Tag Archives: Operations

How Do You Best Use Cash Flow Statements? Five Points

Situation: A CEO is familiar with and regularly uses income statements and balance sheets in financial discussions and planning. However, cash flow statements present more challenges, particularly when comparing cash flow over time. A second question is whether cash flow statements are more important to C versus S corporations. How do you best use cash flow statements?

Advice from the CEOs:

  • Most companies use the P&L and Balance Sheet to “stay on top” of the business on a short-term basis. However, these statements do not provide detailed insight into where cash is coming from and where it goes.
  • The cash flow statement represents a tracking tool to highlight trends and make projections about important changes in financial flows. All three financial statements are used to plan and monitor performance against the company’s financial targets. However, the cash flow statement is the most meaningful of the three, regardless of business size.
  • If 1/3 of a company’s expenditures is fixed cost how does this impact planning?
    • Carefully watch changes in volume over time and the impact on cash flow before deciding to expand.
    • When deciding whether to commit new resources it may be wiser to allow finances to be stretched for a while or even to turn down some marginal business opportunities before committing to a new layer of expenses.
  • The cash flow statement is not really affected by the corporate structure, since its three areas of focus – operations, investment, and financing – are common to all three.
  • Business is getting more complex. It really pays to understand the key elements that drive the business, and their impact on cash.

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How Do You Continually Raise the Bar on Personal Performance? Five Points

Situation: A CEO is continually focusing on company performance to improve results and efficiency. At the same time, she wants to assure that she is always raising the bar on her own performance as an example to both management and employees. What advice do you have for this CEO? How do you continually raise the bar on personal performance?

Advice from the CEOs:

  • Take a lesson from Marcus Buckingham’s book – Now Discover Your Strengths. The Gallup Organization is a leader in social science research on performance. Rule #1 is to focus on improving and sharpening strengths, not on overcoming or improving areas that are not so strong.
    • Look for ways that your strengths complement each other and build on these combinations. This will naturally raise performance and will also bring greater satisfaction.
  • Build personal objectives that will help to sharpen your strengths.
  • Conversely, develop work-arounds for those areas which are not as strong. Look for talent among the others in the organization that address areas where you are not as strong.
    • Have them assist you in work pertaining to these areas.
    • They will enjoy this work because it complements their strengths, and the company will gain the results that are needed. It also allows them to excel in areas where they are the strongest.
  • Take time to reflect and to recharge your batteries. Check your direction and make sure that you are heading in a direction that compliments your long-term goals.
    • Make sure that you are focusing on the right priorities for YOU.
  • Find a mentor – in or outside of your industry. Someone with experience who can provide you with guidance and clarity as you address both day-to-day and long-term challenges.

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 Find the Right Funding Source? Six Solutions

Situation: A company is short of cash and needs a source to fund their cash flow needs. Their needs are mapped out for the next four years and they can fund current operations for a few months. However, their bank will not extend their credit line. How do you find the right funding source?

Advice from the CEOs:

  • Try another bank. Ask friends and contacts about their banks and see if they’ll refer the company to their bank.
  • Explore renegotiating the company’s lease to ease the cash flow needs.
  • Explore renegotiating payment terms with suppliers. See what can be worked out. The bottom line – if the company goes Chapter 7 or 11, they get nothing.
  • Consider going to a larger company and working out an arrangement.
    • Ask that they allow the partners to operate as an “independent” entity retaining their titles.
    • In exchange for funding the company’s cash needs, the larger company shares in the profits.
    • Seek a temporary arrangement to allow the company can get back on its feet financially.
    • Use the friends and reputation that the company has developed over the years. The company is a good outfit and respected. Others may help if asked.
  • A similar tactic is to approach a larger company to negotiate an arrangement that will allow the company to survive. Start with a business plan.
    • Highlight the company’s reputation and the quality of its products. Use references from highly satisfied customers.
    • Highlight the company’s key strength – developing the critical path and plan for a successful project.
    • The thrust of the presentation: the partner gets a quality team and shares in the profits from projects completed. The partner provides the cash to fund the projects. Compare the risk and return on these funds compared with other investment options available to highlight the value of the proposal.
  • Other CEOs shared similar situations that have worked for them.
    • The financial realities were kept secret from staff, customers, and competitors.
    • All unnecessary expenses were cut.
    • The focus was on making money today.
    • Supplier payments were delayed as necessary to manage cash flow.
    • The process was managed creatively, sometimes with the assistance of friends, and the companies were able to prevail.
  • There is no shame in facing and dealing with this problem. Determination will pay off.

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What Are Your Five- and Ten-Year Plans? Five Points

Situation: A CEO is considering her exit strategy between five and ten years out. She wants to do what is best both for her, the company and her employees, assuring that both personal and company needs are met and the company is ready for transition. What are your five- and ten-year plans?

Advice from the CEOs:

  • The personal side and the company’s future are closely linked. The solutions and strategy must fit both the CEO’s priorities as well as those of the company. By looking at the CEO’s role, the current and future needs of the company, and any changes that need to be made, the CEO is preparing for an eventual exit.
  • The CEO must decide what lifestyle she wants – both as she prepares for eventual exit and as she prepares the company to continue under new leadership.
    • She must decide what she wants to do with her time in an ideal world. What will make her happy as she prepares for the future?
    • This must be considered both for herself and her business partners. Have conversations to align both business and personal expectations.
    • Conduct a strategic planning retreat on the future of the company as well as the transition of leadership.
    • Have a talk with significant others to align personal expectations.
  • What changes in leadership are necessary to implement the plan? What are the key roles and who will fill them? What is the succession plan for each key role? Are current personnel in place to fill these roles, or is additional hiring and training necessary?
  • Consider an ESOP or a virtual stock program to enhance employee incentives and sense of ownership in the company’s future.
  • Decide what exit means on a personal level.
    • Transitioning from founder to leader gets the CEO more involved in the company.
    • Meditate on priorities and engage in ongoing discussions with key personnel to jointly plan the future.

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How Do You Plan for Expansion? Four Considerations

Situation: A growing company needs new space for operations and back office functions. They have grown steadily over the last two decades. Prospects for the future are positive. Options include expansion near their current location or to another, lower cost city. The CEO is also considering whether to sublease space or rent. How do you plan for expansion?

Advice from the CEOs:

  • Consider whether the company needs to expand in one step or whether it is possible to expand in stages. Also consider whether functions will benefit by being close to the primary base or whether, using Internet and telecommunications, the new location can be remote. This requires a careful analysis of not only the company’s functions, but also the strength of the management team and the willingness of key managers to relocate.
  • There are trade-offs between subleasing and working directly with the landlord.
    • The landlord will generally offer market rates, but the company gets to determine the terms and term of the lease.
    • Subleasing can save money, but the company is then at the mercy of the priorities of the tenant from whom they are subleasing. When things get busy, the company may disrupt the operations of the tenant. In another company’s case this resulted in a forced move with 30 days’ notice at the end of their sublease term.
    • Consider the cost of both moving and having to re-outfit the space to meet the company’s needs against the savings from subleasing.
  • Consider leasing a larger space, one which is convenient and enough for the company’s needs, and then subleasing excess space until it is required. This may cost more short term, but it puts the company in charge of their own destiny regarding space availability and utilization.
  • Another option is to buy a building and sublease the excess space until it’s required for company operations.

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How Do You Create a Value Proposition? A Three-Round Process

Situation: A company wants to effectively position itself for a recovery. The CEO believes that it is time to sit down with his team and focus on those areas which will help them to emerge during the recovery not only stronger than they were when the recession started, but ahead of their competition. How do you create a value proposition?

Advice from the CEOs:

  • Creating your Value Proposition starts by analyzing and understanding your most important strength. Is it Product Leadership, Operational Excellence, or Customer Intimacy?
  • No company can succeed today trying to be all things to all people. Choosing one discipline as your most important strength is the choice of winners.
  • To set your Value Agenda, ask your team “How do we compete and win in our marketplace?” This is not a single discussion, but requires three rounds – best done as three different sessions.

o  Round 1 focuses on understanding where you stand in your marketplace.

o  Round 2 focuses on understanding what your customers perceive as your “unmatched value.”

o  Round 3 focuses on building an operating model that enhances your unmatched value and helps to consistently communicate this to your clientele.

  • Once the three rounds are completed, formulate the top findings of each round into your Value Agenda for the company.

o  A Value-Driven Operating Model gives your company the ability to deliver on your Value Proposition.

o  Your Value Discipline is the combination of operating model and value proposition that will allow you to be the best in your market.

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How Do You Work With a Protector? Three Thoughts

Situation: The CEO of a company has a Director of Operations who aspires to more professional responsibility, but who is also hesitant to take on more work. This conflict in the mind of the Director poses a challenge for the CEO. How should the CEO work with this individual?

Advice from the CEOs:

  • Key managers in certain roles, for example operations and finance, are naturally more conservative in their outlook. Often this is desirable for the role and is characterized as protector behavior in contrast with the ambitious entrepreneur’s builder behavior. These complimentary behaviors are essential to a successful enterprise – the builder to push the envelope and the protector to assure that the company’s resources aren’t stretched too thin.
  • Take the time to determine the source of hesitation by asking questions. Is it because the individual is meticulous and precise, or is there something else behind the hesitation? If the former, then a plan of action will enable the person to assess whether the next level of responsibility is in line with his or her expectations. If there is something else, work with the individual to define what this is and whether it is a barrier to additional responsibility or a temporary situation that can be alleviated.
  • Because this individual aspires to additional responsibility, be precise in explaining the demands of the next level position and the performance that you expect at this level. Develop a plan and objectives that will demonstrate whether the individual is ready to take on additional responsibility or not. For the meticulous, precise individual the plan will serve as confirmation of what is expected and will help him or her determine whether they are ready for more responsibility.

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How Do Identify and Bring In A COO? Five Suggestions

Situation: A company’s Board is pressing the CEO to hire a COO to oversee operations. The Board’s concerns include succession planning for the CEO and a desire for the CEO to put more focus on the vision and strategy of the company. There are no current candidates within the company. How do you identify and bring in a COO?

Advice from the CEOs:

  • Think beyond roles and responsibilities and consider how you would describe the ideal candidate. This includes attitudes and behaviors, talents, experience, and essential skills. Map these attributes and use them to guide your recruitment and selection process.
  • Increasingly, companies are using a values-based process to evaluate personnel both for promotion and outside selection. Tony Hsieh of Zappos talks about this in his book “Delivering Happiness.” This doesn’t substitute for skills and experience, but helps to identify candidates who will help to strengthen your company’s culture.
  • Assure that you have a full process in place that will help you to recruit and select a good candidate. If it has been a while since you last recruited a high level executive, consider securing outside resources to assist. One of the CEOs even hires a 2nd expert to vet the recommendations of the primary expert.
  • Where can you look for good candidates?
    • Talk to your key vendors about who is really good in the industry. Look for a high potential individual in another company who doesn’t have room to grow in their current situation.
    • Also look at related industries where there will be cross-over knowledge and skills.
    • Don’t overlook the military. Talented officers are regularly rotating out of the services – people who have exceptional experience leading and motivating people.
  • On-boarding a new senior executive is different from a lower level employee. If you choose the right individual and they fit your culture, this will ease the process. Be aware that some of your current senior employees will likely be upset that they were passed over and may be difficult. If you haven’t done this in some time, it is worthwhile to secure counsel on the best ways to bring a new COO on-board.

Key Words: COO, Operations, Succession, Candidate, Role, Responsibilities, Attitude, Behavior, Experience, Values, Process, On-Boarding

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How Do You Land Your Next Big Customer? Six Suggestions

Situation: A small company wants to land one additional large account per quarter. They utilize an array of marketing activities but aren’t sure where to concentrate their efforts. From your experience, how do you identify and land your next big customer?

Advice from the CEOs:

  • Landing large accounts is more of a relationship game than a marketing game. Develop a list of targets. Determine who you want to approach as the key decision maker, and work your own network and those of friends to gain a personal introduction.
  • If you and your principal target customers have operations overseas try to develop relationships between your and their overseas managers. Social networks abroad can be more accessible than in the US.
  • If you plan to introduce a new product or service, ask current customers whether they know of anyone who might be interested. This can prompt their interest or get you a significant lead.
  • Once you identify potential targets, conduct third party surveys of their industries. These can yield valuable insights into your targets’ organization and needs and help you better position your offering.
  • If a target customer has multiple divisions, initiate a relationship with a single division first and then leverage this relationship to develop additional business across the company. A number of small companies have figured out how to do business with multiple divisions of a single large company.
  • Trade shows are underutilized by many companies. Schedule meetings with target contacts In advance of the show. Even a simple visit to their booth can lead to a significant meeting. If you have limited resources, simply register as an attendee and use the show to network with potential customers.

Key Words: SMB, Customer, Acquisition, Networking, Social, Relationship, Overseas, Operations, Survey, Trade Show

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