Those of us who work to manage our cholesterol have received conflicting information about eating eggs. I grew up loving eggs, but then, as an adult, I was told not to eat them due to high cholesterol.
Then the nutrition experts decided you can eat egg whites. Now it is back to eat your eggs – yolk and all – the last time I spoke with a nutritionist. Confusing.
Deciding if you are going to outsource a function within an organization is about as confusing. The trends go back and forth on that issue too. Advances in technology and lower costs of offshore professionals have made the idea of outsourcing more attractive in some cases.
I have some advice, gained over my years as CFO in various organizations, for you to consider while you evaluate the idea of outsourcing financial functions:
Don’t try to fix a broken process by outsourcing it. Do not outsource a recurring, detail-oriented process that is currently broken. Get the best consultant you can afford working to fix the process. Make certain the expert who fixes the process creates a training manual on how the process should run and trains an internal staff person on it. You may discover during this process it is easier for you to keep that process going with your own employees or you may decide you want to outsource the detail part of it to an outside, less costly resource. The bottom line is that if you do not understand your own process, you cannot know if a third party is accurately performing it on your behalf.
Get organized. Organize your data in a way that you can provide it to the outside party prior to engaging them. If you cannot make sense of your data, you can end up paying a third party a lot of money to do it for you.
One of the areas I’ve seen this as an issue is with State Sales Tax. Compliance in this area is about as difficult as hanging upside down from a tall tree branch while flossing your teeth. Companies get frustrated with the complicated process of filing state sales taxes, especially when multiple states, or states with complicated calculations and forms are involved. For example, are you capturing sales revenue based on the billing address or the shipping address? You must have accurate data before outsourcing it for someone else to handle.
My recommendation is to invest in upgrading your IT infrastructure. Regardless of whether you are outsourcing compliance with state sales tax or another process, you must be in a position to produce data in an organized manner that a third party can accept and act on.
When you do decide to outsource a portion of your business, make sure you keep the data and regularly backup the data the outsourced agency is using. Make sure you still know where your information is and how to get to it if the outsourced entity suddenly goes out of business. Perform routine oversight of the work being done by the third party. This is even more important today in this every changing business world.
Just-in Time Experts. Expertise that you need infrequently is a great area to consider outsourcing. Many third parties provide outsourced IT, legal, human resource, or financial expertise to augment internal resources and are less costly than hiring the expertise full time. You may only require specialized expertise for specific projects rather than an on-going need.
Outsourcing these functions is not without its drawbacks. For example, let’s say your obsolete, no-one-has-ever-heard-of information system gets hacked and you have no in-house expert who is familiar with your system. Hiring an expert to support obscure software can be costly and time intensive to get your problem solved.
Or perhaps legal expertise is something you only require occasionally. You decide to download a customer contract from the internet instead of hiring legal expertise to prepare your standard contract. If you get in a nonpayment dispute with one of your major customers and then bring in legal to help you, you may discover that the customer contract you downloaded for free from the internet will not allow you to properly recover the revenue you are due. Now the outside lawyer has to clean up the mess you made by not hiring them on the front end to prepare a sound contract.
My point is that it is essential the right expertise performs the company’s core functions in every business. The laws and regulation in these areas change rapidly and you need someone to help you stay compliant and out of trouble.
Barker Associates provides outsourced Chief Financial Officer services on a fractional or full-time basis in the event of a transition. Fractional services work best during times of fast paced growth, a new system implementation, a merger, or an acquisition. Even with a full time CFO on board, they have a day job and these types of changes require a unique focus and background. Our extensive and diverse background helps guide the organization through the change.
During a transition time, Barker Associates uses their expertise to assist the organization with designing a job description and interviewing candidates for the new position. Once your new CFO, Accountant or other financial professional is onboard, Barker Associates exits until you bring us back for the next big project.
If you are considering outsourcing a financial process within your organization and would like to discuss specific areas of concern, I would love to speak with you. Click here to schedule a 30-minute free consultation to discuss your unique situation.
What do making your bed and pitching to potential investors have in common? According to Admiral William McRaven, in his book, Make Your Bed (available at Amazon.com), it’s the simple steps, taken each day, that achieve great results.
To better link these two seemingly unrelated activities, consider this: Chief Executive and Financial Officers may feel overwhelmed by the need to focus on daily tasks and raising capital. But by executing a simple task, such as making your bed each day, the tone is set for the rest of the day’s attitude and accomplishments.
Combine the responsibilities of a C level position with the priorities of kicking off a new year, and CEOs and CFOs may lack the required focus to also prepare to meet with potential investors. I suggest you personally implement one to two simple habits successfully, then move on to other new habits. The success of achieving even simple changes will reinforce your mindset for success.
Mistakes happen to the best of people and organizations. When I was promoted to Chief Financial Officer at the age of 29, I articulated my fear of making a mistake to one of my mentors. It was overwhelming to accept and consider the responsibility of the lead financial role. I would be the last one to review information before it went to the President and Board. The response I got from expressing my concerns was great – You will make mistakes, I guarantee it. What sets great leaders apart is how they deal with the mistakes.
What I learned from that experience is that leaders can impede or even stop the ability to develop and execute strategy if they do not take responsibility for their own mistakes. Lack of execution can cause the organization to miss revenue opportunities and quickly burn through cash.
When you are a leader of an organization one of the toughest responsibilities you have is leading by example. The Type A leaders who are bold enough to put together a start up or buy a company may not be sufficiently self-aware to take responsibility for their own actions and, as a result, when something goes wrong they can turn into one of three personalities: the Victim, the Judge or the Warrior. What happens next depends on which personality the leader assumes.
The Victim says, “I can’t believe the team did this. They are out of control and now this project is ruined.” This is followed by public accusations that humiliate workers.
Leaders, put on your big girl or boy pants and take responsibility as the Warrior.
The Judge says, “I can’t believe this happened. I am so stupid for trusting the team and I am never going to do it again. The project is ruined.” This is followed with micromanagement and control freak like activities.
Either personality can lead to turnover in the organization, which significantly slows down the organization’s ability to develop and execute strategy. A Star player on your management team will not stay and live in chaos. The star players on the team are all updating their resumes and keeping their ear to the ground to determine what other positions they can pursue. They will resign and say something like: “This opportunity was just too good to give up” or “They approached me, I was not looking.” They were not looking until the leader turned into the Victim and/or Judge and created chaos and an uncomfortable working environment. The culture is such that the star player cannot contribute in a meaningful way and they will leave you. Baby boomers tend to have a deeper sense of loyalty, so they may stay and hope the situation will change. The Millennial generation, in contrast, will bolt quickly once the Victim and/or Judge show up. They are very focused on making certain they can personally contribute immediately.
The Warrior says, “I’m responsible for this team and actions. How can we correct and learn from this mistake?”
Instead of using blame and shame to work through the dissonance, Warriors use tools like awareness, compassion, integrity, and ownership. Warriors empower their team to fix issues with customers at the earliest point possible. Warriors take responsibility and execute. Execution leads to building enterprise value and higher existing values.
Leaders, take an honest assessment of your leadership style and adopt a Warrior attitude!
Responsibility can be scary. Leaders put on your big girl or boy pants and take responsibility as the Warrior. Stop the blame and shame, micromanaging and control freak ways that keep the organization from executing. We all have the ability to change once we become self-aware – take an honest assessment of your own actions.
Board members, investors, coaches, and mentors – challenge the leaders of the organizations in this area. Although it can feel distressing to challenge a leader without it sounding like a personal attack, it comes with the territory. I have sat in many a meeting when I knew the Board wanted to ask these types of questions and did not because it is uncomfortable. You have a fiduciary responsibility to address the issue if you think it exists. If you suspect it exists – it almost certainly does.
Star players – before you update your resume and bolt, try to effectively manage up and have a frank conversation with your leader about the situation. Even if it does not work and the leader does not change, it is good practice for you. To help develop the dialogue, consider reading the book, “Crucial Conversations, Tools for Talking When Stakes Are High,” (Patterson, Grenny, McMillan, and Switzler), before initiating the conversation.
As new entrepreneurs become caught up in day-to-day survival it’s easy to overlook these four practices that support the long-term strategic growth of the new business:
Business plan with 5-year forecast
Planning for leadership evolution
Impact of decisions on cash flow
Let’s start with budgeting. The key to survival is measuring and monitoring the results. It is essential to complete an annual budget, break it down in monthly components and monitor each month. The budget should include an income statement, balance sheet and cash flow. Most companies have an income statement; however, I have seen fewer balance sheets and cash flow projections. This can really get you in trouble as you will not have any line of sight to your working capital needs. Working capital is the cash you need to run the business.
Grow in leaps and bounds when you incorporate these 4 strategies.
For example, if you sell goods, chances are you will need to spend money on inventory prior to selling the item and recognizing revenue. If you have projected your sales to increase by 25%, you may have painted a lovely picture of growth with your projected income statement that is not reality if you do not have the cash to purchase the inventory to sell because you have not projected the use of cash to purchase the inventory, which is what the balance sheet and cash flow projection are for. This can really get you into trouble, especially if you have inventory on your balance sheet, but not enough cash coming in from sales to pay for it.
In addition to a budget, your company should have a business plan and a five-year forecast. The business plan should articulate the plan for your company’s growth and address anticipated changes in the economy and future trends. It is difficult to predict all of these things, but if you develop a robust business plan, you are thinking through the different scenarios and how these scenarios will impact your business.
Think through leadership, including yourself, as your company grows. Clayton Christiansen* of Harvard Business School, says managers who are talented and skilled in the area of productivity and squeezing out the last bit of value from a company’s assets, are usually not the same people who are great at innovation and major change. Often a successful manager replaces the person who is responsible for helping the company become successful when the company becomes mature enough to establish systems and balance checks.
It is imperative to think through how decisions you make can impact cash flow – and here is why. I worked with an organization a few years ago that historically had double-digit growth each year and was very profitable. The initial product the business launched was a great success because it was much better than anything on the market. The company was getting ready to launch a second product. At my first management meeting they discussed how the product was on its way to the warehouse, noting they had offered extended payment terms to customers on their entire order if they added the new product to their order. No one had projected the impact this decision would have to their balance sheet and cash flow, so they were unaware that the plan they had in place was going to essentially stop incoming cash – and they had just signed up for a huge payable to the vendor. We had to react quickly and manage cash to meet payroll and other obligations. Such a decision caused a 5-6 month stressful time, requiring we run cash flow projections daily during that time to ensure obligations would be covered.
* Clayton Christiansen is regarded as one of the world’s top experts on innovation and growth. He is the Kim B. Clark Professor of Business Administration at the Harvard Business School, where he teaches one of the most popular elective classes for second year students, Building and Sustaining a Successful Enterprise. – See more at: http://www.claytonchristensen.com/biography/#sthash.jS5zzfLx.dpuf
What kind of question is that … of course you would not purchase a piece of equipment that does not work! Yet you may be doing exactly that if your hiring practices have not grown and evolved to support the growth of your company.
As the founder or CEO of an entrepreneurial growth, or family owned company, an honest evaluation of your hiring practices might highlight if you are investing in employees who do not “work.” In this context, “work” means they are not suited for the current stage of your company, prompting the question, “How did I not see this happening inside my own company?”
Entrepreneurial growth founders and CEOs tend to hire friends and family at the early stages of startup, relying on people who they trust, and with whom they have an existing relationship. This type of employee tends to be fiercely loyal to the founder, willing to put in the hours to help get the startup moving in the right direction. My observation has been the founder has enough day-to-day interaction with all employees to fill in the gaps and correct shortfalls that result from hiring based on relationships versus skills and qualifications.
As your company has evolved, perhaps these types of employees are no longer team players; or possibly your superstar employees have become discouraged as the company has grown and changed, so they are leaving and taking valuable company intelligence with them.
Companies that survive three years in business and realize success in their revenue goals also find that the needs of the organization have changed. Hiring practices require more structure and objective measures, which means additional up front planning when considering a new hire. Here are my recommendations for putting in place that structure and objectivity:
Complete job descriptions for existing and new positions. Since this process has Fair Labor Standards Act (and other regulatory) implications, refer to a source such as the Society for Human Resources Management (SHRM: http://bit.ly/1pJUinA), for guidance.
Use the job description to create a job posting, describing the new position and the criteria for candidates to apply.
Make certain you have an organization chart that clearly illustrates everyone’s relationship within the company.
Properly communicate to existing employees you are hiring a key team member and explain the reason for the hire and eligibility requirements for applying for the new position.
Prepare a template of key metrics the employee must have for the position before you identify the first candidate. Metrics such as job skills, education level, and experience should be included.
Reproduce the template for each candidate you interview. Use it to evaluate all candidates during the hiring process to help you stay focused on the essential needs of the organization – rather than letting your emotions get away from you and hiring someone you really like but is not suited for the position.
During the actual interview, the founder/CEO and select team members, trusted advisors or others, should be involved in interviewing candidates using the interview template for that position. Final applicants should be vetted with a background check, confirmation of all certifications, degrees and employment verification, prior to making a formal, written offer to the selected candidate.
If you have suddenly realized that it’s time to implement more formal structure and hire key executive positions for your growing business, contact Mindy Barker & Associates to find out how we can assist with the process. From developing the criteria for key executive positions, to working with firms to source qualified candidates, we will not only lead you through the process, but also leave you with a documented procedure to follow as your company continues to grow.
Instant rice and online banking have a lot in common. Instant rice is obviously quick, providing you with an immediate result. It works really well for casserole recipes or for certain dishes where rice and other ingredients are mixed together. But if you are serving dinner guests or in a fine restaurant, you expect the chef to put in the extra effort to serve gourmet rice prepared in an exotic way.
Don’t just rely on point-in-time views. Take time to reconcile accounts.
As with instant rice, online banking provides instant information regarding your bank balance, making it a great tool for certain situations; however, if you want to use it as an effective tool to manage your daily cash flow, it requires the extra effort of being connected to a cash reconciliation process that is properly maintained and reviewed periodically.
Before the days of online banking, the standard practice for both personal and business checking accounts was to reconcile a check register to a monthly bank statement. When accounting professionals adopted online banking into their processes, organizations tended to forgo the discipline of maintaining a check register as part of their reconciliation processes.
The following is a typical conversation I’ve had when consulting with clients on accounting process improvements:
Accounting professional, with a bundle of unsigned checks, “This is our process for obtaining check signatures.”
Me, “How do you know you have enough money in the account to cover these checks? What is your procedure?”
Accounting professional, “I checked the balance on line this morning.”
Me, “Where is the reconciliation to the check register? How do you know that all of the uncashed checks will not deplete the entire balance?”
Accounting professional, “I know there are not that many outstanding checks.”
Me, “When is the last time you reconciled the account?”
Accounting professional – answers range from a year ago to do not remember (not good) – to yesterday or a month ago (which is good).
As with using instant rice, there are times when viewing online balances without going through the reconciliation process are appropriate, but it’s not the final reconciliation tool.
Let’s try an experiment: If you are a CEO or President of an entrepreneurial company or a Finance Chair of a non-profit, ask the accounting department for the latest bank/cash reconciliation of the operating account. Ask specifically for these documents:
The bank reconciliation
A copy of the bank document to which it was reconciled
The Balance Sheet balance to which it was reconciled
(Note: Publicly traded companies, financial institutions, insurance companies and other regulated industries have to maintain reconciliation procedures, so if you are in charge of one of those, regulation will take care of this.)
If you are bold enough to move forward with this call to action, my experience tells me about 50% of you will get a reconciliation completed in the last 45 days. If you get one and do not know how to review it, contact me for a free, no-obligation checklist that will guide you through a high-level review. If you do not get a reconciliation, and, in fact, get a blank stare from your accounting person, contact a financial professional to complete a review of your cash procedures and process. You may have plenty of cash flow today – however, that can change quickly if you do not appropriately manage it. Don’t risk finding yourself in a position where you cannot meet your basic financial obligations. “Cash is king” is a cliché’ for a reason – it is a requirement to run almost any type of business.
Mindy Barker & Associates works with entrepreneurial business owners to empower them with the tools and financial information to improve company value, profitability, and cash flow. To find out more on how you can be empowered, contact them today at firstname.lastname@example.org, or call 904.728.2920.
Nonprofit leaders often make decisions about adding structure, enhancing staff expertise, or conducting advanced planning in response to a risk situation, or, as an afterthought. Savvy leaders recognize the need to make periodic adjustments to processes, staff and technology resources if they want to stay on the path to financial brilliance.
Donors have many tools to assist with decision-making. GuideStar is a tool most sophisticated donors use. GuideStar is a public charity that collects, organizes, and presents the information in a neutral format. GuideStar publishes your 990, providing potential donors with full access to the information. Do you know what your GuideStar rating is? The process of adding the appropriate information to receive a Gold (the highest level) rating takes less than an hour and the return on that investment is providing transparency and financial clarity for sophisticated donors.
Take this quiz to see if you are on the right path to financial brilliance, or if it’s time for one of those adjustments, then tally up your score to see where you stand:
Do you have a financial professional on staff? How often do you forego infrastructure development to save money? When you engage the expertise of a CPA on your team, the next six characteristics can become reality.
Do you have an annual budget? Navigating the fiscal year without a budget is like driving down the interstate blindfolded. By reviewing past revenue and expense flows to forecast future income and expenses, you can create a budget to see where you are going.
If yes, do you monitor actual vs. budget? The annual budget is a dynamic document, meant to be part of your monthly financial review process – planned versus actual expenses. It’s OK to make periodic adjustments, a process that helps you know if the company goals are on track.
Is your G/L infrastructure meeting the need? If your monthly financial reporting: (a) is either non-existent, or (b) is not helping you run your business, consider a review and restructuring of your GL. Make it work for you – not the other way around.
Do you have an endowment fund? If yes, ensure accountability with a documented Endowment Fund Management Policy and related procedures.
Do you have restricted funds for operations? With the help of your financial professional, meet the obligations to record, report, and effectively manage restricted funds by understanding the requirements. Document how your company meets these obligations in your fund management policy and follow the practice in day-to-day activities.
Do you have grants and loans with covenants? As with restrictions, part of monthly reporting should be key indicators on how the business is complying with covenants.
Do you know the core financial data contained on your organization’s 990 and its GuideStar rating? Knowing the answers to the questions before potential donors is a must to maintain credibility and be in the best position to make the “ask”!
How many “Yes’s” did you score on the Financial Brilliance Meter? 0 – 3 – Financial Dunce 3 – 5 – Financial Aptitude 6 or more – You are on the road to Financial Brilliance!
Whether it’s creating your first budget, enhancing your general ledger infrastructure or reviewing and tightening up financial reporting, successful leaders ensure these characteristics are part of their culture. This financial clarity helps ensure stability to carry out your mission.
Raise your Financial Brilliance score, let Mindy Barker & Associates show you how. We can help you gain the financial brilliance that empowers you with the tools and financial information to improve company value, profitability, and cash flow. Contact me here.
As the CEO or CFO of your organization, when was the last time you looked at the commission payout to your lead sales staff? While you were razor-focused on increasing sales, did you also consider the full impact of the commission dollar in developing and executing the company sales plan?
The difference between an accountant and the strategic CFO (Chief Future Officer) is the accountant will calculate and pay whatever commission they are given, whereas the strategic CFO will help their CEO understand the entire journey of the commission dollar and its impact on the organization.
Before a commission plan is implemented, consider these five impacts:
Who will have plan accountability and oversight to avoid fraud, abuse and plan obsolescence?
What metrics will be used to measure/monitor that the plan drives the desired short and long-term results?
How complicated is the plan to administer? Calculate? Pay out?
Should there be a commission clawback provision?
How does the plan fit into the overall compensation structure of the organization
If the journey of the commission dollar begins with a few conjectural quantitative analyses, you may avoid implementing a plan that does not achieve the desired outcome or has unintended effects. You can create a system that is full of opportunities to take advantage of the system and in some cases create fraud. If your idea on how to calculate commission is not fully vetted with several “what if” quantitative analyses, you could find yourself in a situation where you are having to revisit and revise the plan continually until you hit on a formula that works.
Consider the following “real life” scenarios:
The Scenario: The accounting department found they were spending days calculating the commission. The decision-makers who developed the plan were not aware of the mountain of work they created by failing to test the end-to-end process to administer the plan. Get your financial strategist involved to help think through the commission calculation. Test that the calculation will not be unreasonably time-consuming while you are creating the plan and before you communicate it to the sales team.
The Scenario: The commission plan may incent the sales personnel to bring on unprofitable or uncollectible revenue dollars. A commission plan that includes a clawback provision builds in responsibility so the commissioned sales person is a participating party to the business. The clawback items should include account receivable write offs, returns and credits and any other reductions of revenue that may occur with the customer. Without this, the sales person is just interested in getting the business on the books. The recent mortgage crisis is a great example of this, as the mortgage brokers selling the mortgages received the initial commission on the mortgage and had no clawback if the mortgagee defaulted on the mortgage.
The Scenario: The commission amount is so low, not only does it not incent any increased sales, it also wastes accounting infrastructure to administer. I recently learned of a retail establishment that began an incentive program to provide each employee $20 per month if the store met its monthly goal of thousands of dollars of sales for the month. The manager would ask the employees who had worked a 12-hour shift if they would like to stay later so they could make the extra sales to receive their incentive for the month. The exhausted employees laughed about this behind the managers back – the low bonus and high hours to earn it served as a disincentive to meet the sales goals. The store manager and accounting department were exerting energy to calculate a program that was irritating the customer-facing employees. This is not a good investment.
Take the time to evaluate new or changing commission programs by considering the full journey of the commission dollar. Make sure you are actually providing a healthy incentive to your sales professionals without creating an expensive or inadequate process to administer the commission payment.
Each month end, financial reporting packages are prepared in companies across the nation and promptly filed…somewhere. In most cases, the accounting team has prepared these analyses and turned them over to a senior leadership team who really does not understand how to use them to run the business. Reams of paper reports stand in piles, creating more of an environmental concern due to the use of paper, than the financial concern needed to effectively run the business.
Even though the accounting department has included a tremendous amount of information that may help them prepare for the annual audit, have they contributed information relevant to the management of the business?
By implementing accounting best practices, such as streamlined processes and standard, relevant reporting, work effort can shift from processing to high value activities that invest in the business, such as special projects and guidance on improving the bottom line.
Time is money, and time spent to prepare irrelevant information is wasted. Month end packages should be concise and provide information about the relevant Key Performance Indicators identified by Management. Contact Mindy Barker & Associates to find out how we can guide your leadership team to discover, report and track monthly Key Performance Indicators that help you make timely and informed decisions in running your business.
Is your high-cost customer providing high revenue?
The entrepreneurial community tends to speak to investors and stakeholders about the value of their business based on revenue and revenue growth. When an investor begins to ask about gross profit, net profit or EBITDA, often the business owner makes a face similar to when you have caught a teenager in a fib.
Revenue produces cash flow and pays the bills. Revenue is a key goal and business owners should constantly strive to identify and close more customers to drive more sales. Besides these vital aspects of revenue, proper analysis of revenue is equally critical to identify customers, vendors and products you should walk away from.
Walking away from revenue is a bold move; however, at times it is the right move to take your company to the next level. I recently helped a client determine that a relationship with a vendor was unprofitable and to make the difficult decision to cease the relationship, which represented over 50% of the entity’s revenue. Proper cost accounting for products and services can be detailed and time consuming. My experience serving as the Principal of a Private Equity Firm and as a CFO of small and large entities provides a depth of experience and can help with the analysis your business needs to understand revenue and profitability. Please contact Mindy Barker & Associates to discuss your unique situation.