

Where’s My Money?

taking credit cards for businessAnd of course… waiting for customers to pay, and depending on the customers’ credit terms, is an issue with accepting credit cards. Credit cards come with all sorts of issues technologically that are out of your control. If credit cards are canceled or stolen, that ultimately affects your automation system. Make sure you have a system in place when accepting a customer’s card, whether it be a contract or a secondary source of funding from the customer. Always be prepared for something to go sideways.

Conclusion

In conclusion, accepting credit cards in a business (no matter how big or small it is) is a risk. Then again, what new business decision doesn’t come with a risk? Like most decisions, it’s just a matter of preparation, research, and credibility. There are many contingencies associated with credit cards such as customer responsibility, and making sure your company generates enough gross profit. Conversely, there are benefits of taking credit cards such as discounts on your payables and a boost in productivity. Make sure to do your research, and be prepared for change.

Prepare yourself for change. Read our 25 Ways to Improve Cash Flow whitepaper and watch the company gradually grow with each step!

taking credit cards for business

Strategic CFO Lab Member Extra

Access your Projections Execution Plan in SCFO Lab. The step-by-step plan to get ahead of your cash flow.

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

Click here to learn more about SCFO Labs

taking credit cards for business

Connect with us on Facebook. Follow us on Twitter. Become a Strategic CFO insider

0

Idea Management in Companies – “That Squirrel Will Kill You!”

idea managementFifteen years ago, I had a dog named Killer. Killer was really cute – a Yorkshire terrier – and was about 15 years old. Killer hated squirrels with a passion. One day, he saw a squirrel across the street and took off after him. Before we could catch him, he was hit by a car and passed away.

I apologize for the sad story, and I know that probably wasn’t something you expected to read from The Strategic CFO. The purpose of this story is to tell you that there are “squirrels” in your business that will kill you, too. Idea management in companies is more difficult than you think. In our company, we have a saying. Whenever someone shares a new idea that is irrelevant to our current projects, we call out “Squirrel!”. We do this to do two things: identify that it is in fact a squirrel and refocus our attention so that we don’t get distracted from our current projects. We don’t spend all of our money doing every new idea that we think of. This may even be an issue in your own company. Let’s explore why…

Why “Squirrels” Will Kill You

Squirrels are tangible, worth pursuing, and bring value. But what you may not know is that those new ideas may hurt you more than they help you more often than not.

Leaders are Innovative & Ambitious

Let’s say you’re in a room full of executives and business leaders, pursuing a project that you’ve worked on for months. Suddenly, one of your colleagues brings up the problem with the vending machine. The vending machine problem has nothing to do with your project. Another colleague chimes in and agrees with your other colleague about the vending machine. Now you’re all talking about the vending machine, and the initial project is pushed again… another 2 months.

That squirrel just killed your chances of successfully finishing that initial project.

If you’re an entrepreneur or a business leader, creativity is in your blood. You can’t help but think of new ways to grow your business, or fix small problems when they turn up. At the same time, squirrels distract you from your goals. “Chasing squirrels” is especially dangerous for entrepreneurs and businesses that have been operating for less than 5 years. Try to focus on what’s really important. Remember…. if you’re always chasing squirrels, you’ll never get down the street. This is where new idea management in companies comes into play.

Take the 40,000 foot level view when looking at projects! There are more squirrels than can be caught. Download our free 7 Habits of Highly Effective CFOs and learn how to take your financial leadership to the next level!

Most Ideas are Worth Pursuing… One Day

Just because you have a main project doesn’t mean you can’t have ideas. If you have a useful idea, but it may not be related to what you’re currently working on, write them down! Writing down your ideas is more than a list; it’s a goal that you can one day pursue (and maybe should pursue).

idea managementHow to Manage the “Squirrels”

Managing new ideas in companies should always be organized with a path in mind. How do you address squirrels so that they don’t kill your organization, you, and/or your momentum?

The action plan is the best idea management tool.

What is an Action Plan?

Our biggest recommendation is to make an action plan for your company. An action plan is a tool to manage the tasks to be achieved within a certain period of time. This tool isn’t solely for the leaders of a company to watch their employees. The action plan serves as a communication tool between ownership and staff, which then ensures accountability within a company.

Idea Management in Companies with Action Plans

Many of my clients, and my own employees, can attest to The Strategic CFO action plan tool (can be found in the SCFO Lab). When managing the “squirrels” in your company, your efforts shouldn’t stop at merely having a tool. What makes it effective is how you use it. Here’s how we all learned how to use an action plan effectively:

  • List your tasks. It’s okay to brainstorm and unleash your ideas. In fact, we highly recommend you do this. But you can let the ideas flow out in a constructive manner that will prevent you from derailing off the tracks. List out any ideas, from small to big; from things you want to accomplish today, to milestones you want to accomplish by 2019. The sky’s the limit!… as long as the ideas are realistic and attainable.
  • Assign and prioritize this task. Now is the time to organize your ideas. Which tasks are easily attainable? Which tasks serve a purpose? Which tasks align with other tasks? And finally, who will complete these tasks? are all questions you should be asking yourself when completing this step. Color code, write notes, create labels… do what you need to do to organize your thoughts. As you do this, also try to map out how you’re going to accomplish a goal (because some goals need sub goals in order to accomplish them).
  • Update progress and priorities. Oftentimes, plans don’t always happen like you had originally expected. It’s normal to move around certain tasks to make room for more pressing ones. Just make sure that you don’t move them around too much… It might end up being a “squirrel.” It’s always a good idea to update your progress as well. When you complete a task, mark it as finished and don’t delete it.
  • Leave what you have already accomplished. Leaving the completed tasks is crucial because the management needs to review progress trends, and quite honestly, it also boosts morale within the company. If you constantly remove the accomplishments, it will feel like your company has gotten nowhere. On the other hand, if you leave your completed tasks, you can see what works and what doesn’t work. You’ll also see how fast certain tasks are completed, and the work habits of your staff and yourself.

idea managementConclusion

Constant ideas can help your company, but they can also hurt your company. Having an action plan for your company is important not only for your staff, but for yourself. Action plans, or ideas with a plan in mind, organize the company’s thoughts and ideas in a more manageable and realistic fashion. Ask yourself: Are these ideas helpful right now? Will they be helpful in a couple of years? If you answered “no” to the first question, the ideas are squirrels. If they’re not helpful ever… then those are just bad ideas. Take care of your company, or else it might end up like Killer.

To learn more financial leadership skills like managing your company’s ideas, download the free 7 Habits of Highly Effective CFOs. Find out how you can become a more valuable financial leader.

idea management

Strategic CFO Lab Member Extra

Access your Flash Report Execution Plan in SCFO Lab. The step-by-step plan to manage your company before your financial statements are prepared.

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

Click here to learn more about SCFO Labs

idea management

0

How to Get a Loan When Banks Aren’t Lending

how to get a loan when banks aren't lending

You need capital, but you’re having trouble securing the financing you need.  So how to get a loan when banks aren’t lending?

This situation reminds me of the famous NBC Television show, “The Office”, the hilarious documentary-style show that comments on the life of a standard corporate office. If you haven’t seen the show, I’d definitely recommend it.

In one of the episodes, the antagonist and regional manager, Michael Scott, has worked at Dunder Mifflin Paper Company for over 19 years and quits (spoiler alert!). He decides to start his own paper company with almost no capital, along with two other employees in the office who also quit. Slowly, he takes clients away from Dunder Mifflin and grows in revenues. As a result of his sudden growth in clients, he buys a van and wakes up at 3 in the morning to distribute the paper in the area.

After consulting with an accountant, he finds out that he has to declare bankruptcy because he was growing the business too fast, and that the revenues would not cover the growth of the business. They required wages, rent, and variable costs associated with manufacturing and distributing the paper. Because of the digital age, the demand for paper wasn’t so hot either.

What happens when we grow ourselves out of business? Michael’s problem was simple: he had no outside investors, and zero loans from the bank. Therefore, he had no money to cover the fast expansion. Sound familiar? In this article, we will discuss how to get a loan from the bank when they aren’t lending.

Don’t lose track of your company’s metrics. For advice on how to identify your KPIs and how to track them, access our free KPI Discovery Cheatsheet!

Bank Lending Cycle: A Recap

Last week, we discussed the bank lending cycle and why banks may tighten their lending. There are two reasons why that might happen…

Loans and the Economy

If the economy is undergoing or overcoming a financial crisis, banks tend to lend less. During this time, businesses might have to look elsewhere for financial assistance.

Conversely, if the economy is booming and the lending environment becomes less risky, banks might lend more. These periods are characterized by lower interest rates and better terms.

But what happens when things are looking up? It’s easier to obtain a loan because of the economy, but with all the capital in the marketplace, an economic bubble builds. After a while, that bubble will burst and we’ll find ourselves in a financial crisis again.

 The Environment affects the Economy

The economy may affect the environment, but the events in the environment also affect the economy. We used the housing market crisis in 2007 as an example. Imagine walking into your job the next day, without reading or watching the news, expecting to make a sale. Yikes! You have to know your environment to make good investment decisions.

How to Appeal to Bankers

We discussed the cyclical nature of bank lending and how to understand the industry. Now, we will analyze how to best appeal to the bankers. Regardless of the economy, the banker still has to evaluate how risky the investment is. What is the best way to appeal to bankers? Preparing a package of these five things will get you there:

1. Know your economics.

Preparing at least three years of business financial statements and one or two years of financial projections goes a long way. In addition, you should also list out how you will use the loan. By preparing a projection of financial statements, this should be easy.

2. Build sound business credit.

Knowing where you stand with your credit is useful. If there are any inaccuracies, you can correct them without having the bank check and deny you a loan. If you have lower credit than you had originally hoped, maybe you can hold off on applying for a loan until you are ready.

3. Provide documentation of personal loans.

Providing documentation of personal loans is equivalent to providing evidence and saying, “I am worthy of your loan!” Personal loans, business loans… they both demonstrate that you owe someone money, and showing the history of your loan relationships indicates the type of relationship you might have with the bank.

4. Prepare questions.

In a way, preparing a package for the bank should answer all the questions they might have. This includes “how much money do you need,” “how long might you need this loan,” “what will you use it for,” etc.

5. Log prior experience.

This is less about numbers and more about character. Logging your experience in companies, vendor relationships, lender relationships, and references shows more than how much money you have or will have. It shows the commitment and effort of a borrower.

Other sources of Loans

Don’t put all your eggs into one basket. Have a backup plan just in case banks really aren’t willing to loan anything to your company. Smaller businesses are less likely to obtain a large loan from a bank if they are less than 10 years old.

SBA Loans

SBA is the Small Business Administration. They provide loans if you’re starting up a new company, or even if you just want to expand your business. Basic 7(a), Certified Development Company (CDC) 504, and the Microloan program are examples of the loan programs they provide.

Personal Loans

It may not seem much, but $20 from your family members adds up. Using your savings and other means of personal loans, you can finance yourself through startup costs. Just make sure not to forget about your payments, or run your credit too high!

Conclusion

In conclusion, banks won’t loan to just anyone… and sometimes that’s not your fault. Sometimes, it’s just bad timing. What happens in your environment isn’t up to you, but it is your responsibility to stay updated on those facts. Creating a package for your business will increase the likelihood that you’ll get a loan because you’ll be making the bank’s life easier. Rather than them scrambling to find your information, you can simply lay it out for them. And if all else fails, banks are not the only source of loans. With a bit of ingenuity, you can get there.

Save your time and prepare for the future now. Know your numbers and where your company is the weakest. The best way to start doing that is to download our KPI Discovery Cheatsheet today!

how to get a loan when banks aren't lending

Strategic CFO Lab Member Extra

Access your Flash Report Execution Plan in SCFO Lab. The step-by-step plan to create a dashboard to measure productivity, profitability, and liquidity of your company.

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

Click here to learn more about SCFO Labs

how to get a loan when banks aren't lending

1

Bank Lending Cycle: Cracking the Code

bank lending cycleSo your cash is tight and your loan renewal is approaching, but sales are picking up and you need additional capital to keep up the pace.  You approach your banker about increasing your line or obtaining new financing and they aren’t willing to take the risk. What now?

This isn’t a new story. In fact, if you’re in finance, either you or the person in the office next to you has experienced this. In this blog we’ll give you some general guidelines on what to watch out for in the bank lending cycle.

What is the Lending Cycle?

After a financial crisis, banks tend to tighten up their loan underwriting making capital more difficult to obtain. During this time, businesses seeking additional sources of funding will likely face an uphill battle convincing their lender that they are a risk worth taking.

As the economy improves and the lending environment becomes less risky, credit structures begin to soften and financing becomes easier to obtain.  These easy-to-borrow periods are marked by lower interest rates, lower requirements and conditions, and a large amount of available credit.

Not surprisingly, with all the new capital in the marketplace, an economic bubble builds. Eventually, the bubble bursts causing another financial crisis and the cycle begins anew.

When determining whether or not a banker wants to lend to you, they usually evaluate how risky the investment is. Obviously, banks do not lend to anyone and everyone. Rather, they calculate how much of their lending is trustworthy. What is this company’s credit history? What other debt do they have? How are their financials?  These are just a few things that a lender evaluates before making the final decision.

Why is the bank playing hard-to-get?

As a business person, you’re probably familiar with how “flirty” a bank can get with you. When you actually need the loan, they don’t want to give it to you. Then they tease you with a good rate and terms when you don’t need the loan. This isn’t just because you walked in wearing the wrong clothes, or even because of your numbers. Sometimes, because of the bank lending cycle, it’s just more difficult to get a loan at that time.

Want to know how to increase the impact you have in your company? Access the three best financial tools we’ve ever created to learn how!

Loans and the Economy

In one of our Wolff Center for Entrepreneurship classes, I asked the question: “Is it a good idea to start a business in a recession? Raise your hand if you think it is.” Only a few people raised their hands. In a way, it is a good idea, and this is why:

Like any product in the economy, prices and rates fluctuate due to supply and demand. When the demand is lower for a loan, banks are more inclined to charge a lower interest rate. When demand is high, banks implement a higher interest rate. During a recession, businesses are more debt-averse, driving down interest rates. When rates are low, there’s pretty much a “discount” to take out a loan. And every entrepreneur loves a discount.

Similar to demand, supply also affects the interest rates for a bank loan. When banks are flush with cash from customer deposits, they need to put those assets into service in the form of loans.  With lots to lend, banks tend to offer more attractive credit terms and interest rates. When the economy is suffering and banks don’t have as much on deposit, the supply of capital is diminished and, consequently, is more expensive.

The Environment affects the Economy

This is why it is crucial to understand the environment and industry your company is associated with. It amazes me how many people conduct business without reading or looking into their industry’s current events. Those current events affect what sale you’re going to make, how cheap your supplier will sell you a part, and… whether or not it will be possible to get a loan.

Imagine walking into work a day after the housing market crisis in 2007 and saying, “I’m going to invest in a condo.” Assuming you’ll still have a job at that point, anyway. If you take away anything from this article, understand this: Stay updated in your industry, because those events directly affect the economy.

Loan Officers are actually Salespeople

bank lending cycleLoan officers are people who recommend consumer, commercial, and mortgage business loans for approval. They typically work as intermediaries for the bank lenders and the borrowers. A person represents an entity, and promotes a product for a commission… sound familiar?

Loan officers are really salespeople selling loans. They have quotas like salespeople. When there is low demand or availability of capital, loan officers are often less aggressive or even laid off. This is similar to a salesperson who is laid off due to a decrease in revenues. When capital is flooding the market, banks will often hire hoardes of new loan officers to put their money to work.  This explains why your banker rarely calls on you when you really need them but pursues you doggedly when times are good.

Conclusion

In conclusion, the economy affects the bank lending cycle. It may seem like common knowledge to stay aware of your industry, but you would be surprised how many clients I meet that have no idea what is really happening in the world. If you understand the economy, then you’ll understand the patterns of what a bank needs. A bank is like a business, so if you start thinking like a bank (which you most likely already do), then you’ll be speaking their language in no time. Catch next week’s blog about how to appeal to your banker, and how to get a loan even when banks aren’t budging.

What do you do when your banks aren’t budging? Now’s the time to really think like a CFO. Download our three best tools in the company to start speaking the CFO language.

bank lending cycle

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

bank lending cycle

0

Is Centralization Dead?

centralization versus decentralizationIf you’re an entrepreneur, you’ll find that when you start your business you must decide on a structure – centralization versus decentralization. If your business expands, how will you control it? Will you have an office? Is it required that your team works at the office in order to drive value? As a business owner myself, I found these questions to be particularly helpful when developing the structure for my team to thrive in.

Last week, I attended the Traffic & Conversion Summit of 2017. I found that there were more small vendors and individuals doing contract work remotely than I had previously thought… which brings me to today’s topic: centralization versus decentralization.

What is “Centralization”?

First of all, what is Centralization? According to the business dictionary, centralization is “the location of all or most main departments and managers at one facility.”

In other terms, people might consider centralization more than just the location – should the actual structure of the company be centralized? In business dictionary-terms, this means “the concentration of management and decision-making power at the top of an organization’s hierarchy.”

Advantages of Centralization

Focus. When you have your team with you, it’s easier to have quick results. For example, if you have a project that is time-sensitive, then you won’t be worried about picking up the kids, buying dinner tonight, or anything else you might remember while you’re at home. 100% of your focus will be on work for that time.

Communication. Communication is crucial, even if you have a decentralized organization. One of the perks of having someone in your office instead of off-site is that, well, they’re in your office! If you have any questions or concerns, your colleagues are right outside of your door.

Conflict Management. If you have a miscommunication or issue with how a project is being conducted, you can walk to the next office rather than waiting until the next day to meet or talk. Don’t prolong your issues anymore than you have to! It’s easier to manage a conflict with someone if they are in a close vicinity, rather than miles away.

Accountability. Every manager should be able to trust their staff, but let’s say you have a major account and you give it to one of your employees. You want to be able know what went wrong if someone decides not to work with your company anymore. The accountability causes everyone in a company to drive forward.

Example of Centralization

One of my former students told me a story about his friend who works with a large amount of generation X’s and baby boomers. She is not only the only woman in the office, but she is the youngest there. She said her colleagues are rarely in the office, and when they are in the office, she hardly gets the information she needs. From the looks of it, the main problems she faces is a lack of clarity on her tasks, and communication.

One day, she decided to take her work home with her, and stay home for the day. She operated like she normally would have, which meant calling her colleagues, asking them questions on how to complete the project. After 10 minutes, they realized she wasn’t at work and threatened not to pay her for the hours she worked from home.centralization versus decentralization

How could this dispute have been avoided? If you have a centralized organization, make sure that you are holding up your end as a leader in the company. If you combine a centralized structure with a decentralized attitude, that doesn’t work either. In this blog, we will discuss how decentralization and centralization can work together.

This mix-up of structures and attitudes when evaluating your company can be the very thing that is destroying your company’s value Click here to download your free “Top 10 Destroyers of Value” whitepaper and discover other areas where you might be lagging in value.

What is Decentralization?

Now we will look at the difference between centralization versus decentralization. According to the business dictionary, decentralization is the “delegation of commensurate authority to individuals or units at all levels of an organization even those far removed from headquarters or other centers of power.” Or, in more simplified terms, delegating the responsibility and decision-making power to individuals or units, even off-headquarters.

Advantages of Decentralization

Freedom to give feedback and discuss. Decentralized structure allows opinions from many people in the company besides the primary decision-makers. This discussion then leads to…

More creativity and innovation. More discussion amongst different people results in more ideas. One of the benefits of having a decentralized organization is the ability to innovate. As a result, innovation leads to…

More change, adaptability, and growth. The long-term benefits of having a decentralized organization is the ease of growth. With a centralized organization, change is typically slower because of the many levels of approval and decision-making. With decentralized government, this process is quicker.

Example of Decentralization

Our team here at The Strategic CFO is mainly decentralized. Because my team consists of very few people, I prefer to have small huddles rather than constantly having them in the office. During the summer, we operate in an office 4 times a week to educate and train the new intern. After that, we operate on our own and meet once a week.

This doesn’t mean that we lack communication. In fact, we communicate digitally the same, if not more, than we would in an office. One of the best parts of decentralizing my team is the ideas that come out of it. If I didn’t have a decentralized team, I probably wouldn’t have as strong of a website as I do today.

Combining Centralization and Decentralization

Another option tcentralization versus decentralizationhat we’re starting to see more now than ever is combining both centralization and decentralization. If you’ve ever tried both centralization and decentralization, you’ll realize quickly that doing too much of one or the other might be detrimental to your company.

An example of combining a centralized structure with a decentralized company is Asana, a project management application. We use it here at The Strategic CFO, and it manages all of our tasks. It’s easier to review and manage progress, rather than letting everyone roam freely.

Who is killing Centralization?

Like I mentioned before, too much of centralization versus decentralization, or vice versa, may be damaging to your company. Our generation likes structure, because that’s what we’ve seen for years. When the new generation entered the job market, we started to see the structures evolve into a more decentralized structure. Are millennials killing centralization? Or maybe it was the applications people have created to make structure easier for decentralization, such as Asana.

Conclusion

In the end, you have to focus on moving your company forward. There is no right way to do things… but you have to realize what is best for your company. This may mean changing what you consider a “normal” structure. When you figure out what works, you’ll start to reap the benefits of centralization versus decentralization, or vice versa.

So what do you think kills centralization? Leave your ideas in the comments below!

Download the Top 10 Destroyers of Value to learn what is destroying your company’s value. It may be centralization or decentralization! Maximize the value of your company by clicking below and get an exclusive invite to our Strategic CFO community. Don’t let the destroyers keep taking money from you!

centralization versus decentralization

1

Do you need to be a CPA to be a CFO?

cpa to be a cfoNot too long ago, the Academy Awards took place, and they played reels of the Academy Awards that happened in the past 80 or so years. It reminded me of the time when I showed my grandson an old western movie… I thought some of the parts were hilarious, but my teenage grandson was horrified by the social commentary.

What do the Academy Awards and Old Westerns have to do with traditional CFO practices? There are norms that are acceptable now that were never allowed before. When the audience changed, the Academy adapted to the audience. So when the new generation steps into your office, you have to re-evaluate what it really takes for them to advance their career. Some might have capabilities of a CFO, even though they haven’t traditionally trained for it.

In the past, there was a certain path that you take to become a CFO. Some think the key is being a CPA to be a CFO. But now that times are changing, is it really necessary?

We like to talk about technology, millennials, current events, and politics, but they pretty much all say the same thing: if we constantly live in the past, we won’t have much of a future.

Timeline for a CFO

My friend’s nephew is graduating in accounting, and he’s wondering… “Do I need to get a CPA or MBA?” In other words, do you need financial expertise to be a financial leader?

Now don’t get me wrong… some people are really successful in this path. In fact, I definitely agree that CFOs, or any financial leader in general, should have a broad range of skills other than financial skills. Here is a pretty common path to CFO success:

cpa to be a cfo

Earn a CPA to be a CFO (and/or MBA).

Some might say you won’t have a successful financial career without a CPA license. The primary purpose of a CPA is for financial authorization, such as auditing and reviewing financial statements. Careers in finance such as accounting and auditing mostly require a CPA. Benefits of a CPA include larger salary potential, more career opportunities in larger companies, job security, and trust within larger companies. Larger and older companies with more revenues require more tenured and experienced employees.

MBAs are more broad. Studies show that those with MBAs have higher employment rates (around 60-70%) and higher base salaries. With MBAs, you can specialize in skills in addition to finance, such as supply chain, marketing, management, etc. So if you’re looking to gain new skills other than finance, MBA might be a better choice.

Gain financial experience within the company.

Typically within the first few years, new hires will learn the basics such as budgets and accounting. As time and experience grows, new opportunities are formed, such as capital investments and larger accounts. Financial employees will gain expertise in skill sets before moving on to the next step.

Everyone has their own habits… how do you know which is the best for your company? Download our free guide, How to be a Wingman, to be the best wingman to your CEO.

Take on bigger roles outside of your comfort zone.

This is where getting an MBA and taking initiative comes in. CFOs are more than financial experts – they are leaders. By this point, basic accounting practices should be like reciting the alphabet… it’s that easy.

Financial leaders should always want to learn more skills. Taking on bigger roles outside of their comfort zones reflects that mindset and makes them stand out against their competitors.

Hold Controller positions.

This is pretty self-explanatory. The controller positions create more responsibility for the financial leader. After all, how can they handle a C-level position if they can’t handle a standard leadership position first?

This seems like a pretty solid path, doesn’t it?

Looking at companies now, however, aren’t as “solid”… and here’s why:

Modern-Day CFOs

When you think of a CFO after 2012, what do you imagine? Long gone are the days of bluetooth-talking, pinstriped suit-wearing CFOs, white-haired males. When I picture a modern-day CFO, I picture someone in a plaid long sleeve, young, and focused on multiple aspects of the company. That seems like an exaggeration, because it is! Overall, it is also a representation of how different the CFOs of today are, compared to Generation X and Baby Boomers.

The Past 5 Years

In our survey held in 2015, the average tenure for a CFO is 3-5 years. This contradicts the timeline above… Why would a CFO want to work 3-5 years after 15+ years of building his or her career?

As generations evolve, the tenure decreases. For example, the average tenure for millennials, according to our survey, is around 4 years.

cpa to be a cfocpa to be a cfo

2015 Survey Results: http://strategiccfo.com/blog/results-average-tenure-of-a-cfo-survey

Over the past 5 years, the CFO role has proven to be more complex and centered on leadership ability. CFOs now are more adaptable to change, hence the short tenure of a CFO.

The Next 5 Years

Ever heard of the “gig economy”? It’s the growing trend that contract workers and short-term “gigs” are commonly practiced. A great example of this influence is a friend of mine, who has 35-40 years of financial leadership experience. He recently quit his job, and is now looking for contract work. This puzzled me at first. He is a great person, and a very knowledgable asset to any company. As you can see, the gig economy is not only for the millennial generation. It’s a growing trend, for all leadership types.

Is this a reference for the trends to come? In the next 5 years, we can expect more contract work and less “climbing the ladder”… like getting your CPA to be a CFO.

Conclusion: Learning to Adapt

One of the ways we can grow as companies and financial leaders is to learn to adapt. If the world is shifting closer to a gig economy, explore that theory. If the average tenure for a CFO is less than 3 years, maybe we should change our hiring and training practices. Anything is adaptable if you’re constantly taking initiative and thinking one step ahead.

Don’t forget… the CFO is the CEO’s wingman. Learn how you can be the best wingman with our free guide!

cpa to be a cfo

Strategic CFO Lab Member Extra

Access your Projections Execution Plan in SCFO Lab. The step-by-step plan to get ahead of your cash flow.

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

Click here to learn more about SCFO Labs

cpa to be a cfo

 

0

 Download Free Whitepaper Today!

ACCESS NOW!