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 The Business Owner's "Seven Deadly Sins"

In a recent CNNMoney.com article, business owner Jay Goltz presented his "Seven Deadly Sins" for entrepreneurs to avoid.  They are, as he puts it, business-killing traps.

So, they must have been all about sales and marketing, right? Well, no, actually, only one, POOR BRANDING, is all about marketing.

OK, then they must have been about the operational aspects of the business!  Well, not exactly...again, only one, LACK OF STANDARDS, (in things like customer service, quality control, and the like) is operationally focused.

Well, then, they must have been about people issues, right?  Well, you are getting warmer...two of the seven are people related: NAIVE HIRING and FEAR OF FIRING.

That leaves three sins, more than any other category, squarely in the realm of...finance and accounting!

First, Goltz lists SLOPPY ACCOUNTING as one of the killers.  Without accurate financial statements it is impossible to diagnose what is going on inside a business...good or bad.  Without accurate historical statements it is impossible to make educated projections about what is likely to happen in the future.  That leaves management flying blind and unable to answer critical questions like "When will we run out of cash?"

The next sin is LACK OF CONTROLS.  This includes appropriate internal controls over cash, inventory and other assets, but also controls over processes like granting wage increases, offering discounts and authorizing returns and allowances. Good controls have two important features:  they are written down and compliance is monitored and measured.

Finally, UNREALISTIC PRICING joins the list.  Realistic pricing starts with an understanding of real costs. It also requires the ability to distinguish between fixed costs and variable costs. Without such an understanding it is impossible to make intelligent decisions about things like:  "How far can we reduce our price to match competition without losing money on the order?"

The partners of B2B CFO® can assess a firm's exposures in these areas, and can help implement the appropriate systems, procedures and controls to avoid these business-killing traps.

For more than 20 years the partners of B2B CFO® have helped emerging and middle market organizations with:

               * Cash flow projections

               * Banking relationships

               * Profit Improvement

               * Timely & accurate financial reporting

               * Financial and strategic planning

               * Exit strategies

Our services are provided on a flexible, as needed, cost-effective basis...with no need for a contract, since relationships with our clients are always on a hand shake basis.

I recently met with one of those amazing people often referred to as “serial entrepreneurs.”He is running companies # 3 and #4, but he is already formulating numbers 5, 6 and beyond!  I have always marveled at people whose brains can work at that many levels.  My money is on America’s entrepreneurial spirit to lead us out of our economic malaise, ahead of Washington and Wall Street.  But enough of politics and economics.

This entrepreneur asked me: “If you are a B2B CFO® on a less than full time basis, how do you develop the kind of passion that is shared by employees who live the business every day?  They live and breathe the air here, and they have stock option and bonus potential which drives them to break down walls to be successful!”  

Since I had never been asked this question before, what came out was a raw, unrehearsed answer.  After I finished, I wondered how I had done.  The more I have thought about it, though, the more comfortable I am with my answer, which went something like this:

First, I can get as excited about a good idea as anyone, and I understand that it is this excitement that fuels growing ventures.  It is not true that we financial types can only say “No” to every new idea!

On the other hand, this kind of entrepreneurial situation is prime territory for “groupthink” and a lack of adequate consideration being given to all of the potential implications of various business decisions…negative as well as positive implications. Sometimes it is not a popular position for an individual to express an opinion that is contrary to that of the entrepreneur or to that of the rest of the group. 

Also, we have seen what happens when a group gets so focused on bottom line and their own compensation that they exclude consideration of all other factors…think Enron and you will understand what I mean.

 The Core Values of B2B CFO® are Honesty, Integrity and Objectivity.  I truly believe that these are valuable ingredients we bring to the table. 

 Business owners need to prepare themselves for the realities of the new borrowing and lending environment. Some of that preparation requires taking action, and some of it requires developing a new mind set. Let’s talk about the mental side first.

Start with a clean slate!  Business owners need to clear their minds of old assumptions and understand:

 • Lenders will ask a lot more questions. Don’t expect credit without answering them! There will be a new level of interest in your business and more requests for financial and operational information than in recent years.

 • Interest spreads will go up. Whether your interest rate is based on Prime, LIBOR or Treasuries, the spread over that reference rate is likely to increase. Be prepared for minimum rates on floating rate debt.

• Collateral and guaranties are back: Unsecured loans and lines of credit were easier to get when everyone projected the economy to move onward and upward indefinitely. With that assumption no longer valid, lenders will look at collateral as their margin of safety.

 • Your lender may just not want to do business with you anymore. This is the hardest one for many business owners to come to terms with. Don’t take it personally. Many decisions are now being made several levels above your local loan officer, and these decisions are not all about you. Banks have many big picture issues to worry about.

Take Action!  Here are several critical steps that all business owners need to take:

 • Understand cash inflows and outflows. You must be able to understand and communicate how cash is generated and used in your business. The philosophy “I just sell and leave that stuff to my accountant” will not work going forward. Get help if you need it.

• Begin preparing cash flow projections. A cash flow projection is the roadmap that shows where the business is going. To carry the road analogy a bit further, it also will show if a business is going to run out of fuel…cash…if it continues on its current path.  Get help if you need it.

• Talk to lenders – old and new. Find out what concerns your current lenders have. Are there concerns about your industry? Are there problems renewing credit in the amounts provided previously? Consider locating other lenders who may not have some of the same issues as the current lender. In any case, plan on this process taking more time than usual…more time to “sell” your story to the lender, and more time for any deal to be approved.  Get help if you need it.

 Time to get to work!