Situation: A company negotiated a contract with a customer giving them a significant price break in exchange for a large committed order with extended delivery. The customer has now come back and requests additional time for delivery and payment on the order. The company has already procured extra material to produce the large order. How do you respond to requests for delivery delays?
Advice from the CEOs:
Response will depend on the company’s history with customer. In the case of a long term customer who pays bills it is best to work with them. Explore solutions to meet them half-way.
Ask for a new commitment to take delivery by a date certain. Request consideration in return. For example, request partial payment up-front to help cover the cost of managing the delivery delay.
Keep the conversation going. Don’t get to point where you alienate a good customer.
If the customer is newer with less history but good potential for future growth, also respond flexibly but ask for additional consideration in good faith to cover your additional costs. As in the case above, request partial upfront payment to cover carrying costs – maybe a larger payment than for an established customer.
If the customer has been difficult in the past, or has been late with payments then the situation is different. There is no assurance that the customer isn’t just gaming the situation. Because the company has already committed resources to deliver the large order, demand an adjustment on price and terms in exchange for the delivery delay.
Whatever the history and situation, it is important to emphasize that you want to work with the customer.
Situation: A company has been using the accrual method of accounting. As they approach the fourth quarter of the year, they are looking at project-based accounting to reduce year-end cash reserves and taxable income. How do you create and manage a project-based accounting system?
Advice from the CEOs:
The PeopleSoft Division of Oracle offers a project-based accounting package. There are a several issues that accompany a shift to project-based accounting: do employees work on more than one project, how do you plan to account for shared services such as administration and Human Resources, and do you plan to share revenue and costs across projects? These can entail a fundamental change in how the company is organized and behaves. If your primary motive is tax avoidance rather than organizational change, why would you pursue this level of change in the organization?
Looking at hundreds of companies with which the CEOs in the group have worked, nobody has seen any that utilize project-based accounting.
The company’s objective is to better understand the various projects that the company manages, and to have revenue travel with cost. A far simpler option from an accounting standpoint is to look for ways to pre-pay future expenses and thus reduce year-end cash reserves.
Another option is a hybrid between cash and accrual accounting.
If you have a strategic reason to pursue project-based accounting, look at firms that serve the construction and entertainment industries. These industries have similar challenges to those faced by the company.
Situation: A company missed production milestones and had to reduce top and line staff by 20% to keep salaries in line with expected revenue. An executive who was very angry about being let go has asked the CEO to meet him for lunch. How do you manage communications with employees post-riff?
Advice from the CEOs:
If you haven’t already, call a company meeting to explain the situation, as well as the rationale for the riff. The company has to manage itself financially in line with current and expected future revenue to assure that it can take care of employees. Explain the connection between production milestones, revenue, and the company’s ability to afford staff. Employees generally understand these connections and will accept this well.
When you have lunch with the executive, first listen to what he has to say.
Anger expressed in an exit interview is part of a natural emotional response to difficult news or change. Listen for signs of ongoing anger or progress toward acceptance of the situation.
If the individual threatens the company or tries to bargain the severance package, don’t negotiate.
However, if the individual is reasonable and asks for assistance in finding a next position – references, introductions, etc. – then offer to assist as you can.
Should the CEO make an attempt to follow-up with others who were riffed?
No. If they contact you, then respond in a similar fashion as you are to the VP, but otherwise don’t try to contact them.
In the Silicon Valley economy, people are familiar that employment situations change and know that as this happens they can be affected.