Tag Archives | strategy

Don’t Let Your Business Lose Money for Too Long!

Over the holidays we were asked by an investor to examine a company and determine if it could survive. We reviewed the financial records and met with management. At the end of our review both we and management agreed that we were about a year too late in saving the company! What difference does a year make?

The Difference of a Year

What was different one year ago? The company had a profitable business surrounded by money losing products and high overhead. Action could have been taken to shed the unprofitable business, reduce expenses and grow the profitable sales. Unfortunately, time had run out!

Don’t Let Your Business Lose Money for Too Long!

One year ago the company had positive working capital and a good relationship with their vendors. Over the past year, they consumed their cash and disappointed their vendors to the point that no one was willing to work with them. The best analogy would be to imagine you are flying an airplane and the engine stops. As the plane plummets toward the earth you don’t wait until 1000 feet over the ground to bring it out of a dive! Same thing with a company!

If you find your company in a dive and losing money you should remember two rules:

Rule #1: Don’t Lose Money!
Rule #2: See Rule #1!

It is imperative to take corrective action early in the crisis. Most entrepreneurs do not want to take one step backward. Unfortunately, it is sometimes necessary in order to survive a recession.

Don’t let your business lose money for too long! 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.

Don't Let Your Business Lose Money for Too Long!

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Don't Let Your Business Lose Money for Too Long!

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Goal Setting for the New Year

As the new year picks up steam from the holiday lull it is important to start planning the steps necessary to be successful. Goal setting is a powerful tool to achieving success! (I was going to say “achieving goals” but if you don’t have any goals then you can’t reach them!) That leads to the next question: Why set goals?

Goal Setting for the New Year

Picture yourself trying to shoot an arrow at a bulls eye target with your eyes closed. Can you do it? Maybe. However, most probably not! Same thing goes for success! If you can’t see it, how can you achieve it? The best way to achieve success is to define it by setting goals.

How far out should you set goals?

Depends on how big your goals are. At a minimum you should set goals for the next year. I prefer to set goals over a three year period. I then break them down to annual goals, quarterly goals and weekly goals.

Goal Setting Strategies

For our company we use the holiday lull in business to begin planning for the new year. The first step is to have a brain storming session with the key players in the company. Typically, that would be department heads. In this session we throw out every conceivable goals that we want to accomplish. Generally, we come up with 30 to 40 goals.

Out of these goals we identify 4 to 5 major goals for the next one to three years. We then organize the remaining goals underneath the major ones with targeted completion dates. Next, we identify quarterly milestones for each goal leading up to completion. Finally, we assign these goals to departments or functions in the organization.

Once completed we have a road map to success. However, this in itself is not enough. The last step in goal setting is to assign these goals to individuals within the organization. Their performance evaluations and bonuses are then tied to how effective they are in achieving the company goals.

Does this goal setting process work?

We have been using it for ten years. Each year we are setting higher and higher goals for the organization. Do we achieve them all? No, we do not. But if we achieve 50% we are much farther along than without them. Remember; if you don’t aim for a target, then you won’t hit it!

Goal setting with your CEO is a great way to earn trust and address each other’s needs. Learn how you can be the best wingman with our free How to be a Wingman guide!

goal setting

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If They Will Buy, Then I Will Sell!

If they will buy, then I will sell! Or stated another way, if I can sell it then buyer beware! That seems to have been the motto for the sub prime mortgage industry. Over the past five years a looming crisis has been in the making. Mortgage brokers would originate the loan then immediately pass on the risk to the investors. Few would keep the loans for a month let alone ninety days. Consequently, they were assuming little risk and had no incentive to police the quality of the loan.

If They Will Buy, Then I Will Sell!

Some people are questioning whose responsibility it was to police the market. At some point in the cycle someone needed to say no to the level of risk being assumed. Some say we should have government oversight. I say it is the job of Mr. Market!

The only thing that keeps people from taking stupid risks is the fear of loss. Until recently we haven’t had that in the past five years. During this time period we have experienced low cost of capital, high liquidity and increasing productivity of employees. Now the market forces (i.e. losses) are policing the sub prime markets.

Other Markets in the Economy

The real question is what other markets in the economy are in line to be disciplined? The economy is beginning to look like a slow moving train wreck. This scenario is not unlike the dot com bust where few of us were directly in the business but all of us were effected. Now is the time for entrepreneurs and their CFOs to take action to weather any possible storm. Download the External Analysis to gear up your business for change.

If They Will Buy, Then I Will Sell!

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If They Will Buy, Then I Will Sell!

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Don’t Let Tax Strategies Drive Financial Performance

With most young companies cash is king. As a company grows managing the cash available to finance that grow is crucial to sustaining the growth rate. Minimizing the cash expenses of the company is an entrepreneurs and CFO’s primary job. One of the main cash expenses is federal income taxes.

Don’t Let Tax Strategies Drive Financial Performance

During this start up and growth phase (which can last 10 years or more) the entrepreneur is focused on minimizing the cash payments for federal income taxes. He will work closely with his tax CPA to aggressively take financial positions that minimize taxes.

Somewhere along the line this strategy begins to lose its effectiveness. It generally happens when outside bank financing is obtained to fuel the growth of the company. As larger and larger amounts of outside debt is obtained the financial reporting needs of the company changes. The financial statements must now be presented to new users (i.e. the bank). The banks are seeking a clearing picture of the financial position of the company on an accrual basis. Often they want to know the true equity available from the company so they can establish the leverage of the company.

But maximizing the equity value of the company often is at odds with minimizing federal income taxes. To minimize taxes you typically end up either taking deductions sooner, deferring the recognition of income or valuing assets more conservatively. Taking these positions is fine until you want to borrow money.

Most entrepreneurs want to borrow as much as they can to fuel growth. However, by presenting there financial statements on a tax basis they minimize the amount that lenders will advance.

Conclusion on Tax Strategies Driving Financial Performance

The answer is that just as no strategy works in every situation, neither does one strategy work forever. The goal of the CFO should be to educate the owner to the needs of the other users of the financial statements. Often the benefits of paying higher income taxes is offset by the increased growth rate of the company.

Tax Strategies

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Even Football Teams Play Defense!

What would a football game look like if each team just played offense? Not very practical is it? Unfortunately, that is how most entreprenuerers manage their business.

They often focus on increasing sales, new growth initiatives or physical plant expansion. But what happens when the game turns and the economy slows down? As the fallout from the subprime market works its way through the economy perhaps it is time to rethink your strategy.

Right now the economy could go either way; into a recession or bypass one altogether! Now is the time to shift your posture from an aggressive one to a defensive or , at the least, a neutral one.

So what actions might one take in a defensive or neutral position?

– slow down on hiring new employees (not stop, just slow down)
– pay down debt
– build up cash or liquidity
– complete existing projects
– postpone new projects (and fund out of cash flow)
– increase marketing efforts (often marketing gets cut in a recession. You should do the opposite!)

To paraphrase a quote of Warren Buffet: You never know who is swimming naked until the tide goes out!

Let’s say that you take defensive actions and the economy slows down? Your company would then be in an excellent position to resume its growth afterwards. If we do go into a recession then you are in an excellent position to weather the storm and gain market share from your competitors. Playing a defensive game is an important strategy in growing a company.

Even Football Teams Play Defense

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