Tag Archives | management

The Silo Effect

Silo Effect

We hear about the Silo effect in companies all the time. Silos are formed in the large public companies as well as in small private companies. These organizational Silos can impact the profit potential of an organization because each department or silo is kept separate from one another. In this blog, we’re looking at the Silo Effect and how it impacts your company.

Organizational Silos In Your Company

In business a Silo is a department, service unit, operating unit, business unit that does not have good communication with other units.  Thus leading to a dysfunctional organization.  The Silo operates only for its own benefit and not for the benefit of the entire enterprise. One Silo usually points to other silos when there are problems or issues. Silos have may have their own teams, but they are not part of a broader team – the company as a whole.

Get the financial leadership skills you need to be more effective in breaking down organizational silos. Click here to access our 7 Habits of Highly Effective CFOs and guide your team to a silo-free environment.

How Silos Are Created

Before you can break down the barriers (Silos) between departments, you need to know how Silos are created. I have found that like everything else, the tone starts at the top. If the top brass does not permit his company to have Silos, then you will not. Many CEOs may argue that it is easier said than done. I once operated a fairly good size company and they had two very distinct business units. One was a service company, and the other was a regulated utility. You could not have a more diverse culture in each business unit. As a result, each business unit had deeply entrenched Silos. Once the top brass held management and employees accountable, we saw silos starting to dissipate.

silo effect

Difficulty in Breaking Down Silos

When the CEO or owner allows for different areas in the company to develop Silos, it is very difficult to break those down. But it is doable. Two of the most common areas that are affected by Silos is the operations side of the business and the accounting side of the business. It is easy to allow these to develop. Operations people are the people dealing with customers and the outside world; they directly generate sales. They all understand how to make a widget or draw up complicated engineering plans. While the accountants tend to be “the back office”.  The accountants do not usually interact with the customers and remain in their own department.  Few accounting departments or accountants understand how to make the widget. I bet many have never left the office to understand the field operations or manufacturing facility.  So it is easy for the accountants to develop their own Silos.

So, who is right and who is wrong? They are both wrong. It is up to leadership to ensure that the operating side of the business understand why things are important in the back office. It is also very important for accountants to understand the complexity of any business.

It’s up to you as the financial or business leader to break those silos down. Access our 7 Habits of Highly Effective CFOs to learn about the financial leadership skills you need to do that.

From Operations To P&L Leader

This is precisely why we developed our new workshop From Operations to P&L Leader. I have seen it time and time again… A talented sales person or operations person who gets promoted, and someone hands him a P&L (Profit & Loss Statement). They expect that promoted person to manage the P&L. But has anyone trained the operations person and really explained what a P&L is? Or how to analyze it? Or better yet, has anyone educated the operations person on working capital, the balance sheet, and the cash flow statement? If someone is going to manage the P&L, then that person should probably understand more than just the P&L. Well, we do offer this 4-day workshop to operations leaders. Learn more about the workshop here.

silo effect

What about the accountant? I believe it is up to every CFO to educate the Controller and their accounting department on what the operation does. How do you make the widgets? What do those smart engineers do? What are the challenges and obstacles day to day? Why are the required raw materials constantly changing for that petrochemical plant? If an accountant does not understand what a reactor looks like, then the accountant is missing a big piece of the puzzle. Once the accountants understand the operations, things will work smoother.

The Silo Effect

 Let’s look into the Silo Effect. What is the effect of a Silo or Silos in your company? It increase the number of inefficiencies in your company. You risk duplicating the work, not communicating between departments, wasting time etc. There is a lack of communication between departments in your company. As a result, the company does not work as one. It will cost you in cash. Tension will eventually rise among the different departments. And rumors will begin to spread. There will be delays in the operation – impacting both throughput and/or progress and the bottom line.

Case Study On The Silo Effect

For example, a manufacturer had a somewhat complicated business. They had very talented people in the operating side of the business as well as very talented people in accounting. Their cost accounting is a mess after the implementation of a new system. The system was supposed to solve a lot of issues, but the margins made no sense at all. (Operations blamed accounting, accounting blamed operations). After many interviews and site visits, we concluded in our assessment that the technical cost accounting part of it was relatively not that complicated. What was the problem? The company created Silos.

Accounting never explained to the operations side of the business what accounting needed, and they were sticking to their old ways of doing things. Accounting and operations needed to “talk” to each other and understand what the other needed. The lack of communication led to garbage in and garbage out of the system. They thought they were communicating because they would sit down monthly and have a meeting. But just because they were sitting in front of each other, it did not mean they were “talking” to each other. The meetings included a bunch of finger pointing. Furthermore, both sides not willing to change or listen to the other.

These silos contributed to bad data and unreliable financial statements. It also resulted in issues with lenders and investors. I wish I could say that our firm provided this incredible technical solution for cost accounting. What we did provide was identifying the silos, the lack of communication, and the lack of processes. Then we took corrective action with the ownership and broke down the silos.

Breaking The Silos

By breaking the silos, forcing departments to communicate and having both sides take ownership of the processes established, they can now enjoy reliable financial statements and less pressure from lenders/investors. How do you identify if your company is feeling the silo effect? You need to look from the 40,000 foot level. This is just 1 of the 7 Habits of Highly Effective CFOs. To learn more financial leadership skills, download the free 7 Habits of Highly Effective CFOs.

Silo Effect

Silo Effect

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Why Use a 13-Week Cash Flow Report as a Management Tool?

Why use a 13-Week Cash Flow Report as a management tool? Cash is king! This applies to any and all companies. No matter the size or industry, cash and cash flow are critical to any operation. Yes, some companies have access to lines of credit and other forms of financing, but that is debt that must be repaid at some point.

So if cash is so important, then why do not all companies use a rolling 13-week cash flow forecast?  We have had many clients over the years. And some, but not all, use a 13-week cash flow report as a management tool that is updated every week. Once the process is started, it is actually a fairly easy tool to keep updated.

Cash is critical to a company’s success. Click here to access our 25 Ways to Improve Cash Flow whitepaper and start improving cash flow today.

Establish a 13-Week Cash Flow Report

The first thing we do with every client is to make sure they establish a 13-week cash flow forecast if they do not already have one. And usually, the first thing we are told by someone at the client office is “our business is special, forecasting when we collect cash is almost impossible to predict”. I hear this way to often and you know, we have never failed at implementing a 13 week cash flow forecast.

13-Week Cash Flow Report as a Management ToolThe Purpose of the 13-Week Cash Flow Report as a Management Tool

The 13-week cash flow report is not meant to me an exact measure of what cash balance will be at the end of every week. On the contrary, it is a forecast. That means the actual results will be different from your forecast, especially in the later weeks. But what the cash flow forecast does tell you is your trend for ending cash balances. It actually does give you an estimate of what your cash balances will be. It is true that weeks 1,2 and 3 forecast are more accurate than weeks 11, 12 and 13.  But it does not take away that it provides some visibility as to where cash will end up.

The 13-week cash flow forecast is useful to a company that is financial distress and to a company that is flush with cash. That is because a company that is in financial distress must be able to determine what costs they need to cut in order to achieve a cash neutral position. A company that is cash rich, needs to know how flush they will be with cash to project things like capital expenditures or shareholder distributions. Either way, the company must have an idea of where they will be over the next 13 weeks. Why 13 weeks? Because that captures an entire 3 months, one full quarter. Being able to have an idea of where you want from a cash position in the next 3 months allows time for planning and decision making.

Do you need help putting together your 13-week cash flow report? Access our template and how to use it (and so much more) in our SCFO Lab. Learn more about the SCFO Lab here.

Cash Collections

It is interesting how many times we have implemented a 13 week cash flow forecast, then we look into why the cash actually collected is way off in weeks 1,2 and 3. Then we dig and find out that the actual cash collection process is poor or non-existent.

Case Study

I was part of a Chapter 11 bankruptcy process a couple years ago. The first thing we did was implement a 13 week cash flow forecast. This is something any CRO would do. When asked about cash collections, the CEO told me that the sales team (7 people) handle collections with their respective client relationships. When we were way off on week 1 and 2, I asked the sales people why we are off?  What are they doing to follow up on late accounts receivable (A/R)?  The response from everyone on the sales team was that they do not handle calling to collect invoices and outstanding A/R.  They stated that the accountant makes those calls and follows up with old A/R.  When I asked the accountant, she said the sales guys collect old A/R.

No one was following up with collections of old A/R. I initiated a daily phone call with all the sales people and assigned clients to call on and follow up on old A/R. We started with daily calls. And we saw some progress, then we went to every other day, then weekly calls. Over then next 5 weeks the company collected $2.7 of $3.2 million dollars in old AR.

So How Do You Start Using a 13-Week Cash Flow Report?

Week 1,2,3….13

Create a template that has a direct method cash flow statement.

Cash In –         Cash from accounts receivable

Then list cash from work not invoiced yet (this would be in the outer weeks)

Cash Out–       Major lines of operating expenses

Payroll

Other

On a weekly basis, pull A/R and A/P from your accounting system. Then link the individual items to the line items in the cash flow forecast. Don’t forget payroll totals.

Include a section below operations for CAPEX activities and another section for Financing Activities.

End cash balance by week

Cumulative cash balances by week

Have one person in your accounting department responsible for updating the 13-week cash flow forecast weekly. Make sure you have a dedicated person/people follow up on collections.  Compare the forecast for each week to the actual cash collections and cash payments – note variances. Then adjust how you forecast.

It is that simple! This tool will buy you peace of mind and allow you to have insight on your cash trends. You need to know this no matter the size of your company or your industry. Do not get frustrated; your first 3-4 weeks are a learning process. Your forecast WILL be off. Make adjustments and understand your variances. Before you know it, you will have a good feel for what your cash trends are. If you are strapped for cash now, click here to access our 25 Ways to Improve Cash Flow whitepaper. Make a big impact on your company today with this simple checklist.

13-Week Cash Flow Report as a Management Tool
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How HR Impacts Your Business

HR Impacts Your Business

Not too long ago, the Human Resource (“HR”) function was a clerical position that focused on helping the management team set appointments to interview prospect employees looking for work. Or they kept track of hours worked for a company. But those days are gone. HR impacts your business in ways that it once had no influence over. In fact, the HR role has evolved to include advancements in management, technology, and legal issues.

How HR Impacts Your Business

After having served as CEO and CFO for a couple different companies, I learned first hand that those two executive roles are really about managing people. Sure, we have our budgets, board meetings, bankers and analysts to deal with day-in and day-out. But what took up a significant part of my time in different companies was managing people.

Part of a wingman’s responsibility is to know what impacts your business. The CEO needs to know how every area, like HR, impacts your business. Click here to learn how to be the trusted advisor your CEO needs with our How to be a Wingman guide.

Science of Managing People

There are two sciences involved in managing people:

Psychology = the science of mind and behavior; the mental or behavioral characteristics of an individual or group

Sociology = the science of society, social institutions, and social relationships; specifically: the systematic study of the development, structure, interaction, and collective behavior of organized groups of human beings

We are clearly dealing with people in our management roles. As if that was not complicated enough, then add the legal system to that. This includes complex laws like the Affordable Health Care Act (“Obama Care”). Also consider things like American Disability Act (“ADA”), HIPPA, U.S. DOL,  Medicare, EEOC… And if you have a 401K or a pension plan, then you are regulated by a host of other laws and regulations.

Get the feeling yet? This is not a simple environment that can be administered by just an admin. The science of managing people requires a HR professional.

Today’s HR Function

Today, the HR function is a significant area of your business that needs a professional looking over it whether you outsource the HR function or if you are big enough to hire someone in house. Do not minimize this role in your business. HR professionals today have a variety of certifications and credentials and a good understanding of labor laws.

HR Impacts Your BusinessHow the HR Professional Works With Management 

Whether you are a small company of 20 employees or of 2,000 employees, your HR professional should be close to the executive team. In a typical company, this position may report to the CFO or even the CEO.  Executives: keep your HR professional close to you. Have at least a weekly standing meeting to discuss HR issues with that person. Have your HR partner develop and keep dashboards with key information that you want to see relate to your labor force. With the complexity of the HR regulations and labor laws, we need a cooler prevailing head to be at our side as management.

The larger your organization is and the more employees you have, this is ever more important. In addition, larger organization have more moving parts, and that includes HR. As an executive, having your pulse on the moral and culture of your organization is critical.

Have a pulse on the company and advise your CEO in their strategy and decision making. Click here to learn how to be the trusted advisor your CEO needs with our How to be a Wingman guide.

Managing Employee Turnover

In good times, we are building, hiring, growing, and asking more of your employees. You need to have your employees following you as the leader. In bad times, there is uncertainty, You are letting people go. You may also be asking more of  your employees. But you need to find the balance between not promising to much and asking employees to deliver. That is where a solid HR person will be worth their weight in gold. If you are a stable company that isn’t growing or shrinking, then you want to keep a stable workforce.

I recently saw a statistic that the cost in the U.S. of employee turnover is on average $65,000 per employee. Think about the loss of an employee and what it involves… Disrupted departments, time and cost of recruiting/training, learning curve for the new person. It really adds up. I have seen clients with high turnover, and they are simply bleeding cash. What is odd, is that I can’t believe that there are executives that simply live with the high turnover and do not address the issue.

Growing companies really need to keep HR at the top of the list. To be a successful growing company, you need to offer competitive benefits, develop policies, employee files and have a steady pipeline of additional resources when needed. There needs to be a lot of training so that employees follow company policies and labor laws. Believe it or not, State and Federal labor laws change frequently. As a result, your operations people must stay trained up to know what to do or not to do.

Quick Case Study

I was in a situation with close to 1,500 employees. The company entered into a financially distressed situation. We had to lay off half of the workforce while keeping the moral up for those staying behind. We restructured the operations of the business and shut down a whole division. Without a strong HR team, I am not sure we could have pulled it off. A reduction in force of that size involves special notices to cities, counties, and states. It involves severance benefits, angry people, sad people, and transitions of workload.

You can’t afford not to have an HR professional at your side, especially during drastic workforce changes.

The cost of violating the laws, regulations, or getting involved in a lawsuit around HR matters can be devastating to a company.  Not only is there a financial cost, but there is a branding and reputation cost as well. I once saw a large multinational company cancel a contract with a smaller supplier of supplies because the smaller supplier had pretty serious HR violations and was involved in litigation. The benefit of having the right HR partner at your side will far outweigh the cost. Your HR professional or financial leadership should be the wingman to the CFO. It’s time to step up into this trusted advisor role! Access our How to be a Wingman guide here.

HR Impacts Your Business

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HR Impacts Your Business

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Beware of the J Curve

J Curve

An increase in sales sounds great! Right? But have you ever heard about the colloquialism of growing out of business? Growth requires cash flow, but sometimes, quick growth doesn’t allow you to keep up. If a company is run by leaders with sales backgrounds, they will be more focused on the growth than supporting that growth. Sometimes, it’s difficult for a company to sustain growth, especially if they aren’t collecting receivables quickly. This leads to some companies turning away clients. The analysis and forecasting of working capital is crucial in a high growth situation.

What is the J Curve?

A j curve is an initial loss followed by an exponential growth. This curve is used in the medicine, political science, economics, and in business. The quicker you grow, the quicker your burn through cash.

Cash is king, net working capital which is current assets less current liabilities is an indicator of the companies ability to meet short term obligations. In a high growth situation you will burn through net working capital and need to manage it carefully.

Looking to improve cash flow in your business? Click here to download our 25 Ways to Improve Cash Flow and get an invitation to join our SCFO Lab.

J Curve Effect

Initially, there is a decrease in sales, then there is a sudden growth. This growth ties up cash flow. Inventory requires significant cash to supply the demand. But if the company invoices the customer, then there is a risk of not being paid for 15, 30, or 60 days. Even if the company collects the cash up front, it doesn’t always align with when payments are due.

Let’s look at the Cash Conversion Cycle!

Cash Conversion Cycle (CCC) =Days Sales Outstanding (DSO) + Days Inventory Outstanding (DIO) – Days Payable Outstanding (DPO)

There are three things that impact the cash status for a company: sales, inventory, and payables. In other words, revenue, COGS, and overhead. If one of those are out of balance, then profitability will be impacted. If they are out of balance and net working capital is on a decline, then you are really in trouble. When you experience a j curve effect, you will see all increase in all areas with more emphasis on payables.

When J Curves Are Likely to Happen

There a couple instances where j curves are more likely to happen. Fasting growing firms and startups are two examples where we frequently find j curves in action.

Startups

Startups typically begin out of a need seen in a market. At some point, their product/service clicks with the market and they take off. This is great for the start up! But if the company doesn’t have liquidity or cash, then it will not be able to support the growth. In addition, you risk the quality of your product/service, dealing with legal issues associated with poor quality, and having bad reviews. For example, a startup finally hits the market at the right time with the right product. Sales boom and the entrepreneur is ecstatic! But they have no processes, they are buying materials for the product without thinking strategically, and are only looking at the sales. While sales were booming, they were buying everything on the company’s Amex. At the end of the month, the fees and lack of consideration for the timing of purchase outweighed the increase in sales. They ended up in the red.

Fast Growing Firms

Fast growing firms also see the same issues that startups deal with. In addition, fast growing companies tend to grow overhead quickly or lose sight of how big it is actually getting – larger operations, more employees, bigger reputation, etc. For example, $1 Billion fitness company Beachbody released a new fitness program earlier this month. Unfortunately, they did not forecast the sales accurately and were not prepared for the amount of sales they received. What could be a great opportunity turned into a scramble to deliver on the equipment needed for a new fitness program. As a result, they sent other similar products as a temporary solution. Customers could ask for the product that they ordered and they would be put on a waitlist – essentially asking for 2 products for the price of one.

Manage Your J Curve

J curves need to be managed because they can easily get out of control, leaving a large mess to clean up. Some of the factors you need to look at when managing your j curve include assessing the type of sales you are having and the ideal sales, the timing of when you purchase materials, and managing (retaining) your talent. Remember, the quicker you grow, the faster you run out of fuel.

Types of Sales

There are good sales, and then there are bad sales. We’re talking about the types of products/services you’re selling and who you are selling to. If you accept both good and bad sales, you are not managing your j curve effectively. Maintaining healthy profit margins in a high growth situation is also critical.  Sometimes, it can be more productive and profitable to fire a particular customer than take their money.

Timing of Purchases

Ever had to purchase something without having cash in your pocket? If you’re like most people, then you would defer that payment until you have cash. But companies disregard their habits in their personal lives… Sales means cash, right? Wrong. Work with your vendors to delay payments until you have cash in the bank.

Talent Management

Your talent is one thing you need to look at when managing your j curve. The reason is because with increased growth comes increased stress. If you are not taking care of your employees, then employee productivity and morale is going to decrease and eventually, turnover. We all know that high employee turnover is a cause of bleeding cash in you business. First, there’s decreased productivity that makes product produced or sale made that much more expensive. Then, there’s severance and continuing benefits for a certain amount of time. Finally, there’s the expensive hiring process that potentially includes staffing, recruiting, hiring, training, etc.

Effective Business Planning with a J Curve

Focus on the cash flow and profitability of your company. We show every company that we work with in our consulting practice and coaching workshops how to improve its profits and cash flow. When it comes down to it, that’s all the business is made up of. And every company, regardless of whether you are in a fast growth company or not, needs to effectively plan using cash flow forecasts and reports, flash reports, and flux analysis. If you are seeking more ways to make a big impact in your company, download the free 25 Ways To Improve Cash Flow whitepaper to find other ways to improve your cash flow within 24 hours.

 

j curve
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Budgeting: It’s About Achieving Success

Budgeting is All About Achieving Success, common budgeting problems

Ron Rael, author of 13 ½ Strategic Ways of Winning the Budgeting Wars, once said that, “To achieve success in anything, you need two ingredients: a target to aim for and a way to measure your progress towards it.” Budgeting is all about achieving success in business. When you improve the budget process, you are able to foster both empowerment and accountability. Eventually, it will lead to a better company. Although initiating change in your budgeting process will be challenging, it will further demonstrate your financial leadership.

The Most Common Budgeting Problems

The reason why you may have not seen much success come from your budget is because of the following common budgeting problems. First, the goals that are established before the budget is created are either too easy to reach or are simply unachievable.

If you know your economics, then you can avoid potential unrealistic goals or assumptions. Click here to download the Know Your Economics Worksheet to shape your economics to result in profit.

Then the budget is built on faulty or unrealistic assumptions. If the assumptions are correct, then maybe not everyone agrees on the assumptions or principles. This disagreement of what to build the budget on results in a dysfunctional team.

After the budget is built, there is often little to no feedback from management about the budget. We have seen this time and time again in companies. Those not involved in the budgeting process simply don’t care about the budget. They think that because they are not the CFO or Controller, it’s not their job. But everyone in an organization should care about the budget.

Additionally, when the budget is completed (usually after weeks of non-stop focus), it is filed away. It is rarely taken out and use in the daily strategy of the company. There is a lack of follow up.

When leadership has to meet with shareholders, stakeholders, etc. regarding the budget, they realize that they haven’t used the budget at all. Then they go to any means to achieve their budget. This manipulation defeats the purpose of having a budget. We suggest to design a budget that cannot be manipulated.

If you are thinking that the most common budgeting problems are more like cultural issues, then you’re correct!

Top 2 Budgeting Problems

Everything we have already said concerns the entire company. But the majority of our audience consist of CFOs and Controllers. The two problems that impact CFOs, Controllers, and budget directors the most include hidden agendas executives may have, the lack of commitment from executives for having a budget, and executives seen budgets as the CFO’s job. The responsibility of the budget is not solely reliant on the accounting department or CFO.

Budgeting is All About Achieving Success, common budgeting problemsHow to Budget Successfully

Budgeting successfully requires you to transform how you think about budgeting overall.

Use It As Decision-Making Tool

If you want to budget successfully, then you need to use your budget as a tool for decision making. It is not some disconnected document that has little to do with the company’s actual business. Instead, it should be a living and breathing part of your decision making. Plus, it is more effective when you use it to make decisions. When people ignore it or play games with it, your budget becomes ineffective.

Additionally, understanding the need to improve the quality of decision making and making it happen are two different animals. What you get all depends on the leaders’ commitment and attitude.

Use It As Management Tool

Budgeting is a very important management tool for achieving lasting success. A budget should establish the discipline to set up a plan. But you must also adhere to the plan. Furthermore, this management tool always you to measure your progress, and ultimately, your success.

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

Issues Are a Result of Culture

We said it earlier, and we’re saying it again because it’s that important. Most budgeting issues are a result of an organization’s culture. Issues that lead to a poor quality budget process mean that these problems already exist within the organization ALL THE TIME!

Cost Associated

Everything has its cost! The budget is no exception. Budgets take work! They are not easy to implement nor are they easy to manage. Some of these costs include the following:

In addition, there are other costs associated with budgeting that could impact the bottom line. If employees are not conserving costs and making the most of opportunities, the bottom line will suffer. If leaders are not investing in their tangible and intangible assets equally while employing them to their fullest potential, the future bottom line will suffer.

Require Specificity

The budget and the plan it drives from is only effective when it leads to specific actionable and measurable activities and generate stakeholder value. Therefore, a budget must require specificity.

Assumptions Drive Everything

Also, your assumptions drive everything. Therefore, it is crucial that everyone be on the same page regarding assumptions in relation to decisions on what is important in your budget.

Governance of Budgeting Process

When your leadership team establishes governance in your organization, they are deciding how to best use all their resources to accomplish the purpose or mission.

Governance Principles

Use the following governance principles in your budgeting process. A reality based budget and planning system that enhances accountability is necessary for the good governance because it increases transparency. Furthermore, the key factor in a realistic and honest budget is people and their accountability. A well conceived and thoughtful budget improves the governance demanded by all stakeholders. In addition, the budget is a reflection of the importance that your executives place on governance and ethical conduct. Every game played with the budget is actually a breach of the organizations Code of Ethics.

CFO’s Role in Making the Bottom Line Commitment

 The CFO is essentially the CEO’s cheerleader! The CFO inspires higher level of performance.  The greatest challenge is to ensure that the strategic objectives and operational plans are adequate and inspirational enough to achieve the leaders’ desired financial objectives. The leader’s three plans, when combined into a cohesive strategy, will generally lead to success; however you define it. Furthermore, the CFO and executive team are the guardians of all assets – physical, financial and human ones. Use these assets to implement the plan and achieve the goals!

 CFO’s Discipline

Having the discipline to build a healthy budget, and having the budget instill discipline across your firm has many benefits. Not only will your budget properly serve as a management tool, but the benefits of discipline will filter over to other areas of your operation which will lead to efficiency and profitability. The next step in achieving success through your budgeting is knowing your financials or economics. If you want to shape your economics to result in profit, then click here to download the Know Your Economics Worksheet.

Budgeting is All About Achieving Success, common budgeting problems

Strategic CFO Lab Member Extra

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

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

Click here to learn more about SCFO Labs


Budgeting is All About Achieving Success, common budgeting problems

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

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

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

Why “Squirrels” Will Kill You

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

Leaders are Innovative & Ambitious

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

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

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

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

Most Ideas are Worth Pursuing… One Day

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

idea managementHow to Manage the “Squirrels”

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

The action plan is the best idea management tool.

What is an Action Plan?

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

Idea Management in Companies with Action Plans

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

List Your Tasks 

It’s okay to brainstorm and unleash your ideas. In fact, we highly recommend you do this. But you can let the ideas flow out in a constructive manner that will prevent you from derailing off the tracks. List out any ideas, from small to big; from things you want to accomplish today, to milestones you want to accomplish by 2019. The sky’s the limit!… as long as the ideas are realistic and attainable.

Assign and Prioritize This Task

Now is the time to organize your ideas. Which tasks are easily attainable? Which tasks serve a purpose? Which tasks align with other tasks? And finally, who will complete these tasks? are all questions you should be asking yourself when completing this step. Color code, write notes, create labels… do what you need to do to organize your thoughts. As you do this, also try to map out how you’re going to accomplish a goal (because some goals need sub goals in order to accomplish them).

Update Progress and Priorities

Oftentimes, plans don’t always happen like you had originally expected. It’s normal to move around certain tasks to make room for more pressing ones. Just make sure that you don’t move them around too much… It might end up being a “squirrel.” It’s always a good idea to update your progress as well. When you complete a task, mark it as finished and don’t delete it.

Leave What You Have Already Accomplished

Leaving the completed tasks is crucial because the management needs to review progress trends, and quite honestly, it also boosts morale within the company. If you constantly remove the accomplishments, it will feel like your company has gotten nowhere. On the other hand, if you leave your completed tasks, you can see what works and what doesn’t work. You’ll also see how fast certain tasks are completed, and the work habits of your staff and yourself.

idea managementConclusion

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

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

idea management

Strategic CFO Lab Member Extra

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

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

Click here to learn more about SCFO Labs

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3 Questions Your Banker Wants Answered

3 Questions Your Banker Wants AnsweredRecently, I had lunch with our banker.  During the meeting, I asked her what she wanted to accomplish when meeting with her customers.  She said that she wanted to know the 3 questions your banker wants answered…

3 Questions Your Banker Wants Answered

1.  How are you feeling about your business and the local economy?

Have you felt the impact from the changes in the local economy and, if so, were they good or bad?  Has there been any fallout with your customers?  How are your competitors reacting?

2.  What is the outlook for the rest of the year?

Do you see the local economy getting worse, recovering, or staying flat?  What forces or drivers do you see influencing your outlook?  What local indicators are you watching?

3.  What are you doing about it?

What actions have you already taken to address any impact?  Have you identified your next steps?  How will those actions impact the financial statements?

In establishing banking relationships and making loans, bankers look to the 5 Cs of Credit for guidance.  The most important of those Cs is Character.  Character covers not only your personal character but also your business competence.  It also covers your management team.

When market conditions fluctuate, bankers want to know that you and your team are strong enough to navigate the rough waters until the economy recovers.

The challenge for business leaders is to be optimistic without being naive;  realistic without being pessimistic.

How are your conversations going with your bankerLeave us a comment below.

Now’s the time to really think like a financial leader. Download our three best tools in the company to start speaking the CFO language.

3 Questions Your Banker Wants Answered

Strategic CFO Lab Member Extra

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

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

Click here to learn more about SCFO Labs

3 Questions Your Banker Wants Answered

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