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Intangible Assets: Protecting Your Brand And Reputation

“In an economy where 70% to 80% of market value comes from hard-to-assess intangible assets such as brand equity, intellectual capital, and goodwill, organizations are especially vulnerable to anything that damages their reputations” (Harvard Business Review). Last week, I had a conversation with one of my coaching participants, Dory. Dory’s company is trying to make a lot of changes. Changes that as a financial leader just doesn’t make sense. It involves repositioning the business. It requires new marketing, new branding, new value, new culture, new staff… It’s an entirely new brand! However, the leadership fails to see how making this large of a shift will not only change the brand, but it will also risk destroying the firm’s reputation. In this week’s blog, we are discussing about protecting your brand and reputation.

With 70-80% of value stemming from intangible assets – such as your brand and reputation – it’s important to know what your company’s strengths and weaknesses are. Start enhancing those strengths (and resolving those weaknesses) with our Internal Analysis whitepaper.

Protecting Your Brand And Reputation

In today’s world, protecting your brand and reputation should be a priority because it can be destroyed with one social media post. In a WSJ article, Keri Calagna, principal at Deloitte & Touche LLP and leader of Deloitte Advisory’s brand and reputation management services, says that, “brand and reputation are complex, difficult to measure, hard to predict—often a result of strategic and operational decisions—and influenced by factors outside of an organization’s direct control.” But there are things that you can do as an organization not to further diminish value potential.

Protecting Your Brand And Reputation, Protecting Your Intangible AssetsFor example, we have a client that recently experienced an incident near their facility. The client’s concern was reputation and responsiveness to the situation even though they were a third party to the incident. But the perception with regulators and potential customers is very important. So, our client went above and beyond to respond and assist in the situation. This was seen in a very positive manner with regulators, neighbors, and customers. As a result, they were building very positive brand equity.

Brand Definition

Business Dictionary defines brand as a “unique design, sign, symbol, words, or a combination of these, employed in creating an image that identifies a product and differentiates it from its competitors.” Over time, a brand becomes the face of the company, something that customers recognize, and conveys the value of the product/service. It is your Image.  For example, Coca-Cola is historically seen as the #1 soda producer over Pepsi. Coca-Cola’s branding efforts have created a culture and a value among consumers.

Brand equity can go either way – positively or negatively. For example, influencers, bloggers, neighbors, friends, and family have recommended Product A to you. As a result, you are most likely going to buy Product A and any other product you need from that company. Then, you come across Product B. Product B has been known for its poor quality and is generally not as effective as Product A.  Product A has positive brand equity, whereas Product B has negative brand equity. As a result, Product A has a lot more wiggle room to make mistakes than Product B.

Take inventory of your company. What does your company do well at? What weaknesses does it struggle with? Click here to access our Internal Analysis to take a complete inventory of your company. 

Reputation Definition

Cambridge defines reputation as “the opinion that people in general have about someone or something, or how much respect or admiration someone or something receives, based on past behavior or character.” In other words, the reputation is how customers perceive your company versus how they recognize your company.

Protecting Your Brand And Reputation, Protecting Your Intangible AssetsAlign Strategic Decisions With Brand

One method to protect your brand and reputation is to align it with strategic decisions and overall strategy. For example, a company makes a decision without factoring in its brand. Customers and potential customers do not agree with the decision make because it changes X, Y, and Z. We have seen companies destroy themselves because they do not consider all factors before making changes to their brand.

Know Where Breakdowns Occur

Generally speaking, any breakdowns in your company will have to do with your human capital. If there is a misalignment with the actual company culture (not just what you perceive) and the brand, then your team will not be able to successfully deliver what the brand promises. Educate your employees on the brand. Fix issues within your team before it’s vastly different than the brand you are putting out there.

Protecting Your Intangible Assets

In the end, brand and reputation are intangible assets that your company needs to care about. It impacts value potential and the bottom line. Instead of managing crises, let’s look at how to manage risks and consequently, protect your intangible assets.

How does a company protect its intangible assets? Protecting your intangible assets starts with knowing what they are. What is your company known for? Why do customers choose you over a competitor?

Then start to identify what could change those answers. Is it government regulations that will change your product? What about material changes?

Finally, package what your intangible assets are and what influences them. Manage any risk threatening those assets.

How Your Brand And Reputation Impacts the Bottom Line

Before you go about making any changes to your brand, look internally at what is reliant on that intangible asset. In my first example, Dory’s leadership was not looking at how the employees, customers, vendors, investors, etc. were tied and attached to the brand. If her company made the change they wanted to, the company would lose its employees, customers, vendors, and investors. Sometimes, the brand is the thing that has made you so successful. If you are protecting your brand and reputation from potential changes, then take a look at our free Internal Analysis whitepaper. This will help you get a high level view of what impacts what.

Protecting Your Brand And Reputation, Protecting Your Intangible Assets, Intangible Assets

Protecting Your Brand And Reputation, Protecting Your Intangible Assets, Intangible Assets

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Alternative Forms of Financing

Alternative Forms of Financing, Alternative FinancingIt happens all the time. Companies need capital, but they aren’t bankable. Banks or other financial institutions will not touch them because they are either too risky, not able to meet covenants, or it just doesn’t work out for some reason. So, where do those companies go? They need to look at alternative forms of financing. In this week’s blog, we take a look at alternative financing and why there is a need for it.

What is Alternative Finance?

What is alternative finance? The US Small Business Administration defines it as “financing from external sources other than banks or stock and bond markets”. It typically refers to fundraising through online platforms; however there are various sources that could be considered alternative forms of financing. We will look into those a little later in this blog.

Sometimes, the best way to add value in a company is to know where to go for cash. If you want to learn 5 other ways a CFO can add real value, then click here to download our 5 Ways a CFO Adds Value whitepaper.

The Need for Alternative Financing

Why is there a need for alternative financing? Not all entities (banks, stock, bond markets, etc.) are willing to finance certain companies due to a variety of reasons. For example, Company A is a 2 year old company that has a technology that will not be ready for market for another 6 years. A bank most likely will not fund that project because there is no revenue for 8 years and there is no guarantee that the company is ever going to be successful. Alternative forms of financing will help Company A continue to research and develop their product and bring it to market.

In addition, alternative financing often provides benefits like mentorship, customer validation, advice, and buy-in.

Alternative Forms of Financing

There are several alternative forms of financing, but today, we will look at 5 financing options for companies that are not bankable. Those include crowdfunding, grants, mezzanine lending, private equity, and bootstrapping/sweat equity.

Crowdfunding

Crowdfunding is the most public form of alternative financing. It’s simply an online platform where many investors invest small amounts in a company. Popular crowdfunding sites include Kickstarter, Indiegogo, and GoFundMe. This is a great option for companies that have customers who want what they have but the bank does not agree. For example, some indie films have raised capital via crowdfunding platforms as both a marketing effort and capital raising. As a result of investor’s donations, they get perks such as rewards, early access, etc.

Grants

Other alternative forms of financing include grants, competitions, and accelerators. Grants do not have to be paid back, unlike a loan. They are usually disbursed or gifted by one entity. Often, that entity is a government department. It could also be a corporation, trust, or foundation. Most grants require an extensive application process. In addition, most grants are designated for a specific purpose – like research and development.

Grants, competitions, and accelerators often require business plans, financials, projections, etc. A benefit of going this route is to continually improve the business and add value. If you want to learn 5 other ways a CFO can add real value, then click here to download our 5 Ways a CFO Adds Value whitepaper.

Alternative Forms of Financing, Alternative Financing

Mezzanine Lenders

Mezzanine Lenders are organizations that provide loans to businesses; however, they are not required to have all of the guarantees and collateral of a traditional bank. Their loan to you might have some aspects of convertible debt to equity. In addition, it will definitely be more expensive than a traditional commercial loan. It will be about as expensive as using a credit card. But these lenders are great alternative to companies that may not be bankable.

Private Equity

Private Equity firms are funds, and team of individuals manages this fund that provides debt and equity to businesses. Usually, the “hold” period for the investment can be anywhere from 3-7 years. The Private Equity (“P.E”) firms bring best practices and find synergies with other portfolio companies to streamline costs. P.E. firms sometimes specialize in an industry or market to align their interests. Depending on the type of firm, private equity investors may take a managing role in a company.

Bootstrapping/Sweat Equity

While bootstrapping is not necessarily a form of financing, it does free up cash that is needed elsewhere. For example, a company can bootstrap by hiring employees on equity rather than a salary. While this may be a cheap option in the meantime, it can become expensive in the long run (especially if the company takes off).

It’s a CFO’s role to improve profits and cash flow. But to do that, they need to have the financial leadership skills to guide the CEO as they manage the organization. If you are ready to add real value to your company and get the respect you deserve, then click here to download our 5 Ways a CFO Adds Value whitepaper.

Alternative Forms of Financing, Alternative Financing
Alternative Forms of Financing, Alternative Financing

 

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Financial Leadership in the Digital Age

There is more information available today than in another other age before. It’s overwhelming. Instead of having verbal conversations with one another, there is a room of people on their phones or laptops communicating with other people around the world. We are processing thousands (if not millions) of pieces of information a day. And that’s making the role of the financial leader more difficult. There is simply too much information. So, how do you navigate financial leadership in the digital age?

First, take a look around the office. How much of your team’s work in on a device? How does your team look visibly (tired and exhausted or alert and awake)? If you go to any news source (Wall Street Journal, New York Times, etc.), notice how many articles are about technology and anything digital. Almost every article has some tech or digital component to it. This issue impacts financial leaders all around the world.

Financial Leadership in the Digital Age

Too Much Processing of Information

News channels, Facebook, Twitter, Instagram, Youtube, TV shows, financial statements, reports, contracts… Every piece of information we take in from the moment we wake up to the moment our eyes shut is simply overwhelming. There is too much processing of information occurring, and it has the risk of destroying a company’s value. A company’s leadership needs to be on guard of how much information they are processing each day. An article Fast Company published says, “Our brains have the ability to process the information we take in, but at a cost: We can have trouble separating the trivial from the important, and all this information processing makes us tired.” Our brains can only hold so much – much like a bandwidth of Internet. Once we go over that bandwidth, then we start to lose or forget information – even the most important information.

So, what does one do? They focus on a few key metrics rather than all the metrics. Click here to start identifying those key metrics with our KPI Discovery Cheatsheet.

Financial Leadership in the Digital Age

Financial leadership in the digital age is continuing to evolve and involve more areas in business than accounting. Already, financial leaders take a role in operations (productivity, efficiency, etc.), investment decisions, strategic planning, and human resources. I tell any CEO hiring a CFO that the CFO should be good enough or better to take on the role of a CEO.

Have a Team to Process the Information

As the financial leader, you have the opportunity to defer the role of sifting through all the information and data. Have your accounting department analyze all the information and package it into the most important information that you need to make strategic decisions. The CFO sits on a lot of information to begin with. With a team’s support, the CFO can focus on the most important information.

Financial Leadership in the Digital Age

Focus on Key Performance Indicators

Financial leaders in the digital age need to identify the key performance indicators (KPIs) that really matter in the business. If they don’t identify those KPIs, then they risk being overrun by data and may miss something important – result in injury, lawsuit, fines, etc.  With current systems that are properly installed, you can have thousands of bits of information in your monthly report.  But may I ask, what do you really need to make decisions?

Today, a client asked me if I wanted to see the daily reports. I asked what is in the daily report. The client responded with, “everything”. It included man hours, throughput, downtime, what was sold, was was wasted, HR information on who clocked in late and who was on time, literally everything on a daily basis. My response was simply “no” because  I do not need to see everything every day because I am running the company as an Interim-CEO. Instead, I want to see data that is meaningful, weekly, and information that will lead me to make business decisions. If we have over time one day of the week and none the rest of the week, then that will not lead me to make any business decision in this case.

Since so much data is available real time, be sure to gather and analyze that which is relevant and will lead you to make a decision.

Hire the Right Team

CFOs need to reevaluate which positions they are adding to their accounting department. Consider positions like data scientists, data security professionals, statisticians, and IT delivery specialists to add to your team. If the digital age is creeping into every area of business (especially accounting), then you need to have people with more experience in data, security, and analysis.

Adopt and Adapt to Technology

McKinsey recently reported that “the average capital project reaching completion 20 months behind schedule and 80 percent over budget.” Why? Because the stakeholders (project managers and contractors) in these capital projects are resisting technology. This is just one example of how resisting technology is a technology driven world will have an impact on the bottom line. If your company is already utilizing technology, then think of areas that you could be using more technology to reduce costs. If your company is still operating in the proverbial Stone Age, then it’s time to bring in a consultant or a team to implement a digital component. That could be an accounting system, a customer relationship management (CRM) system, an optimized website, etc.

In another example, retailers everywhere are having to change their business models to cater to the buy-now demand that customers have taken up. Retailers are creating e-commerce sites, closing brick and mortar stores, and managing inventory entirely different all because of technology. Recently, even grocery stores have been competing with companies, like Instacart and Favor, who are doing the shopping for customers that do not want to shop by creating their own delivery services.

Automation Plus Analysis

Over the years, the automation has creeped into finance and accounting departments. While at first, many in accounting were terrified that it would make their roles obsolete, we are seeing something different. You can only automate so much. In the end, business is all about humans. You cannot automate humans. What does that mean exactly? That means that now accountants are able to do more with the data than punching the information into spreadsheets, systems, etc. They can now spend their time analyzing the data, and thus, they become more valuable to the firm.

In a Wall Street Journal article, Paul McDonald from Robert Half says that, “companies plan to move the expertise needed to modernize their finance departments in-house, even as the process brings about more automation to routine tasks.”

Stay Focused in the Digital Age

So, how does one stay focused in the digital age? It starts with knowing what information is important enough to earn your attention and what information is simply a distraction. Start measuring your company’s KPIs today with our KPI Discovery Cheatsheet.

Financial Leadership in the Digital Age
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Financial Leadership in the Digital Age

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Planning Your Exit Strategy

When you start a company, you should generally know how you are going to exit the company. It could be a merger or acquisition, leave it to family, an initial public offering (IPO), a management buyout, etc.. Whatever the case, planning your exit strategy is almost as important as running your company because it’s the end goal. If you go into a business without the end in mind, then you may be building your company for the undesired exit. Before we go into planning your exit strategy, what is an exit strategy?

Planning Your Exit Strategy

What is an Exit Strategy?

Investopedia defines an exit strategy as “a contingency plan that is executed by an investor, trader, venture capitalist, or business owner to liquidate a position in a financial asset or dispose of tangible business assets once certain predetermined criteria for either has been met or exceeded.” When an exit strategy is implemented, the valuation process begins. Traditional approaches to valuation require the company to present their financial statements, cash flow models, and competitive analyses comparing companies in a similar field or industry.

Cleaning up your accounting records is just one method to protect your company’s value. Read about ten other “destroyers” that could be taking value away from you in our Top 10 Destroyers of Value whitepaper.

Why is Planning Your Exit Strategy So Important?

Exit strategies are crucial to responding to issues like the following:

  • Divorce of an owner(s)
  • Lawsuits
  • Change in market conditions
  • Retirement
  • Cashing out
  • Death

When you inevitably run into this life events, it’s either going two ways: according to plan OR some way. The second option leaves you open to a lot of unwarranted risk. It could also go really well or it could be a disaster. You would never know though without a plan in the first place. Of course, no plan is going to be perfect; however, it does allow you to think of solutions outside a stressful environment.

Planning Your Exit Strategy

Planning your exit strategy requires you to think from two different angles – business and personal.

Business Exit Strategy

Planning your exit strategy can take a long time. Sometimes, it can take years. It is certainly not something that is done in a month or two. There are many things to take into consideration when planning your exit strategy, including the following:

  1. Where are you personally in life?  Are you young, mid life, or of retirement age?
  2. Where is your company? Is it a mature company with a lot of good historical financial records? Or is it a young startup?
  3. Or are your accounting records less than perfect?
  4. What is the condition of your industry and the general economy?
  5. Is your product or service technology based?
  6. Is your management team ready to take over?

These are just some things to think about as you plan your business exit strategy.

While you are planning your exit strategy, it is a great time to start identifying “destroyers” in your business that are taking away value. Click here to learn about the Top 10 Destroyers of Value.

Planning Your Exit StrategyPersonal Exit Strategy

Personal exit strategies are going to take a little different approach. Life events like death, illness, divorce, relocation, retirement, etc. are going to happen. If you are the owner of the organization, then start listing all of the potential situations that would impact your company. Write those specific plans down, and share them with the people that need to know – other owners, spouse, attorney, etc. The key is to let others know. If you spend your valuable time writing and developing an exit strategy, then the people that are carrying out need to know what the plan is and where to find it.

Valuation

The valuation process helps determine the economic the company. We all have some magic number that we would love to have once we sell our business, but is it realistic? Find out what your company is really worth well before you decide to sell. Listen to advisors and be realistic. I have had many entrepreneurs tell me their company is worth $X, just because that is what they want. After all, they did put their entire life into it. Well, just because you want $X, it does not mean you will ever sell it for $X. Remember, a sale actually takes place between a willing buyer and a willing seller. Understanding what your business is worth is not that difficult to do. Valuations also change considerably with time, markets, and the economy. So, timing your exit is critical.

Read about business valuation methods and purposes here.

Here are a few questions to ask when valuing your company:

Goal of Planning Your Exit Strategy

There is one major goal of planning your exit strategy: don’t leave any value on the table. If you are not ready to get out of the business now, then this is great opportunity to identify and address those destroyers of value that are taking money off the plate. Click here to access our free Top 10 Destroyers of Value whitepaper to prevent leaving any value on the table.

Planning Your Exit Strategy

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Planning Your Exit Strategy

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Invest in Leadership Development

When you invest in leadership development, you are making an investment. It’s something that you pay good money for and expect a return on your investment. But what many leaders don’t realize is that leadership development should be strategic. We once had a coaching participant (CFO) who worked in a family company. Once the CEO retires, the CFO is set to become the CEO. Instead of going into the job blind or get coaching at the wrong time, this individual sought out coaching before he was set to take over the company. So, why invest in leadership development in the first place?

Invest in Leadership Development

Why Invest in Leadership Development

People will always be a good investment. Why? Because without people, you will not be able to accomplish all  of your goals for your company. There’s a phrase… The tone starts at the top or the fish rots from the head down. Whichever phrase you prefer, it hints at the same thing. Success (or failure) is a result of the leadership of a company. If you want a future for your company, then you need to focus on your leadership and management. You can accomplish this in 2 ways – 1) hire good leaders and 2) invest in leadership development for existing company leaders.

A legal entity should stand on its own no matter what changes are made at the top. There should always be a succession plan whereby management should be able to step up to executive roles. Without investing in your team, this will not happen.

The second option rides on the fact that you have already invested in a current employees with their compensation, benefits, etc. Now, it’s time to get them the coaching they need to further increase their value to your company.

 To learn more financial leadership skills, download the free 7 Habits of Highly Effective CFOs.

Reasons to Invest in Leadership Development

There are several reasons to invest in leadership development including improving profitability, retaining talent, and improving return on investment. Harvard’s research report on The State of Leadership Development discusses how leadership development addresses the “demands for change to address threats from global competition and technology-driven upstarts; the need to engage a multigenerational workforce with a range of work styles; and the imperative to cultivate a new generation of leaders who can meet these needs and thrive.” Simply put, companies need to address competition, culture, work styles, and generational differences to compete on a global scale.

Improve Profitability

If your leaders know how to improve profitability with the tools, resources, and second-hand experience from a leadership development program, then they will become evermore valuable to your firm. Leadership development will coach them how to make strategic decisions, how to lead effectively, and how to find opportunities. All of those benefits have the opportunity to improve profitability.

Day 2 of the Financial Leadership Workshop is all about improve profitability and cash flow. Click here to learn more, then contact us to register for the next series.

Retain Talent

In addition, companies cannot motivate all people by money. In fact, financial gain isn’t the only thing many employees negotiate. The next “gain” many negotiate for is mentorship, training, coaching, and further leadership development. That should tell you something. We all know the cost of turnover is high and can potentially make a dent in profitability. Your company’s goal should be to retain talent for as long as possible.

Improve Return on Investment

Many leadership development programs do not effectively communicate how they are going to improve return on investment. A good CFO or financial leader should be able to increase value 1-2% of sales in profits. For example, if a company has $1mm in sales, then a CFO should be able to increase profitability at least $10-20,000. And it goes up from there! If the investment is greater than 1-2% of sales, then I would advise you to find a different program. How much return can you expect from investing in your leaders? Financial leaders should always be looking at ways of adding value.

Financial Leadership Development

More specifically, your financial leadership needs to be further developed in their leadership skills. In our Financial Leadership Workshop, I enable my students to go beyond the role of CFO/CEO to become the central financial leader in the company. Furthermore, our curriculum empowers you to become both an influence and decision maker in your company.

Any financial leadership development program worth investing in should accomplish a couple things. It should make the shift from numbers cruncher to financial leader. It should also cover how technology changes the role. Obviously, it should address profits and cash flow. There are many other topics that I could list here, but you can read more about what you should be prepared to walk away from a coaching workshop here.

Finding the Right Financial Leadership Development Program

It all starts with who is coaching the program. For example, if a 26-year old with no financial executive experience began coaching financial leadership, then there would be no credibility or experience behind that program. In comparison, if the course is coached by a 28-year financial executive who is seasoned and experienced either in a niche market or a variety of markets, then the only thing you need to look for is the fit. Finding the right financial leadership development program begins with the curriculum. Does it coach on the topics you need to coached up on? If so, then you need to also evaluate the following:

  • Logistics (time, location, schedule, etc.)
  • Cost
  • Benefits
  • The Coach

Right now, registration is open for our Financial Leadership Workshop Gamma Series starting this October. Click here to learn more about our program and contact us to see if it’s the right fit for you.

In the meantime, I also wanted to gift you our 7 Habits of Highly Effective CFOs. This whitepaper is by far our most popular whitepaper and is just a snippet of what to expect in our Financial Leadership Workshop.

Invest in Leadership Development
Invest in Leadership Development

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Budgeting 101: Creating Successful Budgets

We often discuss budgeting in our firm, and I often write about budgeting because it is such an important topic in any company. As a consulting firm, we deal with this issue at almost every client. Let’s rehash some basics… Why is budgeting important? As properly stated by Ron Real (the author of 13 ½ Strategies for Winning the Budget Wars), “To achieve success in anything, you need two ingredients: a target to aim for, and a way to measure your progress towards it” (more from Ron Real below). Before we go into creating successful budgets, let’s address the common problems with budgets.

Successful budgets, budgeting rules, common problems with budgetsCommon Problems with Budgets

We deal with clients all the time that either do not have a budgeting system in place, or they have the wrong budget system. The following are some of the most common problems we see with budgets at some companies:

  • Lack of accountability
  • Employees ignore the budget, don’t follow it, or find ways around it
  • Only applies to some groups/managers and not to others
  • Results in fights or power plays, or managers play games
  • Budget process takes too long and consumes too much of people’s time
  • Budget is wrong from the beginning
  • Established goals are either easy to reach or unachievable
  • Filed away when completed – lack of follow up
  • Built on faulty or unrealistic assumptions or not everyone agrees on the assumptions or principles
  • Budget performance and financial feedback is slow or nonexistent
Ready to start creating successful budgets? Become a SCFO Lab member and start the Budgeting 101 Execution Plan where we go in depth into common problems with budgeting, budgeting rules, and budgeting principles. Learn more about the SCFO Lab here.

Successful Budgets

Successful budgets are possible, but the TONE STARTS AT THE TOP. If the leadership or Board does not take the budget process seriously and does not hold others accountable, then you will have a problem with the budgeting process. You can build a budget and a budget process that is well conceived, creates a visionary plan, and shares resources. The budget process is very much a team effort, but it often needs to be taught to others in the organization.

The tone starts at the top, and your CEO needs an advisor they can trust. Click here to download our free How to be a Wingman Guide to start setting that tone.

4 Budgeting Rules

Successful budgets are created by following rules and principles developed over my 28-year career. You can find all these rules and principles in the Budgeting 101 Execution Plan inside the SCFO Lab. Let’s look at 4 budgeting rules that help create successful budgets.

Rule #1: Decision Making Tool

The budget is a tool for decision making. It is not a disconnected document that has little to do with the company’s actual business. Start by reframing your and your CEO’s perspective on the purpose of a budget in a business.

RULE #2: Management Tool

Budgeting is a very important management tool for achieving lasting success. Just like the CFO is the wingman to the CEO, the budget is the wingman to all management.

RULE #3: The Plan

A budget is establishing the discipline to set up a plan and then adhering to the plan. In fact, 94% of all ineffective budgets are the direct result of weaknesses in the organization’s corporate structure. Some of these weaknesses include the following:

  • Inadequate leadership
  • Poor communication
  • Conflicting goals
  • LACK OF ACCOUNTABILITY

Hint: Be disciplined and follow the plan!

RULE #4: Problems Exist

Issues that lead to a poor quality budget process mean that these problems already exist within the organization ALL THE TIME! If your company is experiencing budget problems, then it’s time to look at what the problem really is. Issues that are probably already part of the corporate culture, but many times ignored, include the lack of:

  • Vision
  • Accountability
  • Communication

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

There are many other rules to budgeting and basic principles, but we can not cover all of these in this one blog; however, we do cover this topic at length in our Financial Leadership Workshop (Day 4) and our SCFO Lab’s Budgeting 101 Execution Plan.

Understanding how budgets really should work is critical. I recently had an executive tell me that he did NOT believe in budgeting because it just meant that people now had the authority to spend everything allocated to them at the end of the year. Unfortunately, this executive was thinking of budgeting like the government thinks about a budget. You have $1,000 for the year, so you must spend it by year end. That is NOT a corporate business budget or budget process. That is a very flawed interpretation of budgeting.

If I could use just one word that describes why it is important to have a good budget process, it would be “accountability”.  A budget will force your team to be held accountable. But, if that theme of accountability does not start with the Tone at the Top, then you are guaranteed to have a flawed budget process.

If you are ready to take your financial leadership development to the next level, then look no further than the Financial Leadership Workshop. Registration for the Gamma Series of the Financial Leadership Workshop is now open. Learn more about the program and how you can get started in October 2018.

Suggestions to Create a Successful Budget

Other quick suggestions to create a successful budget include the following:

  1. Set goals and objectives that push for growth and efficiency, but keep those goals and objectives realistic. There is nothing more demoralizing than to have a unachievable goal.
  2. Start your budget planning process early. For a calendar with year end at December, start no later than August of the current year.
  3. Measure your actual results every month versus budget, and hold people accountable.

Adhering the these budgeting rules and reframing budgeting to your CEO and leadership team is just one example of how you as the financial leader can act as a wingman. If you want to step up and be the trusted advisor your CEO needs, click here to download the How to be a Wingman Guide.

Successful budgets, budgeting rules, common problems with budgets

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What Your Banker Wants You To Know

What Your Banker Wants You To Know

In small or large businesses, we often end up dealing with banks and bankers beyond the checking account. When you have debt with your bank (your lender), the relationship takes on another dynamic. The typical loan agreement for traditional debt includes loan amount, terms, collateral provided, the covenants you must live by, and the dos and don’ts allowed. When things are going well, the relationship with your banker seems to always go well.  It is in difficult times that things get tough. Let’s look at what your banker wants you to know.

Growth is good, but it requires more capital to sustain. Learn about the 25 Ways to Improve Cash Flow (in addition to acquiring capital from the bank).

What Your Banker Wants You To Know

Your banks wants to know the bad new sooner than later. Furthermore, your banker does not want surprises. If you are having issues with your business, then discuss these early on with your banker. If you’re getting close to the limitations of your covenants, then let your banker know. In addition, if you see a change coming in your industry, then let your banker know early on. Be sure to give your banker the good news also. If you are planning on changes to Sr. Management, then mention these to your banker.

The banking world changes based on the economy, regulations, and markets. We remember 2008 when new credit at banking institutions basically shut down. Before that, it was fairly easy to get credit. And loan requirements were not as cumbersome – which is not always good. But the crisis caused a change in behavior at banks – some of it self implemented and some implemented by regulators.

In today’s market, money is still relatively cheap. There is an abundance of liquidity in the markets. So banks do want to loan money, but you must meet some basic guidelines.

What Your Banker Wants You To KnowWhat Commercial Banks Want

In order to loan you money, commercial banks basically want just a few things:

  1. They want to have collateral that secures their loan
  2. They want to know you have the cash flow to payback their loan
  3. They want to understand your business and they want to know what the funds will be used for
  4. They want to understand how much they will make $ on their loan to you

Different Types of Lenders

There are different types of lenders, including the following:

The cost of that capital goes from cheapest to most expensive lender on the list above. The structure of the debt also goes from easiest to most complex structure in the list above. Some want collateral (security), and some do not.

Looking for more capital? There may be cash lying around your business. Learn the 25 Ways to Improve Cash Flow today.

Keep Your Eye on Your Debt Covenants

Most likely, if you have commercial debt, then you may have some debt covenants stated in your loan agreement. Covenants are the requirements you as the Borrower must maintain to be in good standing with your loan agreement.

Oftentimes, the bank and banker find out something is wrong when you turn in your financials and/or bank compliance certificate. They find that one of the covenants is out of whack. You may have a debt/EBITDA covenant ratio as part of your covenants. This is a common requirement. Do not wait for you to “bust your covenants” before you reach out to your banker. Monitor your covenants closely. If you see drivers in your business that may create a problem with your covenants, then reach out to your banker.

Renegotiate Covenants

Believe it or not, I have been in situations where the loan agreement is already a few years old. The company has become much more financially healthy, and I went back to renegotiate certain covenants to ease the reporting burden. The bank was very open to modifying some covenants. Usually, you have to be in good standing and have a good historical track record to modify or request to modify covenants. But do not be shy. Simply ask. The worst that can happen is your banker says, “no”.

Most bankers in today’s market do really care about the relationship, even at the biggest banks. Your banker does want to see you succeed. If you are living through troublesome times, then your banker does want to see you get financially healthy. But you need to communicate with your banker. The worst thing you could do is hide something from your banker or try to sweep something “under the rug”. That will eventually come, out and you will have burned a bridge with your banker. After you hide something, or if you do not disclose something, your banker will always carry that doubt in the back of his mind. And they may not be there for you when you really need to negotiate that debt covenant.

Are there other areas in your company that you can focus on to improve cash flow (outside of bank loans)? We have put together the 25 Ways to Improve Cash Flow whitepaper to make a big impact today on your cash flow.

 

What Your Banker Wants You To Know
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What Your Banker Wants You To Know

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