Ratios | Ceo2Ceos.com

Situation: One of the founders of a company heads business development. This individual had no prior experience in business development, and no other skills to offer the business. Over the last two years he has generated only a fraction of his salary in new or additional business. The CEO has concluded that it is time to hire a business development professional; however, the Board is reluctant to act. What are the steps that you would take to let a founder go? How do you terminate a founder?

Advice from the CEOs:

Because the individual in question is an owner, the situation is delicate. Staff relationships are involved as well as morale. Therefore, it is essential that you create a convincing case for replacing the individual and show that this is the best for the business. Don’t rush the process. However, once you’ve built a solid case for what needs to be done, act expeditiously.
Start by evaluating and documenting what the individual is doing to develop new business. Count customer connects per day. Set a baseline expectation and measure against this. Look at the pipeline. Historically what does your new business funnel look like – contacts, presentations, evaluations, closes. How does this individual’s pipeline stack up? What are his business advancement and close ratios? How do these compare with industry standards?
For the individual: Demonstrate that his performance is penalizing his own return as an owner. Create a spreadsheet that shows: (1) The current situation, and his return as a shareholder from current results; (2) hire two effective business development people, how could this change his return? (3) Show the individual a graceful way out – one that works for him.
For the Board: if the current direction is negative, create a model that shows your current direction and the break even implications. Present this analysis to the Board to show that the company needs a change.

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Situation: The CEO of a company is seeing an upswing in work and backlog, but doesn’t have cash on hand to support the work. The bank won’t increase their credit line. How can they increase cash flow and better position themselves with the bank? How do you boost short-term cash flow to finance growth?

Advice from the CEOs:

First, try to speed payments from customers or delay payment to vendors. Add a schedule of values to contracts to prompt earlier payment. Sweeten early payment terms. Ask for payments up front to cover out of pocket costs. Ask vendors for additional time. They’d rather be paid later than not paid at all and can be surprisingly supportive if approached honestly. Negotiate terms with customers and suppliers in advance. This gives you additional information to take to your bank to support an increase in your credit line. Slow down longer pay term sales by raising prices to finance your cash flow needs.
Study the ratios that your bank requires in your line of credit agreement. Adjust assets and expenses to fit these requirements. Can you time your sales between quarters to smooth performance? Update inventory counts. Look for uncounted inventory. Look at your equipment. Have you been expensing or depreciating it? Shifting big items to a depreciated basis can benefit cash flow statements.
Once you’ve gathered this information, see if your accountant can update or restate recent statements. You may be able to generate enough impact to go back to your current bank or approach a new bank to secure a larger credit line.

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