Recession Proofing Your Business Hoping for the Best, Preparing for the Worst
Recessions are a normal part of the economy. In fact, according to the National Bureau of Economic Research, they occur more than most people want to believe, averaging once every six years. And many are thinking that we are heading for one soon.
As business owners and executives, there’s nothing we can do to stop it. But that doesn’t mean we should sit idly by and do nothing. Instead, we should be working diligently to recession proof our businesses—not after the stock market tanks, but when times are good. Recession proofing is about proactively preparing for the next economic downturn … whenever it heads our way, rather than waiting for it to hit and then gathering the troops to figure out what to do next. By then, it may be too late. This requires advanced planning, specifically with regard to revenue preservation and increased technology needs.
As the C-Suite or Board of Directors begins to strategize with increased meetings (starting now), preplanning with respect to the following will assist in recession proofing your business:
1. Operate within the Budget
While this may seem like a given, not enough businesses actually take the steps necessary to do so. Make no mistake, this is a best practice regardless of the economic climate. Not only will it help when times are good, it may be the biggest factor in survival when they’re not. Operating within your means will put you in the strongest position possible when the economy starts to change.
2. Reskill and Cross Train Employees
There’s no doubt that you may lose resources during a recession, and clearly, not because you want to. As such, you need your team to be as flexible and resilient as possible, so that they can pivot when you need them to. However, too many employees only know one department or area, one set of tasks or activities because that’s what they’ve been trained for. Cross-training and reskilling so that they have the ability to work in various areas if needed are essential to preparing your business for the next recession.
3. Track KPIs Continuously
Whether it’s a marketing or sales or operational activity, if it is not achieving goals, it should not continue. This is about becoming the most efficient with time, resources, and funding, and that means eliminating waste wherever possible.
4. Create an Emergency Fund
Just as with personal finances, an emergency fund provides a cushion when times turn. This is especially important for small businesses that may not have access to extensive lines of credit or other financing options. By cutting unnecessary costs and relentlessly collecting all receivables, you can begin to create three to six months of a cash reserve to cover essential expenses like payroll and utilities if revenue drops.
5. Assess Risk Tolerance
Consider how much risk your business can withstand. This should be an honest assessment across the board—from leaders to staff to technology to systems. Ultimately, you want to know if they are adaptable enough to handle the stress of a recession. Can they withstand the pressure? And, if so, how much before they start to crack? Then, the biggest consideration—What can you do to strengthen them now?
6. Diversify Revenue Streams
Similar to operating within the budget, this is always a best practice. Consider how can you tap into a new market or revenue stream within your current parameters. This may be extending your geographical boundaries or offering more virtual options. It may also include assessing your current equipment to determine if it could be used for any other purpose. Simply, the more revenue streams you have, the less likely your business will be overwhelmed by the recession’s impacts.
7. Cultivate Client Relationships
This is yet another best practice, regardless of the economy, but crucial before a recession. When your clients and customers have to make tough decisions, just like you, regarding where they spend their dollars when they have less of them, they will choose the people and companies with whom they have the best relationships.
Recession proofing is not about being negative or having a “the sky is falling” attitude. Instead, it’s about being proactive by planning for the worst, so that even through tough times, you can experience the best.
Barker Associates provides strategic guidance and outsourced CFO services to companies of all sizes. We can provide the higher level of strategy your company needs to grow. If you need assistance, or have any other questions, please click here to schedule a 30-minute consultation at a rate of $100.
We talked last week about an important relationship in the C-Suite – the relationship between the CFO and COO, and specifically, how it can impact a company’s operational strategies. This week, I’d like to focus on the relationship between the CFO and CEO. While there are countless articles on the subject, they are often focused on what the CFO can and should do to assist the leader of the company. But truly, support in a relationship like this is a two-way street. Under that premise, I’d like to change our perspective and focus on what the CEO can do to help make this as successful a relationship as possible.
As an outsourced CFO, I’ve worked with many different CEOs over the years – each with their own leadership styles and skills that impact their relationships. What I’ve noticed is that my effectiveness at the financial helm of the company is directly correlated to the type of CEO with whom I’m working and how much support I receive, and I recently worked with one who clearly understood the difference it makes. It made me consider what CEOs can do to fully support their CFOs.
How CEOs Can Support Their CFOs
1. Always have their back.
There is nothing worse than feeling like you are out on an island, especially when it comes to preparing and presenting on the financial outlook of the company. Knowing you have the full support of the CEO behind you helps present a united front to the rest of the team.
2. Manage conflict with external and internal stakeholders in a healthy manner.
Conflicts are a necessary evil for CEOs and for most in the C-Suite. But managing those conflicts ineffectively only leads to additional conflict. Instead, CEOs are more effective handling each conflict with direct and timely communication and respect.
3. Communicate with radical candor.
Leaders continuously second guessing themselves and wondering if they did something wrong based on the CEO’s attitude takes unnecessary time and energy away from the tasks at hand. However, when the CEO is direct, even if it’s negative, it helps them fix what they need to and move on quickly.
4. Follow up and review information timely.
Timeliness is crucial in running a company, especially as it relates to data-driven decisions and finance. When the CFO sends an important report, it likely needs to be reviewed sooner rather than later.
5. Spend time and ask questions about the financials in a manageable manner.
The goal here is to communicate without delaying progress and not spend time on frivolous matters or micromanage others.
6. Receive bad news by asking clarifying questions and coming up with an action plan.
CEOs throwing up their hands and storming out not only does nothing to solve the problem, but effectively crushes team morale. Once again, the key is support. Neither the CEO nor anyone else in the C-Suite will make progress playing the blame game. Instead, the CEO can make sure there is a project plan and actionable items so it will not happen again.
7. Work to make sure those who work hard are rewarded properly.
More than ever, strong relationships matter, and at their foundation are respect and appreciation. CEOs who show that they appreciate team members and reward their work realize that if they don’t, someone else soon may.
8. Have high ethics and expect the entire C Suite to operate in the same manner.
CEOs should never ask a CFO (or anyone) to change numbers to make things look better. And sadly, many will. In my opinion, integrity and ethics are faltering entirely too much in our world. Working with a leader who clearly prioritizes these values is a welcomed relief for anyone working in the C-Suite.
Ultimately, a CEO should consider the value of having a CFO who becomes a trusted strategic business advisor and support them in their role. Without their expertise, they would have a difficult time making financially sound decisions to move the company forward with long-term success.
Barker Associates provides strategic guidance and outsourced CFO services to companies of all sizes. We can provide the higher level of strategy your company needs to grow. If you need assistance, or have any other questions, please click here to schedule a 30-minute consultation at a rate of $100.
The economy underwent a huge transformation as the country adjusted to a new way of life according to the unwritten rules of a worldwide pandemic. And just when we thought things might start to settle down, it is shifting again. For companies and investors, one of the most significant of those changes will be the disappearance of the revenue multiple.
A revenue multiple measures the value of the equity of a business relative to the revenues that it generates. It’s the idea that companies can trade based on revenue and not on profit. Simply, it is a metric used often during times of excess money—times in which we recently experienced. The incredible amounts of money that went through the market over the past few years and the resulting high valuations created more strategies based on revenue growth only.
In the first quarter of this year, companies with high revenue growth, unique technology or customer list have closed deals based on 5 to 6 times revenue. Most of these companies had minimal infrastructure and/or no earnings. This is how valuations and sales have been going. But times are changing …
Today, with all that is happening in the economy, a much-needed shift is occurring in trading. This shift is taking us from a prioritization of revenue to a prioritization of profit. The result? Creating a dramatic drop in value for thousands of companies throughout the country.
Is the Past Repeating Itself?
The current changes in the economy are not unlike the events of the Dotcom Boom that occurred in the late 1990s. During that time, the popularization of the internet led to a massive swell in the stock prices of technology companies. In 2000, the bubble burst (as it generally does) and certain technology companies saw stock prices plummet before their eyes, causing several to close their doors permanently.
The Dotcom Boom had a variety of causes. One of them was obviously the popularization of the internet, but there were several other external factors that created the intense drop in capital. To begin, the years prior to the burst saw record-low interest rates, adding to the public’s ability to spend. Once the utility of the internet was realized, investors rushed to the stock market, eager to invest in the new technology.
There was also a sense of extreme pride in helping these companies cultivate the future. And with low interest rates, investors invested millions in startups with no track record and, sometimes, not even a business plan. Right or wrong, these startups somehow made it to the stock market where the public was able to invest in them. And it made sense that what followed was the increased valuation of many tech companies. But when it all burst and those companies went under, thousands of people who believed in the future without worrying enough about the present lost everything.
The Economy Today
What we are experiencing today is eerily similar to the Dotcom Boom, but there are some key differences. Leading up to the pandemic, interest rates were also very low, and money was being poured into the economy in the form of stimulus checks and PPP. People were spending their days at home, and not spending their money on vacations or expensive dinners or concerts. And for those who were fortunate enough to keep their jobs during the pandemic, it was time to invest. Yet, other factors were brewing that would impact it all.
We saw the Great Resignation, where millions of American workers voluntarily left their jobs in search of better pay and working conditions, creating a labor shortage we haven’t seen in decades. Now, thousands of companies across the country desperately in need of labor are paying more to get new employees in and to keep the ones they have. This trend is ongoing and is unlike anything the U.S. has ever seen. We have also seen supply chain issues like never before—delays and empty store shelves, leading to skyrocketing prices for what is available.
With all types of companies feeling the pain of the labor shortage and the supply chain challenges, the economy has been affected at nearly every level. After all, less labor means less revenue and less revenue means less profit, putting many companies at risk in future valuations. Additionally, as interest rates inch upward in the government’s attempt to curb the record inflation, consumers are becoming more conservative with their money.
Shifting to Earnings and Profit
While this shift in the investment world will undoubtedly cause increased inflation as companies raise prices to make profit, it’s a shift that must occur. We must focus on earnings and profit rather than revenue. With decreased spending and no solution for the labor shortage in sight, CFOs are challenged with making the numbers add up and are finding it increasingly difficult to pay the bills. And if they do not have the books and records in order to know what the profit is, it will be incredibly difficult to manage through this valuation shift.
Understanding what causes these fluctuations and shifts, and comparing them to instances of the past can be beneficial to navigating economic changes in the future. Thinking about how your company is able to address the issues at hand may be the key to avoiding going under as the market experiences yet another crucial shift.
Barker Associates provides strategic guidance and outsourced CFO services to companies of all sizes. We can provide the higher level of strategy your company needs to grow, including advising on systems and process updates. If you need assistance, or have any other questions, please click here to schedule a 30-minute consultation at a rate of $100.
Every year, entrepreneurs spend countless hours planning and preparing for the perfect investor pitch. They research, practice, and pick apart every piece of their idea and/or business to find success in the form of an investment to propel them to the next level. However, all of this time spent preparing and practicing can be futile if there is not a strong foundation first; namely, “Is the business built on an idea worth investing in?”
This is not always an easy question to answer with so much personal time, attention, and energy focused on developing that idea. Saying there is a little bias may be a rather large understatement. That’s where gaining further perspective allows you to assess whether it is, in fact, a “good idea” or not. And even if it is a good idea, exactly how good is it?
To decide, you have to consider not only if it is a “good idea,” but if it is a profitable one—two very different matters. Profitability depends on many internal and external factors, only one of which is how good the actual idea is in the first place. And it can only truly be evaluated by looking at it from different perspectives. Understanding these factors from various perspectives, and how they influence profitability, will give your idea a stronger leg to stand on when under the certain scrutiny you’ll face in that investor meeting.
Seven Questions and Perspectives to Evaluate Your Idea … Before the Pitch
What do you think makes your idea unique?
Think about you as your own customer, not as an inventor and/or entrepreneur who spent months or years perfecting a product or service. Consider what specifically makes your idea unique and interesting. Why would you choose what you offer? Once you’ve identified your value proposition, use that as a baseline when considering other perspectives.
What do others think make your idea unique?
Now that you have your baseline, start asking others the same questions—family members, friends, strangers, fellow entrepreneurs. Record their answers and analyze where they fall according to your baseline. Look for any patterns or weaknesses and think about how to address them. Take the time to consider the results of your research and how they affect your baseline.
What is your competition doing?
Once you have a better understanding of your customer perspective, take a thorough look at your competition. What are they doing differently? What are they doing the same? Similarly, look at trends in the market and your specific industry. Where does your business fit in? What pain point does it solve that your competitors are missing? What are your differentiators?
If you’re not already in the market, how will your competition react when you enter it?
Getting your idea to market is one thing, but keeping it there is entirely another. Consider the impact your idea could have on the market and how competitors might respond. This is an extremely valuable perspective to have when preparing for a pitch.
What will critics say?
This is often overlooked. Why? Because it’s unpleasant! We don’t want to hear the bad feedback. It’s so much better to relish in the compliments. But this is crucial. Think about the perspective of those who have negative opinions of your idea or business. Is there any validity to them? If so, how can they be addressed? Taking in the thoughts of critics is incredibly important for ensuring you are not missing the mark. If you don’t address them, your investors will.
Do the numbers make sense?
Numbers don’t lie. There is no gray area. Either your business can be profitable or not. If the numbers aren’t there, there is no hiding it. Consider the following:
Are there holes in your research?
Was there an error in the data?
Is there any way to lower costs without affecting quality?
Is there any way to increase distribution?
Numbers are a massive factor in any investment. Ensuring yours make sense will go a long way with investors.
How much sentiment is attached to your idea?
Now that you’ve examined the perspectives of others, it’s time to reexamine your own perspective again, especially its weaknesses. One of the biggest mistakes someone can make when pitching an idea is getting too sentimental. Don’t get me wrong—you want to tell your story. It makes the most impact. But emotions and sentiment will never take the place of profitability. And if you are too sentimental, it may appear that you are trying to cover something up. It’s crucial that you are able to separate your sentimentality to the project from your logical stance on the viability of it as a profitable enterprise.
Barker Associates provides strategic guidance and outsourced CFO services to companies of all sizes. We can provide the higher level of strategy your company needs to grow, including helping to prepare for that ever-important pitch. If you need assistance, or have any other questions, please click here to schedule a 30-minute consultation at a rate of $100.
Cash Plus Cultural Literacy What Private Equity Needs in Lower Middle Market Deals
Last year was a record year for private equity. With pandemic related stimulus, there was an increase in dealmaking and exits, as well as new records in deal values. But the drastic increase in inflation, along with extensive supply chain disruptions throughout the world, left many wondering what would happen in 2022.
Much of that speculation is the continued shift in attention toward growth equity and middle markets. Lower middle markets (defined as $5m – $100m in revenue) offer innovative solutions and compelling business models, and they are ripe for private equity investments. Yet, there appear to be some challenges – namely, cultural literacy – holding back some of these deals.
We’ve all been hearing about the importance of organizational culture recently. It has seemingly never been as important in trying to attract top talent and offer an engaging, fulfilling employee experience. But long before the Great Resignation left leaders scrambling to fill vacant seats, lower middle market companies placed great value on their culture.
These are companies that more often than not still have their founders involved, working toward their vision to move their companies further along. There is a sense of pride and accomplishment. There is often a sense of family when it comes to employees – these are the people who helped the founders realize their vision in the first place. And this strong sense of culture is not taken lightly.
When a private equity firm is interested in a lower middle market company, they must first understand this culture – and that it is different from larger companies. Cultural literacy creates the level of trust required for a successful deal. It’s as important as speaking the same language (or having a really great interpreter). But too often, that’s not the case. They are simply not accustomed to dealing with each other … and they must learn each other’s languages.
Why the Disconnect?
There are many reasons the “languages” differ among lower middle market and private equity firms. However, finding common ground is crucial to making these deals that will ultimately benefit both parties.
Education. A majority of investors at private equity firms hail from top universities, with advanced degrees, whereas successful lower middle market founders and leaders may not have pursued graduate degrees. In some cases, they may not even have undergraduate degrees. Degree or not, their success often stems from their incredible innovation, hard work, and perseverance.
Experience. Many in the lower middle market have little or no experience in mergers and acquisitions, while, clearly, private equity firms have plenty. That, in and of itself, can be an entirely new language to learn.
Values. The founders of lower middle market companies typically have strong employee retention rates. In fact, some of their employees may have been there since Day 1. They are a family, and founders want to protect their families. Many will care as much, or even more, about their employees than a big payday. Private equity firms must shift to understand that the purchase price may be only one piece of the total value to them.
These are not insurmountable challenges. And with consideration of each party’s perspective, these deals can, and will, go through successfully. But just like in any deal where different cultures exist, it takes time, patience, and understanding.
Barker Associates provides strategic guidance to companies of all sizes. We provide the higher level of strategy your company needs to grow, especially as it relates to the support needed in a merger or acquisition of any size. If you need assistance, or have any other questions, please click here to schedule a 30-minute consultation at a rate of $100.
Shifting Five Thoughts for a More Strategic Mindset
We’ve talked about the transition workplaces are going through – from employees resigning in record numbers to the emphasis on employee experiences to the shift in hiring philosophies that prioritize skills over experience. Many employers are working diligently to fill the consequential gaps from those who left and advance those who stayed. And while those who are advancing are eager for the new challenge, the question begging an answer is – do they have the right strategic mindset to successfully transition into their new roles?
Becoming a strategic leader is about much more than the new title or position. It is about broadening the employee’s perspective from focusing exclusively on one area of expertise to focusing on the organization’s bigger, future picture. A strategic mindset simply cannot have a narrow focus.
Many avoid the transition from task oriented to strategy oriented when making this move. And it’s not that surprising. Task oriented roles and responsibilities are often more fulfilling in the day-to-day. There is instant gratification in many instances, as checking tasks off a list can be very satisfying. In contrast, you generally do not see the needle moving from a strategic perspective until months or even years later. And, as a society overall, we tend not to favor delayed gratification. However, to successfully make this transition, the strategic, broad, forward-thinking mindset must be embraced wholeheartedly.
Crossroads to Shift Your Thinking
For those who are at this crossroads, here are five shifts you can make today to begin having a more strategic mindset:
1. Think long-term instead of short-term. Instead of looking at your daily list and identifying what tasks you can cross off, think about the organization’s future. Ask yourself:
What are the possibilities for the future?
What are the opportunities available?
Where do we want to be as an organization in one year? What about in five years?
What can we do today to help us get there?
2. Think bigger rather than smaller. Think about how the tasks on those daily lists impact the company’s overall strategy. Are the things getting done today aligning to the company’s strategy and future plans? What are the long-term impacts of decisions that are being made and actions being taken today?
3. Think about opportunities instead of challenges. Some of the most innovative solutions (in any industry) have been brought about during tough times. It is only when we can no longer do the things we’ve always done that we begin to scratch the surface of alternative methods. And often, those alternatives open various new doors of opportunity that would have otherwise remained closed.
4. Think about future trends, not just the here and now. Join think tanks or find other resources that focus on market research. Ask yourself:
What is happening the industry?
What is happening in the marketplace overall?
How will the events and trends outside of the organization impact the organization’s future?
5. Think about spending time on strategic planning, not just current responsibilities. This is often the biggest challenge for leaders. As noted in a Harvard Business Review article, “How can you avoid getting overwhelmed by day-to-day tasks that feel so urgent, at the expense of game-changing initiatives that are truly important?”
Higher-level strategic thinking needs time, space, and dedicated focus. The most effective strategic leaders recognize this and block time on their calendars consistently to devote to strategic planning.
Cultivating a strategic mindset is crucial for those transitioning into a leadership role. It’s not always easy, but it is attainable by shifting these thoughts. Barker Associates provides strategic guidance to companies of all sizes. We can provide the higher level of strategy your company needs to grow. If you need assistance, or have any other questions, please click here to schedule a 30-minute consultation at a rate of $100.
Five Steps to Committing to Financial Management Fundamentals
We seem to take one step forward and two steps back lately – with the pandemic, the economy, and life in general. In many instances, things are so close to “normal,” we’re ready to embrace it all again wholeheartedly. We need the familiar, especially during the tradition-filled holidays. We long for some normalcy and comfort. Yet, we’re hesitant in many respects, especially in business. And while this hesitancy is understandable after all that we’ve been through, we can’t run a business this way, especially as it pertains to financial management. In fact, our financials never needed more attention. As 2021 comes to a close and 2022 begins, it’s the perfect time to make a resolution to get back to financial management fundamentals.
Five Steps of Financial Management Fundamentals
Read Monthly Financial Statements
While this may sound entirely too elementary, we’re starting with the basics because there are those who tend to ignore them. By reading (and understanding) financial statements, you will quickly see what looks good and what doesn’t, if there are any red flags, and any trends. Monitor inventory levels against projected sales, receivables, and cash and identify other critical financial indicators and ratios from the balance sheet. If something doesn’t make sense to you, chances are there may be a problem that needs to be solved.
Review Bank Statements
Similar to your review of the financial statements, how will you know if something is off, if you don’t review the company’s bank statements monthly?
What’s coming in?
What’s going out?
Do the amounts look reasonable?
Do the canceled checks (reviewed online) look appropriate?
With this review, you shouldn’t be in the details of every single transaction (or you’ll never get any work done). Rather, your goal should be to get a good sense of the company’s overall activities. In this way, you can track monthly sales-to-expense ratios to better understand when to adjust spending and to identify the top impediments to profitability, so you can deal with them quickly.
Review Payroll Reports
Payroll reports should be reviewed quarterly when Form 941s are filed. During this review, you want to look at year-to-date wages paid for employees and ensure everything looks reasonable. If it doesn’t, find out why immediately.
Assess Expense Reports and Spending
Review credit card usage, expense reports, and overall spending, including meals and travel expenses. Take note of any entries that appear off, whether they are too high, too low, or too frequent. Once again, you don’t need to have all the details, but rather perform a high-level view – often, all that is needed to identify an issue sooner rather than later.
Listen to Feedback
No one has all the answers. The best leaders understand the intrinsic value of listening. In this case, that feedback should be from far more than the accounting department. It should also include feedback from operations and any other impacted department, as well.
What are the concerns?
Does anything need to be investigated?
These five steps will help ensure you are practicing financial management fundamentals, increasing oversight, and increasing overall engagement. Remember, the most successful CEOs are those who delegate, but also who stay close to the heart of the company’s financial picture. The consistent financial monitoring required of businesses takes attention and it takes work, but without a true long-term plan and careful monitoring, you cannot forecast or grow to the next level. So, in 2022, make a resolution to stay committed to financial management fundamentals. Barker Associates has extensive experience in financial management. If you need assistance, or have any other questions, please click here to schedule a 30-minute consultation at a rate of $100.
The Impact of Management Practices on Business Outcomes New Research Shows Direct Correlation with M&As and Financial Performance
It’s no secret – good management is good business, plain and simple. But is it possible to actually quantify the impact on business outcomes, such as mergers and acquisitions and financial performance? According to research conducted by the Harvard Business Review, we can.
In an effort to determine whether there is a direct correlation between management practices and certain business outcomes, researchers used data from the US Census Bureau to examine the practices of 35,000 manufacturing plants. And while it is well established that much of management may be subjective, including leadership styles and how they align (or don’t) with various team members, objectivity can be found with the right questions.
Quantifying Management Practices
According to the article discussing the research, studies were conducted using more unbiased, neutral questions, leading to more definitive, measurable answers. For example, questions such as how much managers tracked employee performance, if they used the data found to improve practices, how production goals were set, and if they utilized standardized incentives are a few variations. Other questions included:
How many key performance indicators (KPIs) were monitored at this establishment?
What best describes the timeframe of production targets at this establishment?
What were non-managers’ performance bonuses usually based on?
Answer choices provided were specific and assigned a value. As noted in the article, “For example, responses to the question ‘What best describes what happened at this establishment when a problem in the production process arose?’ were: i) No action was taken, ii) We fixed it but did not take further action, iii) We fixed it and took action to make sure that it did not happen again, and iv) We fixed it and took action to make sure that it did not happen again, and had a continuous improvement process to anticipate problems like these in advance.” The results were gathered and quantified to define more structured management practices as those that were more specific, formal, and frequent.
Impact on Mergers & Acquisitions
Researchers then tracked mergers and acquisitions among the companies included in the management practices study with additional data from the U.S. Census Bureau. The intent of this comparison was to quantify the extent to which management practices influenced outcomes in mergers and acquisitions and overall financial performance.
The findings included the following:
Companies with more structured management, operations, practices, and procedures are more likely to become acquirers in an M&A.
Companies even one deviation higher in management score were 7.5% more likely to become acquirers.
Companies with less structured management and fewer standardized policies and procedures are more likely to be targets.
A mere one deviation point lower in management score resulted in companies being 2.8% more likely to become targets.
There is a strong spillover effect post-acquisition. A target company is more likely to adopt more structured management practices, similar to the acquirer company.
The management scores of target companies increased by an average of 26% post-acquisition, including additional KPI monitoring, goal setting, and incentives.
There is a direct correlation between improved management performance and productivity. “[F]or plants whose management scores increased by one standard deviation following their acquisition, productivity increased by an additional 3.3%, while value added per employee, value added per worker-hour, and profit margins increased by an additional 3.13%, 4.19%, and 1.16% respectively.”
Ultimately, the last point is what we should all take out of this research. It’s about much more than the effect management practices have on mergers and acquisitions. Rather, it exemplifies the importance of structure in management practices that affect the day-to-day operations and productivity of a company. Simply, it adds value, which will inevitably improve business outcomes – whether its M&As, increased profitability, or looking more attractive to investors who understand that implementing stronger management practices now is an effective strategy for long-term success later.
Barker Associates has extensive experience in both specific CFO needs and more general management practice ones. If you need assistance, or have any other questions, please click here to schedule a 30-minute consultation at a rate of $100.
Attention CFOs: Financial Targets Don’t Motivate Employees Tips on Motivation Minus the Numbers
Without a doubt, as CFOs, our language is the language of numbers. Simply, numbers make sense. So, it’s probably no surprise that we use them more often than other people. And while it seems intuitive to us that numbers are a great way to motivate employees, that thought process tends to be counterintuitive to others.
Most people appreciate having a clear-cut goal to meet—something to strive for and work toward. However, financial targets don’t generally motivate employees in the same ways. Financial results are the outcome of hard work, performance, and productivity, not the cause of it. As such, when we focus on the numbers, employees don’t feel as if they have control over achieving that goal and ultimately begin to feel less motivated. In fact, using financial targets has actually been said to decrease morale among employees.
This is not to minimize the importance of financial targets and metrics. Let’s face it—we’re CFOs, to us, there isn’t much else that is more important. And logically, we know that if we don’t hit those numbers, we may not be able to pay those employees we’re so worried about. But just because financials are important to the company does not mean they’re an effective motivational tool for employees. Rather, if we want to motivate, we need to bolster support for our organizational purpose, emphasize the value the employees bring to it, and focus on their specific impact on customers or the community.
Three Tips to De-Emphasize the Numbers in Motivation
Reevaluate what you communicate.
Put the metrics, measurements, and dollar signs aside for the time being. Instead, communicate goals over which employees have some control. They should be able to clearly see what they can do to help achieve company goals. Of course, some numbers will likely need to be included, but be cognizant of keeping the focus where it needs to be. Increasing focus on numbers will decrease focus on what actually needs to be done and dilute the overall strategy.
Be specific and use emotion when you talk about customers and clients.
Employees are more likely to go the extra mile when relationships are built, and they can see individual, specific, and actual impacts on those relationships. They want to know what impact they are having on customers and the community. Employees want to feel good about what they are doing, so show them the impact they are making, not in the aggregate, but in specific instances.
Do not overshare every metric.
Employees generally don’t need to know every single item that is being measured regarding financial performance. When all they see is numbers, they feel as if they have to figure out how to get there when really it should be the other way around. Tell them what they have control over and then the goal that was met because of what they did to get there. Think about where you want to direct their attention and remain focused there.
A Harvard Business Review article described it best, “You cannot spreadsheet your way to passion. With ambitious goals on the horizon, it’s tempting to double-down on financial metrics. But hitting financial targets requires employees who are excited and care about their work.” This has never been as true as today. Employees want to feel appreciated by leadership. They want to have joy and pride in their work. And as we talked about previously, they are far less likely now to tolerate anything less.
Barker Associates has extensive experience in both specific CFO needs and more general leadership ones. If you need assistance, or have any other questions, please click here to schedule a 30-minute consultation at a rate of $100.
What Getting Stuck in an Elevator Teaches You There are Lessons in Nearly Every Situation
I recently enjoyed a wonderful evening with some friends and family. We had a lovely dinner and then went to a show. We had purchased tickets for Hamilton years before the pandemic changed our lives, and were thrilled to finally be able to see it.
After the show, we walked blissfully back to our cars, still glowing with the excitement and contentment of a great night out. We had all parked in a parking garage that was only accessible by an elevator. We approached the elevator and were soon joined by several other people. As the doors to the elevator slowly opened, approximately twelve of us got in.
Lesson 1: Communication
We all pushed our respective parking garage levels, and continued our respective conversations. The elevator started to ascend. Suddenly, the elevator stopped, but the door did not open. My friend was next to the elevator controls and immediately hit the “open door” button. A few of us near the doors tried to nudge at the them, to no avail. We then hit the call button and reported to the person who answered that we were stuck in the elevator. He assured us that he was sending someone to help.
What we heard in that message was that someone who was capable of fixing the elevator was in the building and on their way. After a few minutes, when no one came, we called back and asked how long it would be. The person who answered said he was not sure, as he was unable to reach the mechanic. We asked a few more clarifying questions and determined that the mechanic who was “on his way” had not even yet been contacted, and we had no idea how far away from the building this person was.
Lesson 2: A Leader’s Attitude Can Change the Environment
There was no air conditioning in the elevator, and with that many people, it was very hot. Between the anxiety from learning that we were stuck in the elevator and the heat, one of the people from the other group began having a panic attack. We called the operator back and told him we had someone in distress, and to call 911. We were informed that it is against policy for them to call 911 and if we felt that was appropriate, we had to make the call ourselves. I attempted to call 911 from my phone, unsuccessfully. Thankfully, another person’s phone was able to get through.
At that point, my amazing friend Sondra (one of the strongest people I know) led us all in a standing yoga class with breathing exercises. It helped calm nerves in everyone almost immediately, and we all began to have some light conversation again. We even took a few selfies, trying desperately to lighten the mood. Even the person having the panic attack was able to relax with the breathing exercises and calm, light tone my friend used.
When the firefighters showed up, they worked diligently to get the door open. And soon, they were successful. Merely watching the doors open offered an incredible calming sensation. Unfortunately, it was short-lived. We soon discovered we were stuck in between floors. The firefighters were on the upper floor and determined they could not pull us up. They would have to close the doors to move the elevator to the lower floor.
Some of them stayed on the upper floor, and others took the tool they were using down to the lower floor. They then attempted to open the doors on the lower floor. This did not go as well. The firefighters began hitting the elevator forcefully to try to get the tool to work. One of them yelled with urgency to the team members that remained on the upper floor, “I can’t get it in. I cannot get the tool in.” The elevator was rocking back and forth, and the lights were flashing. It was pretty scary, and the anxiety levels were all back up to even higher than our pre-impromptu yoga class. I decided to close my eyes at that point, as it was all too much to process. The anxiety in the voices of the firemen, while we were rocking back and forth was overwhelming to us all. When they continued to yell the same thing, my friend said, “I think I’ve heard that before!” We all started laughing with that welcomed comic relief, and I remembered how important humor can be in stressful situations.
Ultimately, they got the door open and got us all off of the elevator.
Lesson 3: Be Grateful (and don’t forget about humor) … Always
When I got out and was finally able to get in my car to leave my wonderful evening (and yes, it was still wonderful – just with a twist), I felt incredibly grateful to be on my way home to my family. I was in a scary situation and I was ok. I wasn’t about to forget it. I also thought to myself, it was really hot in there, but I don’t stink!
Lessons learned from this experience –
Life is short. Make sure every day is full of what you value most.
You don’t have to be in a boardroom to learn valuable lessons … sometimes you’re in an elevator.
Communication is key in any situation. Ensure you are understanding what you are hearing and that the other person understands what you are saying.
When you are a leader, your anxiety or calmness multiplies when you communicate to others. Maintain an authentic calm demeaner, if possible, and you will see the effects in others.
As always, Barker Associates is here for any CFO services you may need (and is also happy to impart some words of wisdom from time to time!). If you need assistance, or have any other questions, please click here to schedule a 30-minute consultation at a rate of $100.