B2B CFO^® (602) 296-6888

I’m often asked by prospective clients, bankers, CPA’s, attorneys and other referral sources about the differences between a B2B CFO® and other temporary or interim solutions such as Tatum or similar type firms.

Usually I start out by simply stating that we (B2B CFO®) are a “long-term, part-time” solution where as Tatum or other interim solutions are a “short-term, full time solution”.  After that statement, I then start articulating how we differ in our service and client relations approach.   And believe me folks, there is a huge difference between a B2B CFO® Partner and other solution providers.  Below is a list of the primary differentiators between B2B CFO® and others.

1.    Part time (long term) at B2B CFO® vs. Interim/Temporary (short term) at Tatum and others.

2.    Handshake agreement with B2B CFO® vs. Signed Contracts with others.

3.    No hidden fees at B2B CFO® vs. several termination fees or transition fees with other firms such as Tatum

4.    Small to Middle market focus at B2B CFO® vs. Big game hunters at other firms such as Tatum

5.    Cash Approach at B2B CFO® vs. some obscure terms such as Financial and Technology Services at other firms.

6.    Partner Collaboration Support at B2B CFO® vs. Employee Based at Tatum and other firms.

Finally, I like to convey to my prospective clients and referral sources that our Partners at B2B CFO® are building long-term practices similar to CPA firms and it is our goal to have a roster of satisfied clients as opposed to being a temporary solution or project based consultants.

At B2B CFO® we genuinely care about our client's success and we want each and every one of our clients to realize their dreams.

Cash. We Help You Get It.

My last blog discussed what I would put in “My New Book” if I were to write one.  This year’s Blogs will follow this theme and this month's blog deals with the topic “The Role of the CFO”.

Why does every business regardless of size need a CFO? To answer that question, we will look at the role of the CFO and relate that role to the requirements of all businesses, regardless of size!

Control Function

The first area is known as the control function. This area is generally operated by accountants known as, are you ready for this, Controllers.  This function is primarily responsible for the accuracy and timeliness of the financial reporting of the organization. They oversee the system of internal control and assure expenditures are properly authorized, and that internal controls are functioning as designed. Checks and balances, assuring proper authority and assuring transactions are properly recorded are all part of this area of responsibility.

So does your company have an adequate control function? Here is the test:

1)      Are your financial statements produced monthly without errors?

2)      Do your accounting processes adequately segregate duties that would minimize the chance of an intention or unintentional error or irregularity going undetected?

3)      Do you have a good understanding what the numbers mean?

4)      What interpretation of the numbers do you have? Need?

These are but a few of the functions in the Control Function that a CFO typically oversees. Further as mentioned last month, this function provides the information required to perform the next function, Finance.

Finance

Finance is the function that assures the business has the capital required to meet the business plan. Using the financial statements prepared by the accounting department control function, the Finance function forecasts the needs of the business and is responsible for assuring the organization never runs out of cash, no matter what!

Short term, medium term and long range cash forecasts are needed that reflect the planned growth of the company. Finance assures that the bank facilities are in place and perhaps even equity capital is raised if necessary.  

For example, if the company is growing rapidly, do you have the necessary financing to add inventory, carry additional trade accounts receivable and add people? If not, you will run out of cash!

So who is watching your company’s finances? Who has the expertise to forecast the future cash needs and put in place a strategy to assure those needs are met? Who knows what type of financing is needed, long term, working capital, mezzanine?

 Treasury

This area is tasked with the safe guarding of assets.  It includes areas such as investments, investment type and safety, insurances such as property and casualty and accounts receivable, cash management strategies including yield management and utilization of banking tools to assist in automating as much of this strategy as possible. This are works in harmony with the control function to assure that all assets are protected and risks minimized as practicable.

This role typically involves establishment of customer credit policies, extension of credit, executes notes of indebtedness and the protection and custody of funds.

So again, in your company, who is fulfilling this function?

In large companies, these functions are all filled with individuals. In your company, these may all be filled by you, the founder, owner, CEO, chief cook and bottle washer! And if that is the case, the next question is how do you get the Job of the CEO done while simultaneously wearing the hat of the CFO. Do you have experience in these areas? Are they getting done well? And if you are doing these things, who is spending time with your customers?????

All of these areas are required to run any company, regardless of size and accordingly all companies do need a CFO!

Editors Note: Hopefully this amplifies last month’s entry that discussed the difference between finance and accounting. All of these roles fall under the auspices of the CFO, who is yours?

Entrepreneurs who seek to maximize proceeds from the sale of their company need to be proactive in defining objectives, identifying options and developing a thorough understanding of the many elements of the sale process. Being well prepared will position your business to minimize the risks and maximize the potential rewards, by avoiding the most common and costly mistakes.

Most business owners are focused on the day-to-day challenges and activities associated with running the company and are not experienced in the business sale process, which is typically a once-in-a-lifetime event. This can lead to critical mistakes that, if prepared for, can be avoided. The time to experience the learning curve is not when selling one of your most valuable assets. Lack of proper preparation and not utilizing the right professional transactional advisors can lead to a less than desirable financial yield from the sale.


The following are some of the common mistakes to be aware of:

Failure to consider all options in advance

Exit planning takes time and requires clearly defined objectives with careful consideration of appropriate options. An array of alternatives are available for consideration when structuring a business sale, including: retaining an equity stake in the business, selling to employees, identifying a working or investing partner, and other hybrids. There are several types of acquirers, including: strategic acquirers, financial buyers and private equity groups. Which acquirer type is the most appropriate? Which would likely perceive the highest value for the business? What is the owner’s preference for future involvement with the company? Advance consideration of these questions and options will increase the likelihood of creating an exit strategy that will achieve your criteria and goals.

Realistic valuation expectations

An inflated valuation or unrealistic expectation will turn off quality potential buyers. Owners that attempt to handle the sale of their business, with no “market value” reality, will jeopardize the potential to sell. There is typically “one bite at the apple” and once the opportunity is squandered, it is very difficult to subsequently re-approach qualified acquirers that already have a bad taste from their previous experience. Approaching the market with unrealistic pricing expectations can waste months of valuable time, cause you to lose focus on the business, jeopardize confidentiality and burn through qualified buyers. An owner should rely on a professional business intermediary to provide a business value analysis in advance, which provides a range of values likely to be achieved if a transaction were pursued at a particular point in time. This enables you to make an informed decision by determining if your valuation objectives are aligned with marketplace reality. If not, an intermediary can provide suggestions for you to implement that can subsequently better position the business to attain your goal.

Run the business as if you were going to own it for the long term

Avoid becoming fixated on the transaction. If your attention waivers from the day-to-day demands it can negatively impact sales and profitability. The sale process is typically a protracted period and a buyer needs to know that they are acquiring a business that continues to perform well as the closing approaches. Even with five consecutive years of strong historical earnings, if the interim financial performance during the sale process demonstrates erosion, the acquirer can be concerned that there are negative changes impacting the business that may be your underlying motivation to exit. It is critical to drive the business harder than ever during the crucial business sale period. Utilizing a professional business intermediary enables you to focus your efforts and attention on running the business and maximizing its performance, with a comfort level derived from knowing that the transaction process is being professionally managed.

Confidentiality

It is very difficult for a business owner to handle a transaction directly without compromising confidentiality. With professional representation, it is rare that competitors, employees, vendors or customers will become aware of a pending transaction. Intermediaries typically present the sale as a business opportunity without identifying your specific company. A breach of confidentiality surrounding the sale can change the course of the transaction and have a negative impact on the business.

Advanced preparation

Advanced preparation increases both the probability of selling a business and the valuation that will be achieved. Certain things may require years of advanced preparation such as introducing new products or targeting new markets, while other important initiatives only require short term planning and preparation to best position the business for sale. Areas include having current and well organized books and records; anticipating and addressing any environmental concerns; negotiating critical lease extensions; eliminating non-utilized equipment and inventory; cleaning-up the facility so it presents well; and, anticipating and being prepared to answer probable acquirer questions. It is important to understand what information a buyer will require and have it ready for presentation in advance.

Not seeking the right professional advice

The sale of an entrepreneur’s business is frequently the largest and most important financial event of his or her life – for most, it is a once-in-a-lifetime event. The successful sale of a business requires a carefully planned and methodically structured process during which each step is handled correctly the first time in order to maximize the financial reward. Owners are experts at successfully running their companies, but few are prepared to navigate this complex process; therefore, they are at a distinct disadvantage when attempting to properly present the intangible values and negotiating with experienced strategic and financial buyers. This is vastly different than typical negotiations that are part of day-to-day business. A professional intermediary provides invaluable advice, support and representation – most importantly, the benefit of experience that can make the difference between a successful transaction and a missed opportunity.

Selecting the wrong buyers

All too often business owners will focus on prospects they already know – vendors, customers, employees or competitors. Buyers such as these frequently lack the means and motivation to pay what a company is really worth compared to more sophisticated buyers who have strategic acquisition goals and are willing to pay accordingly. In contrast to local buyers, or those known to the business owner, some of the most qualified are often among the most unforeseen. For example, companies – both public and private – often pay premium prices to acquire seemingly ordinary businesses that offer a synergistic advantage to their current operations. For many, private equity groups are among the most desirable potential buyers. Foreign buyers also play a role in realizing optimum value for U.S. companies. A business owner is not typically intimate with these markets and therefore may miss out on an opportunity to maximize the transaction.

Improper or incomplete documentation

Documentation prepared from the perspective of potential buyers can present a company’s past as a valuable, saleable future. Complete and well-prepared documentation will reflect a realistic, defensible foundation for the company’s value and substantiate buyer expectations of future earnings and return on investment. This will provide a basis for meaningful comparison with other investment opportunities and present a detailed, accurate and strategically compelling portrayal of how the business is likely to perform in future years. The documentation provided to a buyer should highlight the intangibles of the business as well as key expansion opportunities that the business is positioned to capitalize on.

Providing undefended financials

A common mistake is to provide potential buyers with internal or accountant prepared financial statements and corporate tax returns. This is a fundamental error. Financial statements are prepared for tax purposes, not for business sale purposes, and do not accurately reflect the true profitability and potential earnings capability of a business. Proper interpretation and presentation of financial information is a critical step in the sale process. Acquirers must be presented with an adjusted or “recast” format, to ensure that they are able to “read between the lines” of the financial statements and tax returns to appreciate the total discretionary pre-tax income that would be available to them. Failure to properly present true “recast earnings” reduces the perceived value of a company. When reviewing financial presentation, we analyze more than 60 potential recasting adjustments.

Dealing with a single buyer

Without multiple buyer prospects, a seller has fewer options and limited leverage in terms of obtaining the desired price and terms. Multiple buyers in the mix will create a competitive environment and instill a sense of urgency into the buyers involved. When there is one buyer candidate the buyer is in control; when there are multiple potential acquirers, the seller is in control. Having multiple options increases negotiating strength by creating less dependency on any one potential acquirer, while the perceived competition drives up the purchase price. Providing a fall back position in the event that a particular negotiation derails for any reason, increases a seller’s leverage throughout the process and avoids the pitfall of having to restart from the beginning. Experienced buyers are less likely to attempt to take advantage of a situation if they perceive that there are additional interested parties and professional representation.

Focusing on the past

It is common for business owners to focus on past performance when valuing a firm and presenting its attributes. Conversely, acquirers primarily consider strategic or synergistic acquisition goals and base their decisions on the company’s future earnings potential and its ability to produce the desired return on investment. Business owners seeking to maximize value should explain the past and sell the future, along with any initiatives that are in place but have yet to be reflected in historical earnings, along with potential synergies derived from the acquiring company. It is important to present specific expansion strategies that could be implemented going forward. This will build value and increase the interest level of acquirers.

Mentioning a selling price

Whoever mentions price first oftentimes loses. For sellers, it pays to focus on value – a company’s optimal earnings potential and future return on investment. This focus, in combination with a carefully structured growth plan that properly positions the business in the marketplace, accurate and compelling documentation, access to the right buyers and favorable timing, will serve to determine optimum market value — what a buyer is willing to pay. Always let the buyer present an indication of value. This is a good barometer to determine if they have been properly educated to the intangible values, acted in good faith, and are the type of people you want to form an ongoing relationship with. This also offers the potential to be pleasantly surprised by their offer.

Transaction momentum

One of the biggest transaction killers is the loss of momentum during the sales process. Anticipating the information a buyer will need and issues that may potentially bog down a transaction can avoid major slowdowns in transaction momentum. The Letter of Intent should have a timeline that the buyer must adhere to, such as a deadline to complete due diligence or date that they must present evidence of a financing commitment. Press your professionals to generate and review documents as soon as realistically possible. Transactions drag on if not monitored, which leads to second guessing, over scrutinizing, strained relationships and ultimately may cause the transaction to fail.

While this is not an exhaustive list of the mistakes that can negatively impact a business sale transaction, many common mistakes have been identified. Transactions are challenging enough even when everything is handled the right way. Avoiding the common pitfalls highlighted in this article will go a long way to maximizing the value and probability of a successful transaction.COSTLY

While reports are still mixed, it does appear as though the economy is beginning to stabilize.  The unemployment rate may not be declining, but it is no longer increasing, either.

According to Dave Carpenter, on 2/22: Economists expect the recovery to remain "firmly on track" over the next two years though job growth is likely to remain slow, according to a new survey.  The latest outlook from The National Association for Business Economics, set to be released Monday, sees regular job gains resuming this quarter but no drop in unemployment below 9 percent for another year.

Even as the unemployment rate begins to stabilize, we are seeing exciting trends.  The American entrepreneurial spirit, it appears, is alive and well.  When faced with high unemployment, people are finding ways to create alternate income streams.

The Elance blog posted the following on February 18th: “Consider this piece of data from the Labor Department’s recent report: the number of self-employed Americans grew by 126,000 in the last quarter. Add to that another telling statistic: the number of temporary jobs has increased by 250,000 in the last quarter….Our so-called jobless recovery is nothing more than an illusion. What we are experiencing is a long-predicted structural change in the job market. In the span of a single generation, we’ve gone from “company man” to being our own man or woman, thanks, in part by, to advances in computer and telecommunications technology.”

It is the growth in small businesses and increased utilization of contract resources that will likely fuel the bulk of the recovery over the next few years.  These new companies will rely more heavily on new technologies and social media than their predecessors.  Use of on-line document storage such as Quickbase and collaborative document review features like Google Documents, for example, will allow more employees to work productively from home.  Likewise, social media reliance will increase as a means of communicating with employees and customers alike and at a reduced cost. 

Dependence on part time and contract workers will also continue to grow.  As these entrepreneurs build their businesses, they will reach levels of sophistication requiring access to knowledge and experienced personnel.  They will not likely have access to sufficient working capital or investment dollars, however, to bring in full time qualified employees. 

The recession does indeed seem to be facilitating structural changes in the job market.  The combination of high unemployment and increased access to contract labor will enable new small businesses to acquire necessary resources at a much lower cost, and on an as needed basis.  Hopefully the end result will be higher success rates for new businesses coupled with overall improvements in employment – however you measure it.  

Recently I have met a number of business owners who have made a decision to run their books on a cash basis.  Surprisingly, these are not “mom and pop” companies, but have revenues exceeding several $million. They explained that things had been very bad over the last few years and that this was the only way they felt comfortable managing the business. 
As a CFO I don’t agree with this approach – it’s a little too much like the old jam jar accounting process where you set aside cash amounts for expense categories, and when the jar is empty – you are done, at least until the next pay check.  Let’s just make sure we understand what is happening.

Cash Basis

If you use the cash method of accounting, you record income only when you receive cash from your customers. You record an expense only when you write the check to the vendor. Most individuals and many new companies use the cash method for their personal finances because it's simpler and less time-consuming. However, this method can distort your income and expenses, especially if you extend credit to your customers, if you buy on credit from your suppliers, or you keep an inventory of the products you sell.

Accrual Method With the accrual method, you record income when the sale occurs, whether it be the delivery of a product or the rendering of a service on your part, regardless of when you get paid. You record an expense when you receive goods or services, even though you may not pay for them until later.
Accrual accounting is required by GAAP standards  - the "Matching principle" requires expenses to be matched with revenues as long as it is reasonable to do so.  This principle allows greater evaluation of actual profitability and performance (shows how much was spent to earn revenue).
The accrual method gives you a much more accurate picture of your financial situation than the cash method. This is because income earned in one period is accurately matched against the expenses that correspond to that period, so you get a better picture of your net profits for each period.

Pros and Cons.
The cash method is maybe easier to maintain because you don't record income until you receive the cash, and you don't record an expense until the cash is paid out. But Cash basis accounting does not conform to Generally Accepted Accounting Principles (GAAP) rules – since revenue and expenses are not matched, and there are specific IRS rules that specify that companies of a certain size cannot use the Cash Basis for tax purposes. If you maintain an inventory, you will have to use the accrual method, at least for sales and purchases of inventory for resale.

The accrual method gives you a more accurate picture of your financial situation than the cash method.   For a larger company using cash basis accounting and requiring audit, there will be additional audit costs associated with converting the company to an accrual basis.

The core problem with Cash basis accounting is that you lose the ability to manage the business pro-actively.  It’s like checking the bank account every week and making spending decisions based on the bank balance.  Without an accurate picture of true revenue and expenses, how can you understand profitability – of products and people?  How can you identify collection problems, and weaker customers.  How do you take advantage of vendor credit? How do you explain your business to the bank, and give them a comfort factor that you have control?  How do you forecast cash flows six months out?  In short, how do you get peace of mind?

So how can we address the genuine concern about managing cash flows that has caused some companies to adopt a cash basis approach?  The solution is financial visibility.  There is no reason why a company cannot manage cash flows very tightly, while having the advantages of Accrual accounting.  Weekly and monthly cash flow forecasts are essential, financial dashboards will help to visualize and track key metrics.  Detailed long term budgets and plans will help the business predict the future, and determine what contingency plans are needed.  Planning cash flow is the most effective way to ensure that additional funding is available when needed.

A B2B CFO is an affordable way to develop more financial visibility.  Call David Kirkup, Partner with B2B CFO on 404 348 0326 or dkirkup@b2bcfo.com.

The NFIB Research Foundation released a report this month titled Small Business Credit In A Deep Recession. The report presented relevant data obtained from a random sample of 751 interviews of small business owners (small business was defined as businesses with 1 - 250 employees) pertaining to small business credit access.The interviews were conducted from mid-November to mid-December 2009.  Some of the findings of the study were as follows:

 - 55% of small businesses attempted to borrow in 2009, with 40% of those having all of their credit needs met. 10% had most of their needs met and 21% had some of their needs met. 23% were unsuccessful in getting any of their credit needs met. The most common planned purpose for rejected credit was to fill cash flow needs.

 - In 2009, these least difficult type of credit to obtain was a credit card (73% successful) while a new credit line was the most difficult type of credit to obtain (38% successful).

 - The best predictors of success in meeting credit needs were: higher credit scores, customers of banks with less than $100 billion in assets, more properties collateralized for business purposes, and fewer second mortgages held.

According to The Wall Street Journal, the FDIC recently reported that in 2009, U.S. banks recorded their sharpest decline in total loans outstanding since 1942. Also, the number of U.S. banks at risk of failing hit a 16-year high of 702 and more than 5% of all loans were at least three months past due, the highest level recorded in the 26 years the data have been collected. The FDIC expects these problems to last through 2010.

So will the small business credit enviornment significantly improve anytime soon? Probably not. But that doesn't mean it is impossible for small businesses to obtain credit. The NFIB study indicated that small businesses were having greater success in satisfying their credit needs at smaller banks as opposed to the 18 largest institutions in the country. This may be a result of the more personal relationship the smaller banks have with their customers and personal knowledge of their businesses as opposed to the large banks' credit scoring models. If the President's proposed Small Business Lending Fund legislation is enacted, the credit opportunities at the smaller banks could improve even more.

If in the market for new credit in 2010, small business owners should first develop a quality relationship with their banker before the new credit is needed. Meet them in person, explain to them what you do, where you are going, and how you are going to get there. Show your enthusiasm regarding the prospects for your business. When it comes time to request the new credit, be prepared! Know how much credit you need, what it will be used for, and how and when  it will be paid back. Credit will be available, the key is positioning the business to be successful with its request . A solid business plan coupled with a little advanced preparation can make obtaining new credit in 2010 a reality.



    

I thought I would share this article with my partners. Feel free to share with your contacts. This article was published by Ruthann P. Lacey. Ms. Lacey is a client and an attorney specializing in the legal needs of the elderly and those with special needs. Ms. Lacey is nationally recognized as an expert in these areas.

Legal Foundations for the Future

You’ve planned, budgeted, saved. You’re insured, and you may be debt free. But what would become of all this diligence if you suddenly became unable to continue to manage your affairs personally due to physical and/or mental infirmity?

In an abundance of caution, these three documents should be cornerstones in every

prudent adult’s legal and financial foundation:

1. Last Will and Testament. It is startling that as many as half of all adults do not have this most fundamental document in place when they die. Perhaps they don’t realize that if they die without a Will (intestate), the laws of the state — not they or their heirs — will determine who gets their property and is named guardian of their minor children. For instance, many Georgians might be surprised to learn that under current Georgia law, the estate of an intestate person is divided between the spouse and each child, with the spouse potentially receiving as little as one-third! In the alternative, by establishing a “Will,” you retain control by conveying your will, attitude and beliefs toward your family and assets. In it you can:

·        Designate the person whom you want to be the executor of your estate and give him the power to act without posting bond and filing reports with the probate court, if desired;

·        Specify the persons or charities you want to receive your real and personal property;

·        Name your children’s guardian and provide financially for their future. For example, parents oftentimes establish a Trust in their Wills to provide for minor children, grandchildren or those with special medical needs; and

·        Establish a Trust to provide for a spouse who is or may become incapacitated.

When drafting a Will, it is typically prudent to consult an attorney to ensure that it addresses your specific personal circumstances and any necessary legal issues. For example, a properly drafted Will can minimize or possibly even eliminate estate taxes, or can maintain Medicaid qualification for a spouse who is in a health care facility. Also, an attorney can ensure that the resulting document fully complies with prevailing state laws and takes advantage of special considerations that may be contemplated by the law. For example, in Georgia be aware that absent a provision to the contrary, even an existing Will is revoked by events such as marriage or the birth of a child. Also, like a number of other states, Georgia law recognizes “selfproving” Wills. Making yours self-proving will save time and money when the Will is probated. After it is drafted, your Will must be properly signed and witnessed or it won’t be valid. The original signed Will should then be kept in a safe place where it will be found when it is needed. Finally, it should be reviewed periodically to ensure that it continues to represent your wishes and comply with the law, which is subject to change in each legislative session.

2. Durable Financial Power of Attorney (DFPOA). While a Will determines what will happen to your estate after your death, this document controls how your business and finances are to be handled while you are alive but incapacitated. In it you name someone whom you trust to act as your “agent” in making financial and property decisions for you in the event that you become unable to do so. The term “Durable” pertains to specific essential language which enables your agent to act on your behalf if, and especially when, you become temporarily or permanently incompetent.

Does an attorney need to draft this document? Well, maybe not . . . unless you have a bank account, own real property, own investment assets, own a business, or wish to make gifts to family or charities. Although forms and computer programs provide the basics, they are basic; generic one-size-fits-all approaches cannot be sufficiently refined to thoroughly address each individual’s circumstances. Thus, it may well be beneficial to consult an attorney who is knowledgeable in this area to ensure that your circumstances are thoroughly and specifically addressed.

For example, particular language is necessary for your agent to accept your income, continue your business, or make gifts of money or property to friends or charity. Also, many financial institutions do not accept the basic document. Instead, they require that specific language be included to empower your agent with respect to your accounts held at their institution. In addition, real estate and investment assets should always be specifically described in the document. And it is recommended that you name at least one back-up agent, in case the first-named agent becomes unable to serve for any reason.

Having a DFPOA crafted especially for your circumstances will make it easier and less costly for your agent to act on your behalf. It also provides two significant benefits:

·        It enables decision making to be kept within the family unit – where you want it to be; and

·        It can eliminate the need for Conservatorship.

Avoiding Conservatorship is recommended for several reasons. First, conservatorship proceedings can be emotionally difficult for the family and the prospective “ward” to endure. At the hearing, evidence is provided to the probate court judge to demonstrate that the ward is no longer competent to make his own decisions. If satisfied, the judge then removes the ward’s legal rights to make his own financial or business decisions or engage in any financial transactions.

Second, the appointed conservator must be bonded and must file an inventory, a budget, and annual financial reports with the court. This can be expensive and very time consuming.

Third, conservatorships are cumbersome because court permission is required before the conservator can undertake action with regard to the ward’s property. For example, the conservator must always seek permission from the court to spend any principal of the ward’s estate, to sell stock, to make gifts, to enter into a contract on behalf of the ward, to continue the ward’s business, or to sell or lease the ward’s property. While this oversight may decrease the likelihood of malfeasance, it also dramatically decreases familial control at considerable emotional and financial expense.

Whether common prudence, sound legal advice or specific issues such as Conservatorship influence the decision to pursue a DFPOA it would, of course, be

wise to discuss your wishes and desires with your named agents. And as with your Will, once drafted it is critical that the document be properly signed and witnessed as required by state law. It should then be retained in a readily accessible location in the event that it is ever needed.

3. Durable Advance Directive for Health Care (DADHC). This document is conceptually similar to the DFPOA in purpose, but its focus is health care decision making. In fact, we used to call it a Durable Medical Power of Attorney.

In your DADHC you appoint and empower someone whom you trust to act as your agent in making your medical and health care decisions in the event that you become unable to do so. These include such decisions as the hiring and firing of physicians, admitting you to health care facilities, consenting to surgery, antibiotics, experimental treatment and making end-of-life decisions. Since a statutory DADHC form is readily available in Georgia, an attorney is not necessarily required in order to draft this document. However, a number of hospital situations have occurred both within and outside of Georgia in which this form was not accepted. This was a result of the failure of the “short form” to specifically enumerate the powers and authorities given to the agent.

In April 2003 a new federal law known as the Health Insurance Portability and Accountability Act (HIPAA) went into effect. The implementation and interpretation of this law by doctors, hospitals, and other health care providers has made it more difficult for family members to obtain information or medical records unless the provider has in hand a signed consent from the patient. As such, with affairs this critical — quite literally the possibility of life and death — you would be well advised to consider engaging an attorney who is knowledgeable in this area. Adequate legal counsel and proper drafting will ensure that your document enables your stated wishes to be carried out without obstacle. Counsel is particularly recommended if you have a unique medical condition and wish to indicate specific types of treatment that you do or do not desire.

As with the DFPOA and Conservatorship, the DADHC also has probate court implications. With this document in place, Guardianship can be avoided — which is strongly recommended for many of the same reasons that Conservatorship is discouraged. As with Conservatorship, it may be necessary for the guardian to obtain Court approval for certain personal and medical decision to be made on behalf of the ward, and annual reports must be filed with the Court. In the alternative, a well drafted DADHC enables personal and medical decision-making to be kept within the family and can make the task of the agent much easier in ensuring that you receive the type of treatment you desire.

As with the DFPOA, it is wise to name at least one backup agent in case the first-named agent is or becomes unable to serve. And it is strongly recommended that you discuss your wishes and desires with your agents so that they will have a full understanding of the treatment that you would want in any given medical situation.

Finally, it is equally critical that the DADHC be properly signed and witnessed as required by state law. A copy should then be given to each of your physicians and each person named as an agent or back-up agent for use if and when required.

Rounding out your planning process with each of these three essential documents enables you to rest assured that your will will be carried out no matter what your future may hold.

One Last Thing about Medical Decision Making. Making these important decisions and committing them to writing are important. However, just as important will be the conversation you should have with the agents you have named under your DADHC regarding your specific wishes for medical and personal decision making.

I recommend talking with all of the potential decision makers at one time, describing your wishes, and drawing on situations you are personally familiar with or those you have heard about in the media. What would you want if your health situation were the same as that of Terri Schiavo? Or President Reagan? Or Jacqueline Kennedy Onassis? It is this conversation that will give the agents the knowledge, the strength, and ultimately the peace of mind to make decisions as you wish them to be made. The documentation and the conversation are your gift to your agents.

LAW OFFICE

RUTHANN P. LACEY, P.C.

Concentrating in Elder and Special Needs Law

—

3541-E Habersham at Northlake

Tucker, Georgia 30084

Telephone: (770) 939-4616 • Facsimile: (770) 939-1758

www.elderlaw-lacey.com

There is a popular move afoot among businesses today to shift cost from fixed to variable.  This allows the business to react much more quickly to changes in their environment, such as the recession.

According to associated Press writer, David Gram, The Society for Human Resource Management, representing company personnel departments nationwide, said it surveyed members in October 2008 and found 12 percent of them were moving to use more independent contractors, contingent and temporary workers because of the recession.

For a growing number of companies, including Target, FedEx Ground and Comcast, cutting costs means removing workers from the payroll or bringing on new workers — sometimes through intermediary companies — without making them full employees.

If a company employs the bulk of its workforce, downsizing can take time and cost a fortune (especially if severance is provided to the terminated employees).  They likely pay employee health, dental, vision and life insurance costs, for example, and the employer’s portion of payroll withholdings.  They will also be on the hook for unemployment insurance and workman’s compensation.

If that same company utilizes contract labor wherever possible, however, they are much more nimble and able to execute on plans to quickly reduce monthly operating costs.  If sales decrease, reliance on the associated independent contractors can decline accordingly. 

Shifting to a more variable cost structure, however, is not without risk.  A company needs to carefully evaluate their worker classification to ensure that they are not labeling an individual as an independent contractor when that person is really an employee.

The most widely accepted test is called the “economic reality” test.  In United States v. Silk, 331 U.S. 704 (1947), the Supreme Court identified the following factors:

1. the degree of control exercised by the alleged employer;
2. the extent of the relative investments of the [alleged] employee and employer;
3. the degree to which the "employee's" opportunity for profit and loss is determined by the "employer";
4. the skill and initiative required in performing the job; and
5. the permanency of the relationship.

Basically, it comes down to this: if the person spends all of their time with this one company, and has no other clients, they look a lot more like an employee than an independent contractor.

Labeling your workforce incorrectly can become costly down the road, so it’s best to do your homework in advance, and classify your labor correctly at the outset.

How to Change the Change Process

By Philip Elworth

Three things need to happen at the same time if you want change to occur.  You need to change the situation and you need to influence both the heart and mind of those who need to change.

Kotter and Cohen say in their book The Heart of Change that real change happens in the following order, SEE-FEEL-CHANGE.  Emotion needs to be involved not logic.  We all know when we need to change something but knowing does not make it happen.  The authors site an example in this book where a manager of a large manufacturing organization knew the firm was wasting large sums on inefficient purchases.  But how to effect the change was the question.

To prove his point this manager sent out an intern to investigate the purchasing process of one single, low priced item, work gloves.  The intern discovered that the various factories were purchasing 424 different types of work gloves.  He collected a sample of each one and labeled them with the price paid.  They were all using different suppliers and negotiating their own prices.  Gloves of similar type had prices ranging from $3.22 to $10.55.  The manager made an exhibit of his finding by placing them in a pile in the board room table in front of senior management.  They were stunned at the visual display of inefficiently in a simple low cost item.  When they saw the display their response was silence, but it could have been “this is crazy, we are crazy, we’ve got to make this stop happening”. 

What do you think would have happened had this employee put a spreadsheet together showing the inefficiency?  This manager could have preached this topic forever and not had the same effect.  Until the powers that be could see the situation and feel it, then they would not be motivated to change.  The logic of the inefficiency would not have swayed them.

Chip and Dan Heath unpack this topic in detail in their new book entitled Switch.  They state that the core matter of change is about changing behavior.  See-feel-change, not analyze-think-change.  So how do you go about changing behavior?

 One way is to shrink the change.  If you could begin to invest in getting in shape by exercising 1 minute a day would you do it?  I would advocate that if you invested this one minute a day for a period of time, it would change your mindset and allow you to slowly move up to the 20-30 minutes necessary for fitness.  But a commitment to one minute is doable, shrink the change.  Where else could you apply this concept?

A second means to change is to instill a growth mindset.  Plan to fail.  If you start a diet and blow it one night are you done with dieting?  If you consider the possibility that you will fail and plan for it, it will be easier to pick up the pieces and move on.  The mind is like a mussel, practice and attempts to learn or change create new pathways for change to happen.  No skill learned over time was ever completed without some level of failure.  So plan for it and it will not devastate you.

A third way to instill change is to find the bright spots and celebrate them. Whether raising kids, training employees or changing you.  Find what is working, celebrate it and do more of it.  Encouragement and praise will always take you further than negativity.  So start by celebrating your success no matter how small it may be.

Change can be hard but when properly undertaken success can be achieved.

Fortune Magazine published an article years ago named, Permanent Vacation? 50 and Fired.  I would like to expand on a few things regarding this topic. First, let’s visit some of the quotes from the article, which was years ahead of its time:

“You’ve got hundreds of thousands of obsolete professionals who can’t find employment in positions where they’ve been successful. These are people living off retirement savings 15 years before they were supposed to retire. They don’t know what they’re going to do.”

“Peter Capelli, a professor at the Wharton School, says the executive recruiters he talks to don’t want older people who have tenured compensation – not when they can hire younger, cheaper people. ‘It makes economic sense,’ he says ‘It’s just hard on employees. They were hugely valuable yesterday, because they performed valuable skills. And now they’re tossed on the general labor market where they’re suddenly not worth much.’”

“…there’s a good chance they’ll end up in a category you might call involuntary consultants.”

“’My heart really goes out to the 55-year-olds who can’t come to terms with  what’s happened to them,’ says Lynn Guillory. ‘They are still looking for the old implied employment agreement: The company would take care of you; all you had to do was work hard.” Forget the paycheck, he tells them. Your W-2 days are over. It’s a 1099 world now.’” (Fortune Magazine, Permanent Vacation? 50 and Fired, May 2, 2005)

IT’S A 1099 WORLD NOW!

The thought that the “W-2 days are over” can be a very frightening thought for many professionals.  I have talked to hundreds of CFOs over the decades and understand the thought process and the fear that overcomes one regarding this topic.

In fact, I remember the conversation I had with my wife when I told her I was going to start B2B CFO back in 1987. We had four small children under the age of eight and my wife was a stay-at-home mother. After explaining what I was going to do she looked off into the distance for a few seconds and then turned back to face me.  I saw the fear in her eyes. She asked me only one question, “Jerry, what about a steady paycheck?”

Christine and I have not had a W-2 check since 1987 and we would not want the pay-cut by accepting a W-2 job today.

This 1099 concept may be foreign to some, so let’s visit The Millionaire Next Door:

“Being self-employed gives one much more control over one’s economic future than does working for others. Conversely, employees today, even high-income-producing executives, have less control over their livelihoods than ever before.  Downsizing, for example, is taking its toll, even among the most productive employees. More often than not, even high-income-producing employees are not likely to be millionaires.” (page 93).

INVOLUNTARY CONSULTANTS:

There are several problems with being forced into being an “involuntary consultant,” such as:

(1)   The lack of time to plan before starting the business.

(2)   One’s heart may not be fully into the business. There is no transparency with this topic. Astute business people will see the lack of “fire in the belly” and will be cautious to hire such a consultant.

(3)   The lack of training on the proper way to sell.

(4)   Lack of knowledge about the industry, which is very specialized and very competitive.

(5)   Inadequate funding to do the branding and marketing correctly.

(6)   Unknowingly creating exposure for future litigation against the involuntary consultant.

(7)   Inability to distinguish oneself from the competition, hence, falling into the trap of charging lower fees than one is worth.

(8)   Etc.

 So, it REALLY is a 1099 world now, but that gives opportunity and freedom to many of us.