Category Archives: Finance

Where Do You Focus to Build a Strong Company? Four Considerations

Situation: A company has just hired a new CEO. Historically the company has focused on high quality and good customer service but has lacked good financial management and has experienced financial difficulties. As a result, they could not support their staffing needs. Where do you focus to build a strong company?

Advice from the CEOs:

  • Critical areas where the CEO should focus:
    • Quality – assuring that the company continues to produce high quality products.
    • Customer service – assuring that the company continues to offer excellent customer service.
    • Quality and customer service must remain one and two, though they can be in either order.
    • Financial soundness; but not so focused on the bottom line that either quality or service suffer.
  • How do you achieve or maintain focus on these areas?
    • High quality and good customer service are already well established.
    • What has been lacking is sound financial management. Evaluate whether the right people are in place, and what financial and financial record systems are in use. If expertise is needed, bring in an expert to evaluate both personnel and systems and recommended changes that need to be made.
  • What other important factors should be the CEO’s focus?
    • Ethics – particularly when evaluating the company’s financial system, assure that both people and systems support a strong and reliable department. This may result in some hard decisions that are necessary to turn the situation around. If this is the case, be determined but fair.
    • Sustainable business practices – assure that any new practices that are instituted are sustainable. Look at case studies of similar companies that have turned themselves around.
    • Fun – an enjoyable workplace as far fewer issues than one that is difficult. It is important to build strong teams, and to give them the autonomy necessary to do their jobs well without overly taxing team members.
  • Build a company that has a good balance between the first 3 critical factors. When new hires are necessary look for people with an established track record and business background who also have strong ethics.

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How Do You Expand into a New Market? Four Points

Situation: A company is interested in expanding into new market. The CEO notes that they have little experience in this market, but it is lucrative, and they believe that their technology has effective applications in this market. How do you expand into a new market?

Advice from the CEOs:

  • If the new market is technical it is important to identify the standards that govern production in that market. Examples include ISO 9000 processes and 13485 ISO Medical Standards. Start work on these now to assure that the products and services under development meet market standards.
    • While it will take effort to become ISO compliant, this investment will bring significant benefits in terms of regularizing all the company’s processes and procedures.
    • There may be some early resistance, but the long-term benefit is worth the pain.
    • Being ISO certified helps the company to sell its services. Many clients will not consider the company as a serious vendor unless it is ISO certified.
  • Pull in an outside consultant to do a quick gap analysis between where the company’s current procedures are and where they need to meet the standards.
  • Will ISO certification provide a competitive advantage?
    • It will never disadvantage the company and may provide a competitive advantage with customers.
    • Use Blue Ocean Strategy to create a new advantage for the company around ISO certification.
    • Industry will eventually require vendors to increasingly become ISO certified. If the company is already there it will be ahead of the curve and may be able to gain a premium price for its products and services by being there ahead of others.
    • European and International companies increasingly insist on ISO certification – they are ahead of the US.
    • Create a Market Road Map. Identify the markets that the company could serve. Look at the requirements for doing business in these markets. It may be possible to find additional leverage in ISO certification that will allow the company to enter additional markets with minor incremental additional cost.
  • Will ISO certification add an additional cost structure to the company’s services?
    • Under ISO, a company can have both ISO and non-ISO projects. Company standards will simply identify which projects are which and when non-ISO standards apply. Standards can be changed under ISO as new non-ISO opportunities arise. It is just a matter of updating procedures.

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How Do You Sell an Onsite Business? Five Perspectives

Situation: A company has several locations for its operations. One is onsite at one of their principal customers where they perform services for the customer. The rest of the business is pursuing a different direction, so the CEO wants to sell the onsite business and focus all efforts on the main business. How do you sell an onsite business?

Advice from the CEOs:

  • Do onsite business (OS) personnel identify themselves as part of the company or the customer’s company?
    • The older personnel themselves as part of the parent company; the new engineers see themselves as tied to the customer which is far larger and enjoys broad and positive brand recognition.
  • Now may be the time to sell from a price perspective. Companies are hungry for revenue sources and experienced personnel. The price that they would pay for the OS business is small change for them.
  • The decision comes down to price – can the company get the right price at the right terms?
  • Consider this alternative – break the OS off into an independent entity. Make it a separate company with own managers.
    • This allows the sale of the OS to be set up with its own operating rules and incentives, independent of the company’s other operations.
    • This move queues the company up for whatever is possible – ongoing operation or possible sale to a buyer. It also simplifies the sale scenario as OS would be a stand-alone unit, with its own personnel and management structure. There may be some shared infrastructure services with the company’s other locations, but these are services that would be taken on by the buyer using their own systems.
    • An option is to give stock to the managers of the OS – a piece of the pie to encourage them to stay on.
  • Given the company’s strategy and direction, investing additional funds in the OS doesn’t make sense. Selling and keeping the money makes more sense if the company is ready for this and feels that there is little or only a limited future for the OS business.

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How Do You Handle Open Issues from a Sale Agreement? Three Thoughts

Situation: A CEO has closed the sale of a significant company property. Due diligence was completed and was satisfactory, but the purchaser now wants to renegotiate the price. The CEO is concerned that if she yields on the price, the buyer will come up with additional changes that will further disadvantage the sale. How do you handle open issues from a sale agreement?

Advice from the CEOs:

  • One member had a similar issue following the sale of a previous company. The decision was that the price at the time of close was the price. The buyer had full opportunity to perform due diligence which would have uncovered any open issues. Condition at time of sale is “buyer beware,” which is why they were allowed a full due diligence.
  • The sale was “as is” including assumption of current debt on the property. It appears that the advantages to the buyer that are anticipated through the purchase will more than offset the impact of the existing debt. As a result, the buyer is, on balance, better off than they had anticipated. Thus, there is no need to yield on price.
  • On the timing of events that may not occur – an indirect cost audit by the company’s prime agency should this be necessary – there is a question of the financial impact to the company.
    • There is a default date on the final payment that could be held up by the negotiation, but the impact is not significant to the company.
    • Otherwise, the company’s interests are covered by the sale agreement.

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What are the Options for Your Next Phase? Six Suggestions

Situation: It’s a new year, and a CEO is thinking through options for the coming year and beyond. She has decided to leave her company and establish a new role and career for herself. Immediate concerns are funding the transition and entry into a new career. What are the options for your next phase?

Advice from the CEOs:

  • The area that can be built most quickly to provide income is a consulting practice based on the experience developed as a CEO and as a specialist leveraging past experience. Building a new practice is a big commitment. Make this the initial focus and get a few gigs to get the ball rolling. The company is an early option, as well as some of their key customers. These relationships are already in place.
  • On the academic side, investigate Executive Education programs in Business Schools. Here the clientele is different from normal undergraduate and postgraduate education – actively working managers and executives. For this audience the combination of experience as a CEO and academic credentials is advantageous. For this audience, a lack of credentialed teaching experience is largely counterbalanced by the weight of professional experience.
  • The Professor / Consultant track looks best if established as a 5-year plan.
  • While getting established in a new role there will be an initial challenge managing the time demands of teaching, research and developing a consulting practice. Think of this as managing the multiple functions of a company. It will be important to establish early priorities to accomplish the desired plan.
  • A professorship does not necessarily tie financially to current goals but can be an important strategic adjunct to consulting efforts. In a certain sense, teaching will have to be its own reward.
  • To the extent possible and depending upon how the board responds to the decision to leave the company negotiate the best possible severance package. This can tie into some of the suggestions, above.

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What Do You Manage as You Adapt to Market Conditions? Four Points

Situation: A company is in the process of adjusting its customer and business focus in response to changing market conditions. Gross margin on projects that have been the company mainstay in the past have fallen significantly. The CEO is evaluating different adjustments to address this. What do you manage as you adapt to market conditions?

Advice from the CEOs:

  • The company’s business model is shifting from a staffing agency to a product development model. This means that the business must be driven by a different set of parameters and metrics:
    • A different time/utilization mix.
    • Different personnel – the company needs managers.
    • Changes to the organizational chart and incentives.
  • How does the company currently charge clients for Project Management?
    • Currently it is time and materials.
    • Consider charging on a percent of project cost basis. For example, 15% of total project cost. The pitch will be that the client will be able to reduce the overall cost of the project – ideally in both dollars and time – and that the company will have increased accountability for delivering these results.
  • How will this impact the company’s cash position? How will the company retain adequate cash flow during the transition?
    • The current cash position is 4 months of projected monthly cash plus receivables.
    • If there is drop to 3 months, flag a yellow caution light.
    • Two months becomes a red light.
    • What is the backstop if the company runs shy – if, for example, some engineers are not very active? In this case, will deferral of unpaid vacation time and other options allow the company to survive without further draining cash? Have a meeting with key managers to evaluate the impact of this option.
  • Consider looking at competitors for possible collaborations. This can be delicate because they may want to steal the company’s personnel and there are other risks, but sometimes promising deals can be arranged.

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How Do You Build and Develop the Right Team? Four Points

Situation: A CEO has two issues. One concerns her COO about whom she is receiving complaints from staff as new processes are implemented, and the other is beefing up the sales team. On the latter issue she is concerned about both her ability to pay the high-level seller-doers that are needed to support growth and potential turnover. How do you build and develop the right team?

Advice from the CEOs:

  • The COO has already put the right process in place. Coach this individual to lighten up and allow everyone to adapt to the new regime.
    • As new processes are implemented coach him not to implement them rigidly at first. Allow people time to get used to the new process. Allow some flexibility in implementation so that the new processes can be adapted to the individual styles of the key players.
    • Over time tighten expectations gradually until each process is fully in place and running smoothly.
  • Have the COO communicate to the company that it’s growing, the focus is now on hiring, and the task facing the company is revenue growth.
  • For new salespeople, the investment cycle can be 6 months to full function.
    • In the mix of salary and bonus, weigh the bonus side heavily – the side that won’t become payable until the new individual produces.
    • This becomes an incentive for new salespeople to get up to speed quickly. It also helps to weed out those whose talents aren’t as sharp as they represented in the hiring process.
  • The salespeople are the key marketers for this company as well as the rainmakers and producers. It may be necessary to commit to this investment to ensure future growth and adjust the company’s annual earnings forecasts accordingly.

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How Do You Control Insurance Expense? Four Options

Situation: A CEO has seen the expense of employee benefits, particularly the cost of health insurance, grow higher than the inflation rate in recent years. There are no indications that this will be reduced. Employees appreciate their benefits, and in the current environment the CEO is hesitant to reduce them. What alternatives are available? How do you control insurance expense?

Advice from the CEOs:

  • To control rises in healthcare benefit costs, consider offering high deductible health insurance combined with company contributions to HSA Accounts. This combination can be less than current health coverage and may reduce the cost inflation of these benefits.
  • Another alternative is to raise the deductible on medical insurance provided but cover the deductible differential for employees.
  • Consider a benefits administrator to assist in putting together a benefits package to reduce costs. There are many alternatives available.
  • Another big expense is Workers’ Comp (WC). The group shared strategies to control WC expense. Investigate those that apply to the company’s business model.
    • Make sure that the company is coded in the proper category – if not the company may be paying a higher rate than required;
    • Develop a proactive company safety policy, with documentation – this can gain discounts from some insurers;
    • Industry or trade associations have developed ADR components for association members to help control costs;
    • Investigate eliminating the medical coverage component on auto insurance for company cars that employees use to drive home. This may already be covered by WC;
    • Shop insurance providers for WC coverage – some will quote more competitive rates to get the company’s business;
    • Challenge the amount of WC reserves that are required for outstanding WC cases – the insurers may be assuming an excessive reserve to cover contingencies and charging the company for this excess;
    • If the company’s insurer is maintaining an employee on the WC list pending resolution of the claim for an excessive period, push them to resolve the case quickly;
    • Eliminate optional employees (e.g., officers) from WC coverage.

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What Is Your Bonus Plan This Year? Four Thoughts

Situation: A CEO is thinking about the end of the year and bonus plans for his company. It has been a difficult year between remote work and workplace COVID restrictions for those on-site. Recent moves by public and large private employers to mandate vaccination has some employees worried. The latest inflation reports are also of concern to many employees. The CEO wants to retain as many staff as possible. What is your bonus plan this year?

Advice from the CEOs:

  • The CEO queued up a suggestion of a bonus in the 8% to 18% range depending upon performance on top of 10% 401K contribution. Several others agreed.
  • One CEO said that in a good year they award a 6% 401K match plus a bonus range of 10 -18% for non-commission personnel. They don’t offer bonuses for commissioned salespeople. Support staff get an 8-10% bonus.
  • Another CEO suggested that the CEOs plan was possibly over generous with a 10% 401K contribution. Given the current economy many employees may prefer cash.
  • This has been an exceedingly difficult year for most businesses with myriad challenges. As the economy reopens it will be as critical to hold on to high performing employees as it is bringing back previously laid-off employees or attracting new employees. Think in terms of recognition for those who have helped the business work throughout the year in additional to bonuses.

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How Do You Focus on Doing Things Right? Seven Recommendations

Situation: A CEO is concerned that her company is not as efficient or effective as it could be. Of the key activities where the company is focused, few have any obvious connection to the customer or the customers’ needs. How do you focus on doing things right?

Advice from the CEOs:

  • Create a set of cost graphs to parallel the company’s revenue graphs. If these are put side by side, does it indicate that the company is doing some things that add relatively low value and profit? What happens if resources are shifted away from less valuable activity?
  • Concentrate resources on doing one profitable thing well. Become best in class at this one thing. This may both increase the value of the firm and help to focus future development.
  • Bring in a senior level marketing research person or marketing manager with marketing research experience to determine what the customer wants, how should the company compete, and what current customers may be willing to pay for its software.
  • Strengthen the primary product – it represents 90% of sales. This is where the company has the best understanding of both its customers and the market. Look at what it takes to become enterprise wide with the company’s largest customers. Expand vertical capabilities and build $1 million accounts to $5 million a year.
  • The company already has a diverse group of clients, many of whom are huge.
    • How deep is the company in each of these clients? It may be easier and less expensive from a sales standpoint to go deeper into these clients than to bring on new clients.
    • Look for ways to make current $1 million clients $5 million clients by selling what the company currently sell to more of their divisions and locations.
    • The key to executing this strategy is to listen closely to what clients’ needs are and adjust or customize the offering to better meet their needs.
  • Focus on solutions and reduce the cost of solution implementation. Consider becoming more vertical in one key implementation and become the best at that.
  • Create a relevant framework for the company’s strategy. For what purpose is it necessary to do the right thing? If the purpose is to exit in 2 to 3 years, this yields a very different strategy than if the objective to dominate the company’s market in a 5 to10 year period.

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