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Battling Uncertainty in Your Company

Battling Uncertainty in Your CompanyUncertainty is all around. Sometimes, it’s more apparent than not. We subconsciously disregard a good chunk of unknowns in our personal life, but in our businesses, anything uncertain tends to cause chaos. Where is my next customer? Am I going to be able to pay bills? Is the economic climate going to pick up? We ask all these questions (and much more). For example, many parts of Houston got destroyed by Hurricane Harvey and it’s 51 inches of rain. As a result, many businesses were underwater and would take months to repair their brick-and-mortar store front. Other business, such as real estate, had to navigate multiple properties being under several feet of water – and no longer sellable either at all or at the same price. Battling uncertainty in your company is a continual fight that you must endure if you want to success.

Battling Uncertainty in Your Company

When you are battling uncertainty in your company, figure out what you know and don’t know. Why? You may be surprised of what you do know and don’t know. It also allows you to see areas of strengths, weaknesses, opportunities, and threats. For example, let’s look at the Astros baseball team – also, the World Series Champions of 2017. They had great players, great coaches, and excelled in every practice and game. But there was no guarantee that they would beat the San Diego Dodgers. In fact, it could have very easily gone the other way as the Dodgers have great players, great coaches, and excelled in every practice and game. There’s a level of uncertainty that has influence over your future. If the Astros were not able to identify a huge external threat, then they could have been potentially blindsided.

Also, it is important to know what you can control and what you simply cannot control.  Many times, we spend hours worrying about those things we cannot control. If you can’t control it, move on and spend your time solving those things you can control. I saw how uncertainty affected many companies with the most recent downturn in the oil and gas industry. Many companies where either affected directly or indirectly when oil prices plunged from $100/BBL down to below $30/BBL. This industry change caused a lot of companies to go into panic mode and uncertainty.

That’s why it is so important to conduct a SWOT Analysis while battling uncertainty in your company.

battling uncertainty in your company

Conduct a SWOT Analysis

Once you have identified what you know and don’t know, conduct a SWOT Analysis. This is a snapshot of what is going on both internally and externally. SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. Strengths and weaknesses addresses your internal company health. What are your core competencies? Are you maximizing their potential? In comparison, opportunities and threats addresses the external factors that have influence over your company – government, policy, economy, movements, etc.

To get started on your SWOT Analysis, click here to download our External Analysis whitepaper – addressed the OT of SWOT.

Create Plans for Known Threats And Opportunities

This is a great time to create plans for known threats and opportunities. The Harvard Business Review says that, “Uncertain times, when some things are on hold, provide a good opportunity for fix-ups and clean-ups. Uncertainty makes it tempting to let things deteriorate (maybe we won’t keep this office going or live in this place any longer).” First, fix the things you know are broken and improve on the things that could be better. Create an action plan that will address these known threats and opportunities.

In addition, times of uncertainty usually harbor very creative doomsday scenarios. Rumors spread quickly, and this season of uncertainty can cause strife among your team. Use this creative energy to find an opportunity that will make one thing certain. Ask your team to research, talk about, think of, and find opportunities to take. Sometimes, it begins will brainstorming where (not what) the opportunity lies.  As a business leader/executive communication is a priority in times of uncertainty.  You would be surprised how many times I have seen business leaders go silent in times of crisis.  This is the worst thing you can do, and it only makes things worse in your company as a whole.

Battling Uncertainty in Your CompanyAddress Your Company Culture

Typically, whenever an entrepreneur or CEO loses sight on what is going to happen, they become frantic and are not able to think clearly. As a result, that panic travels down the organization chart and no one can make a smart decision. In times of battling uncertainty in your company, address your company culture.

Address your challenges upfront. There will always be things you cannot tell your employees but share what you can. Get a feel for moral in the organization. If you have to make some difficult decisions do so and assure those staying this was the best for the company as a whole and benefits them directly.

Then, harness their creative juices to generate ideas and to find opportunities. Engage every employee – from the lowliest employee to the top leader.

After your employees are feeling certain that something is being done to make the uncertainty certain, engage your customers. Thank them for their loyalty and share your genuine appreciation for them. The last thing that you want to happen is for you to lose a big customer and for your employees to follow suit because they are uncertain of their employment.

Where Uncertainty Comes From

Business Dictionary defines uncertainty as a “situation where the current state of knowledge is such that (1) the order or nature of things is unknown, (2) the consequences, extent, or magnitude of circumstances, conditions, or events is unpredictable, and (3) credible probabilities to possible outcomes cannot be assigned. Although too much uncertainty is undesirable, manageable uncertainty provides the freedom to make creative decisions.” In other words, uncertainty comes from what we don’t know. There is no way that we could ever know everything! But there’s an opportunity when looking at the certainty of uncertainty.

The Certainty of Uncertainty

The good thing about uncertainty is that we are certain it will always be in our midst. If you know that there will always be uncertainty, then you can separate what you know and don’t know. Think about science – whether it’s how the world was created or how gravity works, etc. Scientists have created these theories will all the information that they have found and researched. Those theories hold true until more information comes along that proves otherwise. If we compared theories 300-400 years ago to now, we would be shocked that they thought that way. In the spirit of science, financial leaders must make decisions knowing what they know at the time and adapting as they get more information.

Leading Through Uncertainty

Ram Charan, author of The Attacker’s Advantage: Turning Uncertainty Into Breakthrough Opportunities, says that, “risk takers are catalysts, operating in offense mode… They’re doers who take risks based partly on fact and partly on their imagination about what could happen when those forces combine in what others might later call a convergence… The catalyst, in fact, is the one who often creates the convergence” (Fast Company). When you are leading through uncertainty, make a decision and avoid delaying for more information that you know is not going to be there. Take ownership of those decisions and charge forward. Remember, a fish rots from the head down. If you as the financial leader fail to lead confidently, then the company underneath you will begin to crumble.

It is also important to be a servant leader! A Harvard Business Review article says that, “when lives are on the line, servant-leadership is the only leadership model that truly inspires a team, because servant-leadership demonstrates that you, as the leader, put your people’s welfare ahead of your own.”

To prevent chaos, it’s important that you know how to overcome obstacles and consequently, be prepared to react to external factors. Click here to access our free External Analysis Whitepaper and gear your business up to navigate uncertainty.

Battling Uncertainty in Your Company

Battling Uncertainty in Your Company

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How Decision Making Impacts An Organization

In my 28 years of working for different types of organizations – public, private and consulting for companies from $4 million in revenue to $1.5 billion in revenue – I continue to be surprised how decision making impacts an organization. I’m even more surprised how the lack of decision making negatively impacts an organization. In order to accomplish anything in your company, there are two options: to make a decision and control the outcome OR to not make a decision and react to whatever happens. 

What It Takes To Make A Decision

The University of Massachusetts (UMass) Dartmouth publicized a paper that summarizes how to make a decision effectively and successfully.

#1 Identify the Decision

First, a leader must identify the decision. In other words, you need to identify when a decision needs to be made. Clearly define the nature of the decision. 

#2 Gather Information

Then, gather relevant information that will help you make a good decision. 

#3 Identify Alternatives

After you gather internal and external information, identify the alternatives as you are likely to have different paths or choices to make. List those alternatives. 

#4 Weigh the Evidence

Next, you need to weigh the evidence. This is an internal process. It can also be an emotional process. This is what takes the most time in the decision making process. 

#5 Choose an Alternative

After you have weighed the evidence, you need to choose among the alternatives. This is based on the first four items listed above. 

#6 Take Action

Then, you can take action. Only do this when you are ready to take a positive action based on the alternative you chose. 

#7 Review Decision

Finally, review your decision. Remember, this will take some time to accomplish. 

The above 7 steps really apply to business every day. From making a large acquisition of a competitor to hiring your CFO, these rules should be utilized. 

Your CEO needs a trusted advisor. They need you to help guide them through the decision making process. Learn how to get to the trusted advisor level by downloading the free How to be a Wingman whitepaper (and get an invitation to join our SCFO Lab)!

 

Many Business Leaders Are Not Good Decision Makers

Unfortunately, many business leaders are not very good about making decisions.  They either rush through the steps, many times skipping a step, and end up with a bad decision. Or they get stuck on number 4 – weighing the evidence – and never move to step 5, which is making a choice. 

What Happens When You Skip The Steps

But what happens when you skip the decision making steps? The steps mentioned above in the paper from UMass Dartmouth are critical and should not be taken lightly. They are there for a reason. My guess is that some bright minds with real life experience put these together. I mention this because in my 28 years of business experience, I can relate to each one. 

I have seen “decision makers” (oxymoron) skip one or more of these steps.  This can be in a routine day-to-day business matter, or in a strategic major multibillion-dollar decision. The outcome is always the same. The wrong decision was made. The cost of a wrong decision to an enterprise can be catastrophic. Or at the very least, the cost is an expensive one and sets back an entire department/business unit for months. 

How Decision Making Impacts An Organization

How Decision Making Impacts An Organization Case Studies

It is sometimes difficult to see our own faults in decision making until we hear or read about a similar situation. In my 28 years of experience, there have been hundreds or thousands of examples that I could pull from. See below for 2 case study examples. 

Real life Case Study #1 – Regulated Utility

I was once involved with a regulated utility that was installing an ERP system. The company completed Step #1 (Identify the Decision) and that’s about it! Someone with title and power in the organization decided to skip steps 2-7, and the result was a very bad system implementation that cost the company 50% of its revenue. Because of the lack of decision making and follow-though in the decision making process, they ultimately had to shut down a whole division. 

Real Life Case Study #2 – Chemical Company

In another example, a chemical company needed to fire a CFO and hire a new one. The original CFO had a bad track record of poor decision making. Technically, that CFO was good. But he was a bad people person and managed people with a hammer. As a result, a bad culture had developed. People hated working for the CFO and in turn, hated the company. Finally, the Board of Directors insisted that the CEO fire the CFO. 

The CFO was fired, but the company’s moral was terrible. The worst part is that since the CEO was snake bitten, he was gun shy on making a decision to hire the replacement CFO. The CFO position was left open for almost one year. As a result, the company suffered due to the lack of leadership. During that time, the company loosened its internal controls, and the budgeting process became a mess.  The lack of decision making by the CEO caused the Board of Directors to lose confidence in the CEO. There was a lack of leadership in the entire organization.

Analysis Paralysis

Step #4 (Weigh the Evidence) requires some analysis. We can all get lost in the weeds during this process. You may have heard the term Analysis Paralysis before. Analysis Paralysis is where someone is overthinking the analysis so much that a decision is never made. 

This is actually very real, and it can happen to any of us – especially people who tend to be more detailed-oriented and analytical.  First, you need to realize that in any decision we make, the perfect alternative does not usually exist. We wish there was, but in reality, there is not. 

Is there the perfect car? 

What about a perfect acquisition target? 

Is there a perfect CFO? 

The answer is probably no on these.  We need to work with what we have and make the most educated selection based on the alternatives before us. 

How Decision Making Impacts An OrganizationTrust the Professionals

As professionals in our respective area, we are confident in what we know, or as they say, know what you don’t know. 

If you hired a trusted advisor to assist you with your decision making and they are a reputable person, then trust your advisor’s opinion. 

When I was growing up, it seemed like my father who was a physician would change his tax CPA what seemed to be every year.  He just did not “feel good” about taxes and did not trust anyone. Not even the trusted advisor he hired!  My dad was very talented and dedicated as a physician, but he knew nothing about business or taxes.  So, his lack of knowledge in this area created a huge “monster effect”. There was no monster nor was there a person trying to screw him out of taxes. He simply did not know what he did not know.  We cannot emphasize enough: trust your advisors. 

How Decision Making Impacts An Organization

Decision making makes a huge impact on an organization. It can either propel it forward and into success. Or it can destroy the company’s value. The worst thing that a leader can do is to not make a decision. There is always a better decision than not making a decision. It reduces the uncertainty because you have already collected evidence, weighed the alternatives, and went through various scenarios of how each decision will potentially turn out. 

Poor or Lack of Decision Making

Remember, poor decision making, skipping necessary steps or simply a lack of decision making is a sign of lack of leadership.  Not only is there a perception problem, but most likely your business enterprise will suffer due to the lack of decision making.  As the business leadertrust your professional advisors and allow them to help you in the difficult decision making process Download our free How to be a Wingman guide and step up into the trusted advisor role. 

How Decision Making Impacts An Organization

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How Decision Making Impacts An Organization

 

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You Can’t Afford Not to Spend Money on the Accounting Department

As a former CEO to some CEOs, this Blog is to my counterparts that “don’t know what you don’t know.”  I have seen time and time again closely held businesses that have experienced growth make the same mistakes over and over again. To the CEO that believes bookkeeping is a necessary fixed cost that should be minimized, here is a money making tip. You can’t afford not to spend money on the accounting department if you want to be successful.

The Big Mistake

Your company has grown over the years; you have experienced good times and maybe some bad times. Additionally, you have taken a nice paycheck and sometimes, some nice bonuses.  You got used to a certain life style. And you did all of this with a bookkeeper that does not cost you much.  But your company has grown. Still in the back of your mind, you know something tells you that you are not comfortable with your accounting records. But you elected to keep cost down for the bookkeeper and you do not spend much on accounting.

You Can't Afford Not to Spend Money on the Accounting Department

My Tax CPA Does It All

Maybe until now, some of you have your outside CPA that prepares your tax return also prepare year-end financials. This is not a knock-on tax preparers, but your CPA that prepares your tax return is an expert in one of many fields CPAs work in. For example, I am a CPA, but there is no way I would prepare my own tax return. Tax laws change way too often. I just want to maximize my deductions and pay my fair share of tax, but not more than that. That is why I have my tax CPA prepare the tax return.

But over the course of my career, I have found that most tax CPAs do not have operational expertise. They have not run a manufacturing or service business, nor have they had any P&L responsibility. The Tax CPA is considering accelerated depreciation, maximize expenses, etc. This is quite the opposite from a management set of financial statements. The role of the CPA Tax preparer is totally different from a “operational” CPA, Controller or even CFO.

Minimizing the Back Office For the Wrong Reasons

Most CEOs that I have worked with argue to minimize the cost of the back office. That includes the cost of preparing financial and accounting records. But think about this… The Securities and Exchange Commission (SEC) does not require public companies to prepare their financial statements according to Generally Accepted Accounting Principles (GAAP) because they pulled this out of thin air as another way to regulate.  The SEC requires public companies to prepare their accounting records and financial statements based on GAAP because it is the best way to present fairly the results of your financial operations to third parties reading your financial statements.  In other words, It’s the RIGHT way to keep your books!

In some cases where there is significant debt and exposure, some banks also require that the company present your accounting records based on GAAP – regardless of whether it is a Public or Private company.  Some debt situations even require an audit. The banks simply make it one of the covenants related to your debt. When you present your books and records per GAAP, you have accurate financial statements, everyone is assured your accounting is correct.


Click here to download: The Smart Back Office for SMBs


The Importance of Using GAAP

So, if a lot of brain power has been put into coming up with GAAP, and the general consensus is that GAAP is the right way to present your financials and accounting records.  Why would you as CEO not require that your financial statements be presented per GAAP?

I have been an “operational” type CPA for over 27 years now. In addition, I have held the office of CEO twice. I have used my expertise in public company environments and private companies both as an employee and as a consultant in the U.S. and in other countries. I have seen many very successful small, medium and large private companies and they were all keeping their financial records per GAAP. Yet, I have NEVER seen a significant company (not a micro or small business) be successful and properly run without keeping their books and records per GAAP.

So why is it that CEO’s of closely held (private) business still permit their accounting records to be kept some other way?   The answer: they do not want to spend money on a fixed cost such as accounting. But they will spend money on the sales team, hunting leases, extravagant meals or parties.

Not getting the basics down – such as GAAP – leaves money on the table when you are exiting the company. Increase value with our Top 10 Destroyers of Value whitepaper.

You Can't Afford Not to Spend Money on the Accounting Department

You Can’t Afford Not to Spend Money on the Accounting Department

These are real life examples and outcomes of minimizing the cost of your accounting department that I have lived…

The service company incorrectly books gains on U.S. dollar receivables. In conclusion, they had to reverse $8 million from earnings.

I have seen this one several times. The company does not have some large assets on the balance sheet, because their tax preparer said they used accelerated depreciation. As a result, the balance sheet assets are severely understated. Hint: your value is understated. IT’S ABOUT THE MONEY DUDE!

The manufacturing facility does not properly accrue costs. As a result, their margins are way off, and the CEO wondered why they were always short on cash.

The company did not properly reconcile accounts including cash. This led to fraud.

The company did not properly recognize revenue. In conclusion, the company was understating revenue by millions of dollars.

I can go on and on with more real-life examples.

If you do not have your financial statements presented per GAAP, how are they prepared and presented? Do you really know your margins in your P&L. Do you really have all your assets, liabilities and equity presented correctly? Is your P&L, Balance Sheet and Cash Flow statement presented correctly? Guess what? Your ratios that your controller or CFO should be analyzing are not correct.

Leadership Needs to Believe in GAAP

Why do you think Exxon, Walmart and all other public company CEO’s believe in GAAP?  I have also seen many small, medium and large closely held private companies keep their accounting records per GAAP.  These are all successful companies. They know their margins, they know where cash is, they know their ratios and guess what, they know how to forecast!

I have also seen time and time again good companies that have been around a while and have experienced growth, and NOT prepare their financials per GAAP.  And every one of these CEO’s and companies has the exact same issues.

  • They really don’t know their margins in their P&L
  • Some companies don’t even really know their actual revenue
  • There is always that doubt in the CEO’s mind as to what is really going on in the business
  • The CEO lives a stressful life
  • Every time there is even the slightest decrease in margins, there is even a bigger disproportionate stress on cash
  • If your books are not per GAAP, then most likely they are not on the accrual basis; if that is the case, then you are 60-90 days behind your business
  • Having your books on an accrual basis is just the first step. There are many other accounting rules, procedures and pronouncements to get your books per GAAP. Just because they are on accrual basis, does not mean they are per GAAP. GAAP “rules” actually change frequently

You Can't Afford Not to Spend Money on the Accounting Department

In Summary

In my consulting business, I have seen CEOs that are “smart” as in they know what they don’t know. They bring us in to get the problem fixed. Although it takes time and money, the CEO is fully supportive and we get it done. These are the companies that grow and ultimately have a successful liquidation event. Or they leave a well-run machine to their family or employees.

But it shocks me to continue to see companies as large as $120 million in revenue, with a couple hundred employees that have not professionalized their accounting department. No one knows the true margins. Everyone stresses out about the “accounting records.” There are no correct historical financials, and most certainly, there are no forecasts. Unfortunately, there is no analysis of the business at all. In some high margin “hot” industries, this works for a while. The sins are buried. But millions of dollars are lost without knowing it. But, since ultimately everything ends up in cash, when that “hot” industry has even a slight downturn, the CEO feels the cash crunch.

Whether you are trying to increase the value of your company or positioning it for sale, this issue of unknowingly leaking cash is a destroyer. Learn how to tighten your belts and increase value with our Top 10 Destroyers of Value whitepaper.

Don’t be Cheap

Don’t be cheap. Spend the money (which is usually less than the hunting lease) to get your books and records based on GAAP basis.  Get your priorities straight.  Continue to have a professional accounting department in your business. YES, you will spend more than you are currently spending. But you can’t afford not to spend money on the accounting department!

Consider this… I had one investment banker with a very large firm tell me the difference in a valuation of an acquisition target from a company that has accounting records per GAAP and solid accounting department versus one that does not have a professional accounting department and accounting records not per GAAP is a difference of 20%-30%.  I had another investment banker tell me the difference in valuation is “one turn of EBITDA”. The use of EBITDA and multipliers is often used in valuation.

So if your company generates $2 million EBITDA and the multiple used is a 5, then your value would be $10 million with a professional accounting department and books per GAAP. In comparison, your value is $8 million with an unsophisticated accounting department and accounting records not per GAAP. I don’t think your professional accounting department will ever cost you $2 million per year! But not having it will.

Not having your financial records per GAAP is one of the destroyers of value. If you want to protect the value of your company, download the free Top 10 Destroyers of Value whitepaper to learn how to maximize your value.

You Can't Afford Not to Spend Money on the Accounting DepartmentYou Can't Afford Not to Spend Money on the Accounting Department

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Demystifying the 80/20 Rule

Whether you are working with a client, putting together a reporting package, networking with potential theory, or closing the books, there’s a rule you can apply to make your life easier. This rule is probably one that you’re very familiar with – regardless of whether you practice it. When you are completing a job, there always seems to be a few things that push the needle further than anything else. This is the 80/20 rule.

Using the 80/20 rule is a great way to be a more effective financial leader. Click here to read more about how you can be a highly effective CFO.

What is the 80/20 Rule?

Simply put, the 80/20 rule is where 20% of the work results in 80% of the outcome. Likewise, 80% of the work only results in 20% of the outcome. While the numbers may not be spot on, the theory holds true in pretty much everything you do.

In the early 20th century, Vilfredo Pareto, an Italian economist, introduced this concept to explain the distribution of wealth in his home country – Italy. It first came about when roughly 20% of his pea pods made 80% of the total number of peas grown. As he continued to test this theory, he expanded it into other areas of macroeconomics (wealth distribution). Then roughly 30 years later, Joseph Juran applied the 80/20 rule to business production methods. He explained this rule “the vital few and the trivial many.”

Demystifying the 80/20 Rule

Many may argue that it’s not exactly 80/20, and you would be correct. It may even be 99/1 if you look at a particular situation. But as we demystify the 80/20 rule, we need to be thinking from a macro viewpoint. What is the minimal amount of work you can do to result in the most work.

How It Applies to Financial Leadership

As the financial leader of your company, it’s so important to know what pushes the proverbial needle forward the most. Look at your team, your fulfillment, your customers, your vendors. Then look at your role in the company. What work can you do that will result in bigger and better outcomes? Identify the work that takes up the most time without providing much. You may consider having a lower level employee work on those tasks. If that 80% work is too sensitive, then restructure your day to allow for the most time sensitive issues to be front and center.

80/20 Rule

Customer vs Revenue Relationship

Because there is no business without its customers, let’s look at the relationship between customers and revenue.

Who are your best customers? They are the ones who pay their invoices on time, don’t require extra time from your team, and never complain. They are also your most profitable customers. These customers are your 20%ers, and they make up 80% of your revenue!

But then, there are those customers who you dread receiving a call from because you know it’s going to be yet another complaint. These unprofitable customers suck your time, resources, and money. They make up 80% of your customer support/implementation/sales. Yet, because they take advantage of you, they only result in 20% of the company’s revenue (and less in profit). If you are overrun by profitable customers, you may want to think about firing that customer.

An effective financial leader is able to guide their CEO through the numbers and demystifying what may be unclear to them. If you want to more effective, click here to download the 7 Habits of Highly Effective CFOs to become a more valuable leader.

Improve Your Productivity by Applying the 80/20 Rule

If you desire for your team to be more productive, then you need to start with yourself. A fish rots from the head down. Start by analyzing your to do list. Are there a few things that will make a big difference? If so, prioritize those over everything else. Remember, not everything on your to do list will have the same impact or risk. A great way to assess the weight of each task is to use “tags” labeled: non-essential, essential, and critical. Are you chasing administrative tasks or completing the same tasks over and over? Ask yourself whether those can be automated or if a less expensive employee can complete them.

Why You Need to Be More Productive

There are so many squirrels that you could chase! There’s a million ideas that are all million-dollar ideas. But what do you need to do to meet your goals? If you continue to get bogged down by things in the 80% pile, then you risk never reaching your or your company’s goals. You need to be more productive, more streamlined. Although many see automation as a risk, we see it as an opportunity to force ourselves to be more productive.

How It Impacts How Effective You Are

When you apply the 80/20 rule to your leadership and workspace, you become more productive. You are then able to see clearly what is going to push the needle further. In our experience, our client’s experience, and our vendor’s experience, there are just a few indicators that hold much more weight. Think about it this way… If you listed everything you need to improve, you would never get it all done. You simply don’t have enough time to do everything! But you do have enough time to focus on the 20% and reap the 80%.

Lead From the 40,000 Foot Level

An effective financial leader leads from the 40,000 foot level. If you only look at an issue 2 inches away, then you are going to miss what’s causing it, what it’s impacting, etc. A good leader needs the entire picture before they make a decision for the company. This also helps you guide your CEO. Click here to download the 7 Habits of Highly Effective CFOs to find out how you can become a valuable financial leader.

80/20 Rule

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80/20 Rule

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Status Quo in Business Movement

business movement Have you ever treaded water for lengthy period of time? At first, it’s easy to maintain that movement; but at some point, your muscles start cramping and treading the water becomes more difficult. Everyone knows you can only tread water for so long before you either move or sink. So, when we look at our business, why do we think we can maintain the status quo for a long period of time?

Truth is: your business will either move upwards or downwards, not stay in the same place for a long period of time. This is because there are too many factors, including competitors, customers, vendors, etc., that impact your business movement.

Status Quo in Business Movement

Over the past two years, the oil and gas industry has been struggling with the declining price of oil. A frequently asked question in the energy business community is how long the price is going to remain in the $40 range. At $47 a barrel, that price point is not good for the industry or the economy of cities with a high concentration of energy related businesses. Although we do not have a timeline outlining when the oil price will recover, we do know that something must happen to make it move. By not innovating, changing, or moving, the entire economy is aching. Either companies will adapt and find a way to make it work or their competitors will do so.

Although dealing with a challenging market price can limit your ability to change your status, there are many other ways to counteract those external factors. But first, how do you get stuck?

Lead your company forward and keep your business moving! Download the 7 Habits of Highly Effective CFOs to learn the habits of leading the company to success.

How You Get Stuck

There are two ways to get stuck in the status quo: no one is pushing to make a change in your business or external factors limit the amount of business movement you can have. It is quite easy to get stuck in your business. You accept that the economy is bad and you cannot change those external forces. Although those external forces, like the oil prices, may limit what you can do to make a change, you will get stuck if you do not do something. Change can be hard if you are not prepared for it.

Some signals that you are becoming complacent and risk not moving in the right direction include:

HINT: Not taking a risk may be worse than betting on an investment or launching a new idea. Calculate the opportunity costs and risks associated with doing nothing compared to doing something.

Why It Is Not Good

No one likes to drown, so why do we allow our businesses to do so in “calm” waters? You are treading water in a large body of water. You are comfortable in the water that you are in; the water is the perfect temperature, the sun is not too hot, and you are with friends. But as you tread the water… The sun goes down, waves get bigger, friends go home, and now you are all alone.

Treading water is wanting everything internally to stay the same and still expecting all the external factors to remain the same. After a short time, it becomes impossible to continue to do both. Competition moves forward and customers transfer their business to other companies, leaving you with a company without any innovation, progress, or cash. Getting stuck is not good as it decreases the value of your company, allows for an increase in the amount of competition, and has the potential to destroy the future of the company.

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Competition

Forbes once said, “your competitor isn’t your real competition: status quo is.” Although the unknown may be scary, it’s important to compare the costs of investing in something to keep you moving forward versus staying complacent and letting your competition pass you by. If you stay in the status quo for long enough, not only will your current competition pass you up and take your customers but more competitors will flood your market.

Not doing anything at all is worse than trying and failing. The moment you decide not to take a risk when all odds are against you is the moment when a competing firm will take a risk.

Competition cannot be accounted for in the financials, but as a financial leader, you can guide your executive team to success. Download the 7 Habits of Highly Effective CFOs to see the bigger picture and steer your company in the right direction.

Loss of Business

Everyone should want to be the latest and greatest. So why would your customer stay with you if you haven’t changed/updated/reacted to new technologies that the customer expects to see?

If you were the customer, would you stay with a company that has stopped investing in their product or service or move to another company that has improved their services to adjust to the technology changes or the moving economy? Most people would choose the latter. My guess is you would too. Don’t lose business over being complacent!

Start Moving

business movementIn today’s world, it is no longer safe to just survive. In fact, companies must be working on the offensive side rather than the defensive side to succeed. What does this mean exactly?

Instead of reacting to a declining or expanding economic climate, it’s time to start making educated decisions before it is time to react. For example, our team at The Strategic CFO has consistently looked at what other companies in other industries are doing. If we felt that what they were doing was a good investment and we would be first-to-market in our specific industry, our team would “start moving.”

If times are slow, this is a great opportunity to improve your skills, train your staff, brainstorm, strategize, streamline your processes, and trim off some of the fat of your company. Invest a little in projects, marketing, and training. Although it seems counterintuitive to spend when sales are slow, you will be better equipped to grab a bigger share of the market when the economy picks back up.

It Starts with Leadership

If your company is just trying to maintain the status quo and is avoiding risk/innovation/change/etc., then it is lacking a real financial leader. As a financial leader, you must lead your company forward rather than keep your team in a holding pattern. 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.

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How do you tell an entrepreneur that their business sucks?

business sucksYour business sucks…
How does that make you feel? Probably upset, maybe a little defensive. But what if it’s the truth? Many entrepreneurs generate new ideas as if it were a bodily function. As you have likely seen, not all ideas result in a multimillion dollar venture. Some of those ideas will fail to even bring a penny in!
In the business world, no one will outright tell you idea or business sucks because of business etiquette. However, that doesn’t mean that people don’t think it. After working with CFOs and Controllers for the past 25 years, I have learned that the majority of financial leaders will not tell their entrepreneur (or boss) that their business sucks, even when it does. Unfortunately, the truth needs to be told.
Before we go into how to give them the bad news, it’s critical to identify if there really is bad news to give.
As the financial leader of your company, it’s your duty to vet new ideas. This is part of the responsibility of being a wingman to your CEO. If you’re interested in learning how you can elevate your status, download the free How to be a Wingman guide by clicking here.  

How To Identify If Your Business Sucks

Have you ever seen an ugly baby? Most of us have, yet no one thinks that their baby is ugly. In much the same way, entrepreneurs think that all of their ideas are home runs and most people won’t tell them that their idea baby is ugly.

Unfortunately, all entrepreneurs are going to make at least one wrong call. Because you are their wingman, you should be guiding your entrepreneur to take financially sound risks. But before you tell your entrepreneur their business sucks, there are a couple things to look at when identifying whether an idea or business is worth investing in.

business sucks

Is it profitable?

If the idea or business is not profitable, you should not pursue it. This is the easiest way for a financial leader to identify that the business is not going to be successful. As the financial leader, you should be able to steer your executive team to a more successful and profitable road.

Are customers leaving?

Churn. If your customers are leaving quicker than you are bringing new ones in, your business probably sucks. Churn is one of the KPIs that we use to indicate the success of our business. If you are not able to reduce that number in your business, then your business will likely fail. A business cannot survive without its customers, so this is a telltale sign that your business sucks.

If customers are leaving quicker than they are coming in, look at your current strategy and pivot. This may mean that your entire business strategy is not working or just a small sliver of it. The product may not match your audience. As a financial leader, it is important for you to understand both the sales and operational legs of your company. Finance doesn’t have to be simply a cost center. You can only cut so many costs in the business before you need to turn your focus on how to improve the business itself.

No Buy-In From the Team

If you, the entrepreneur, or the person who came up with this new idea or business strategy is left all alone without any support from the team, that’s a problem. An idea cannot successfully come to fruition without buy-in from the team. Why? Because the team’s support and belief that this idea will be a winner is critical to its success.

Have you ever been told to do something that you truly didn’t believe in or want to do? Most likely, you didn’t put your best effort into that task. Other tasks took priority in your book so that you would not have to bring that idea to life. You may have spread your negative attitude towards “it” to other employees, essentially building a coalition against “it”.

I have been there. My clients have been there. You have probably been there (either on the ideation side or the fulfillment side). That is why it is essential to have a strong buy-in from the team when deciding to pursue a new business venture, idea, or strategy.

business sucksThe Numbers Don’t Add Up

Oftentimes when someone isn’t in the day-to-day financials and doesn’t understand how an idea impacts the company, it’s easy to punch a few numbers in the calculator. This habit is what leads to people being calculator rich. Even if the person operating the calculator knows their economics, it’s easy to be blind to the bigger picture when you have a shiny idea sitting on your desk.

But after the dust has settled, it is important to nail the numbers down out to see if it is really viable to pursue. In my business, I consistently have to reevaluate whether the numbers actually add up after I have had a couple hours or days to sit on it.

How To Let the Entrepreneur Down Easy

Naturally, entrepreneurs are bold, risk takers. If you outright tell them that their idea isn’t the best thing since sliced bread, it’s going to hurt their ego (and potentially more). They are all excited about this new idea, and they are great at convincing you and making it incredibly difficult to disagree with them. You want to let the captain of your ship down easy, but how do you do that when the truth is… Their baby is just plain ugly.
HINT: You have to be a trusted advisor to your entrepreneur. (Download the How to be a Wingman guide to start letting your entrepreneur down easily, while still moving forward.)

Your Baby is Ugly

Several years ago, I had a client who wanted to get out of a lengthy banking relationship. Red flag #1. This client had broken several debt covenants and were out of compliance. The bank was telling my client that their baby was ugly. They were put into a work out group, where it was the bank’s decision to either work them back into compliance or kick them out of the bank. Why was my client’s business so ugly? It started with their financials.

Instead of going through the process of fixing the ugliness of the financials, my client wanted to break up a long-standing and generally successful relationship. The owner was hurt and felt defeated. When I started working with the owner, I explained that there was an opportunity to fix the financials, get back into compliance, and grow like crazy. It wasn’t like they had severely strayed off of the pathway to success, but they were riding on the backroads. My job was to let the entrepreneur down easy.

“If it were my company…”

The way to do this is to go back to your pre-marital counseling. One of my team members just recently got married, and we were joking about some of the things she learned in pre-marital counseling were the same things I heard 30+ years ago. To prevent any blaming or hard feelings, it’s important to fight with feelings. No one can argue with your feelings. “I felt _____ when you did ______.”
The same methodology happens in business. Start by saying, “if it were my company, I would do this…” A) No one can argue with how you feel you would do something differently. B) You’re not telling them their business sucks but rather having a conversation. C) There are no hard feelings.
For example, if one of my team members suggests ideas to better my business, I’m going to be more open to those suggestions. However, if she starts telling me that I’ve screwed up and my business sucks, I’m going to get defensive. Create a dialogue, rather than an argument. An idea is just an idea in the beginning. Even if the idea becomes a reality in the end, I, as the entrepreneur of my company, have the final say so.
Guide your CEO or entrepreneur effectively as their wingman. This ability to be the trusted advisor your CEO needs will elevate your status, increase the amount of trust, and steer your company to success. Download our free How to be a Wingman guide today!

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The Power of Keystone Habits

The Power of Habit bookHabits are powerful.  They save time, create efficiency and allow our brains to focus on more complex tasks.  They can emerge without our consciousness, or be deliberately designed.

Some habits have the power to start a chain reaction, changing other habits as they move through the organization.  These are called keystone habits and they are important because they help other habits flourish by creating small wins.  Keystone habits start a process that, over time, transforms everything.

Charles Duhigg introduced this idea in his book, The Power of HabitThe book provides this example of a keystone habit…

“Typically, people who exercise, start eating better and becoming more productive at work. They smoke less and show more patience with colleagues and family. They use their credit cards less frequently and say they feel less stressed. Exercise is a keystone habit that triggers widespread change.”

Examples of Keystone Habits

Many organizations grow profits by focusing on a keystone habit. If a financial leader, be it the CFO, entrepreneur, controller, or CEO can understand and promote his or her organization’s keystone habit, profits will follow.  Here are a few examples of companies that saw dramatic bottom-line improvements by focusing on their keystone habits.

Alcoa

alcoa logo

Company: Alcoa

Keystone Habit: Safety

Result: 5x increase in net income and $27 billion increase in market cap

When Paul O’Neill took over the helm of Alcoa in 1987, he made a statement that sent investors running for the doors to dump their stock.  His statement…  “I want to talk to you about worker safety”.  But what O’Neill realized is that focusing on the company’s new keystone habit of safety would cause a trickle-down effect to the bottom line.  If employees work more safely, there are fewer injuries and production slowdowns resulting in improved productivity.

In addition to becoming one of the safest companies in the world, Alcoa’s focus on its keystone habit of safety enabled it to increase profits and market capitalization.  Someone who invested a million dollars in Alcoa on the day O’Neill was hired would have earned another million dollars in dividends while he headed the company, and the value of their stock would be five times bigger when he left.

Read the full story here.

Marco’s Pizza

Marco's_Pizza

Company: Marco’s Pizza

Keystone Habit: Accountability

Result: Increase Unit Level Profitability by 1.8 Points of EBITDA

Ken Switzer, CFO of Marco’s Pizza, has seen the privately-held chain of pizza restaurants grow from 30 stores to over 600 during his 27-year tenure with the company.  What does he credit with the company’s success?  Their focus on the keystone habits of accountability and profitability.

Marco’s has found that one of the biggest keys to fostering employee accountability is their incentive compensation plan.  Every single employee at the national support center in Toledo has a significant bonus opportunity based on achieving franchisee profitability goals. That is the sole factor in about 40% of the bonus opportunity for employees.  Tying a significant portion of employee compensation to achieving goals has fostered a sense of “we’re all in this together” that results in more employee engagement.  When you’re in that team environment, people just talk more and work well together.

Read the full story here.

Frito-Lay

frito-lay-logo

Company: Frito-Lay

Keystone Habit: Logistics

Result: 6% Compound Annual Growth Rate on Core Operating Profit

How does Frito Lay keep its spot at the top of the snack food chain?  By focusing on its keystone habit of productivity.  According to president Tom Greco, “we believe the productivity opportunity is significant.  Our productivity agenda pursues cost-reduction and capability-building initiatives to deliver results.”

In 2012, the company rolled out a geographic enterprise system (GES) developed to reduce the amount of manual handling throughout the supply chain and drive productivity.  According to Greco, “GES is both a productivity generator and a growth enabler. Productivity allows us to invest in our growth”.

Read the full story here.

Google

google log

Company: Google

Keystone Habit: People

Result: People that can pick up the slack when executive plans fall short

It can be said that Google is picky about the people it hires.  They focus on choosing, developing and empowering “smart creatives”—professionals with the technical skills to solve problems as well as the imagination to dream up new ideas.  They argue that the people are what create value, not the execs with a “plan” so they invest in their people.

In order to succeed in the business of solving problems, Google needs to constantly be creating new value.  They need good people to invent these new products and processes.  Focusing on their keystone habit of people has allowed Google to maintain its edge in a competitive industry.

Read more here.

Domino’s Pizza

dominos pizza logo

Company: Domino’s

Keystone Habit: Taste

Result: Increased profits 16% in Q3 2014

Had a Domino’s pizza lately?  In case you’ve missed their self-deprecating commercials, Domino’s has recently undergone a taste renaissance.  Spurred on by negative consumer comments about their pizza, the chain has revamped their recipes in an attempt to make their food taste better.  Check out this video detailing how focusing on the keystone habit of taste has allowed them to rebuild their reputation and gain market share.

Click here to read more about Dominos and check out their turnaround story.

Conclusion

Keystone habits say that success doesn’t depend on getting every little thing right, but instead focus on identifying a few key priorities and developing them into powerful levers.  Where to start in identifying your company’s keystone habit?  Look at those habits that, when they start to shift, dislodge and remake other patterns.

I’ll leave you with this quote from Charles Duhigg in The Power of Habit:

“Destructive organizational habits can be found within hundreds of industries and at thousands of firms. And almost always, they are the products of thoughtlessness, of leaders who avoid thinking about the culture and so let it develop without guidance. There are no organizations without institutional habits. There are only places where they are deliberately designed, and places where they are created without forethought, so they often grow from rivalries or fear.”

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

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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

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