Hope - Aug 29, 2011
Posted by: Phil Elworth in Articles
Hope
By Phil Elworth
HOPE: I once had a business owner say to me as we were working through some tough changes in his business, “I guess hope is not a strategy”. I agreed with him that hope is not a strategy, but then, what is hope? Dictionary.com defines hope as something “to look forward to with desire and reasonable confidence”. Hope in this context, or your desired outcome, needs to be based upon your past experience. To contrast hope from hopelessness I will use an extreme example, that of a new born baby. A new born has no experience to draw upon. When it has a need it just cries and makes its case known with no understanding of what it needs or how the need will be fulfilled. In a very real sense the baby is hopeless; it has no expectation that its needs will be fulfilled. Over time the baby learns that it has parents who will love and provide for its needs and thus its cry will change to one of expectation and hope. Hope that its needs will be fulfilled.
What experience do you as an owner have to draw upon to provide the hope you need? Do you have expectation that the outcome you desire can be achieved? Or are you like the baby crying out in hopelessness not knowing what to expect. Since hope is based upon experience, if you don’t have the experience, then you need to obtain it, and it won’t happen by chance.
Dr. Henry Cloud an author, speaker and psychologist, recently gave a talk on this topic where he laid out a number steps you need to take in order to have hope be successful and achieve your desired outcome. There is no one way to accomplish this and change can be difficult but everyone can have hope. The steps are:
· Involvement in a proven change process; you must try something with a track record
· Additional structure; getting regular help from the outside can fortify your effort
Dealing With People - Aug 14, 2011
Posted by: Phil Elworth in Articles
Dealing with People
By Philip Elworth
As a business owner dealing with people is part of the job. How you deal with those people however is a choice you make each day. Have you ever noticed when you offer advice and feedback to some people they accept it and grow, but with others, you tell them over and over and see no change? There is a reason for this.
Dr. Henry Cloud, in his book Necessary Endings, speaks to this topic. I recently had the opportunity to hear him speak and his insights can help us all. Dr. Cloud uses the Biblical descriptions of people and even though the language is old, the truth of what he says has been well documented. Dr. Cloud uses three categories of people: the Wise; The Foolish; and The Evil. You can tell which category someone fits by observing how the individual responds to the truth about themselves or their behavior. Do they accept what you say or do they blame someone else? Are they internally focused or external in their response?
The Wise are individuals who are always looking to grow and learn. If you offer advice, correction or feedback to them, they listen, think about it and choose to change accordingly. Your strategy for dealing with the Wise is to coach them, resource them and challenge them. Your biggest risk with the Wise is that they are under challenged and leave. Your goal is to match your requirements for them with their skill set so they do not become frustrated.
The Fools are often very bright and gifted individuals. If you try and shed light on what is not working with them, they will do everything to reflect the light and shift blame to everyone else, including you, the messenger. The first response they make is external. With a Fool you can tell them over and over that things need to change but you find that nothing really does. Your strategy with a Fool is to stop talking. You will find that these individuals are interfering with your goals and vision for the organization and it is your responsibility to make the change. You must deal with a Fool by setting limits and if those limits are exceeded you need to follow up with consequences. Tell them they need to change certain behavior and get their buy in on the consequences; if the change does not happen then you need to follow through with the execution of the consequences. If Fools continue to operate in your company, then your vision for the company will be negatively impacted.
The Evil: Unfortunately there are people in the world who just want to tear down what you have creat....
Posted by: Phil Elworth in Articles Goals By Phil Elworth Establishing clear and written goals cannot be over emphasized. It is well documented; those who establish clear and written goals are many times more likely to achieve their goals than those who do not. Goals come in many forms and sizes. Your goals as a business owner will need to be both personal in nature as well as business oriented. Do you have the free time you would like? Do you spend enough time with your family? How about your friends? Are you developing yourself personally and professionally? What is the goal for your business? One of the goals I established for myself early on was the desire to be there for my wife and children. To me this meant both today in the moment but also over the long term. This motivated me to get home from work at dinner time and to eat right and exercise so that I was healthy enough to be there physically for a long time. Besides having a clear goal, that was achievable, the power of the goal unleashed within me the drive to make it happen. The motivation to exercise, to say no to a deal that would require too much of my time, was all based in having a clear goal. Steven Covey, in his book, the 7 Habits of Highly Successful People, says it is easy to say no when you know what the better yes is. We all need to start, with the end in mind, because if you do not know what the better yes is then it is hard to say no to what is in front of you. As a business owner, how do you apply this? I suggest you start with the end in mind. What is your long term goal for the business? Do you wish to gift it to your children? Do you wish to sell it to your employees or managers? Do you wish to sell it for the highest price possible? This desired outcome will guide how you establish the goals for your business. A business is an investment. As an investment it needs to be managed and developed with value creation in mind -and you control this process. Value Creation is different for many business and industries but overall certain similarities abound. You need to reduce the risk inherent in the business itself. Are you dependent upon a few customers? Are you dependent upon one supplier? Is your industry or business model growing or declining? ....
Posted by: Phil Elworth in Articles The Ten Commandments for Business Failure Part Two, Commandments 6-10 By Philip Elworth I recently read an interesting book by Donald Keough, who was chairman of Coca Cola Company during the introduction of New Coke. He has some intriguing insights into business failure. What I find most interesting is the number of companies I have seen who are following at least some of these commandments. This is the second part of this story and covers commandments 6-10. #6-Don' take time to think. The term in-box shock or information overload applies here. It is well documented that we are bombarded with information all day long. Is it any wonder we can’t sit back and ponder what is going on around us? I was recently at a seminar where the speaker, an expert on organization, was showing his empty e-mail inbox. His point is that the only thing that should be in your inbox are specific issues you need to follow up on. A cluttered in-box is as bad as a cluttered desk. It leads to a cluttered mind and a cluttered mind cannot see the real issues before it. You must take the time to think through the issues that are before you. #7-Put all your faith in experts and outside consultants. Ouch, this one hurt since being an outside advisor is what I do. However his words are valid. I give my clients advice, but I also try and show them alternatives. There is rarely only one way to accomplish something. As a business owner you must always apply the advice you receive against what you know to be true. When dealing with consultants always separate the presentation from the presenter; beware of flattery. #8-Love your bureaucracy. Remember that administration is there to facilitate work being accomplished, not to run the show. I am a strong believer in outsourcing. If a particular function is not core to your business and by its nature a differentiator, then look to outsource it to some one who knows what they are doing. There is a tendency for noncritical functions to try and make themselves more important by controlling information and workflow, often to the detriment of the organization as a whole. #9-Send mixed messages. Have y....
Posted by: Phil Elworth in Articles The Ten Commandments for Business Failure Part One, Commandments 1-5 By Philip Elworth I recently read an interesting book by Donald Keough, who was CEO of Coca Cola Company during the introduction of New Coke. He has some intriguing insights into business failure. What I find most interesting is the number of companies I have seen who are following at least some of these commandments. #1-Stop taking Risks. Every one of my successful clients is a risk taker in a well defined sense. They are not foolish; they understand the environment and are willing to take a calculated risk to move the business forward. When they stop doing this, it will be time to execute an exit strategy, because if you are unwilling to risk the assets of the company you cannot insure the future existence of the company. #2 Be Inflexible. This is much related to #1 above. These owners and managers are so set in their ways that they cannot see a different way of operating. They cannot innovate or grow. As the saying goes, if you are not growing you are dying. I have seen companies that no matter how much trouble they are in just will not change the way they operate. In the end you must change to succeed. Like Ford was once quoted as saying, they can have any color they want as long as it is black. That only worked for a short period of time. Stay flexible my friend. #3 Isolate Yourself. I know all of us at some point in our careers just wanted to be left alone. But if you are not involved in your business, your customers, your employees and your vendors you are missing out on great opportunities to learn and grow. But to fail, being in an executive bubble is the way to go. One sure fire way to accomplish this is to yell and scream at your employees. I know of no better way to be isolated then to lash out at those around you. Think about it; is this any way to operate? #4 Assume Infallibility. Never admit a problem, find a way to blame it on someone else. Customers are often the best culprit.What Motivates Your Employees? By Philip E. Elworth I have long held to the belief that employees will accomplish the work they perceive they are being compensated for. As an example, if you were to pay commission to you sales people only to bring in sales-- that is what they will do. They will do whatever it takes to bring in the sales, whether it helps the company or not, whether the sale is profitable or not. You are paying them for sales, not profitable sales. This may be an extreme point but I make it to help you think differently about rewards. Daniel Pink, in his book entitled Drive, unpacks two research studies from 1940 and 1969 that seem to turn on its head the long held belief that rewarding performance leads to higher levels of performance. The study, in 1940 used monkeys and 1969 used humans; I will let you draw your own conclusion from that. But the results, interestingly, were the same. When test subjects were given a task to perform they were motivated to do so with no reward other than the accomplishment of the task. When rewards were introduced for either faster performance or a higher level of performance, or food in the case of the moneys, then performance actually went down. It appears that even the monkeys were motivated by the accomplishment of the task alone. As a business owner, what can you take away from this study? I refer back to the first paragraph where I drew attention to the notion that people perform what they perceive they are being compensated for. In my opinion the concept of bringing in any sale versus a “good” sale, is actually an interpretation of the studies previously mentioned. To state this concept another way, it is important for a business owner to provide a fair base compensation for the job being performed. Then it is up to the business owner to create a work environment that encourages growth and participation in the core of the business, to provide the motivation to do the work. To further unpack this concept that people are not always motivated to perform work for higher pay I w draw your attention to a number of free, very cutting edge products that were developed with no compensation to the participants nor are charges made to the end users. These include Linux, computer operating systems that competes with Microsoft; Wikipedia, a free encyclopedia that put Encarta, a Microsoft product, out of business; Apache, a free open source web Server. Companies like 3M, allow their employees to use up to 20% of their time doing whatever project they want, whether it is part of their job or not. 3M, in turn, lives off the new products created by this totally unmanaged process. Read more... Posted by: Phil Elworth in Articles How Can I Get Anything Done? David Allen, author of the book Getting Things Done, claims that if something is on your mind, then your mind will not be clear to do what it needs to do at that moment. Clear to sleep or clear to work on a project, the issues of distraction are the same as waking up at night. So, how do you clear your mind? According to Allen, you clear your mind by transferring the issue to a trusted system, outside your brain, that you are sure to come back to over and over. Let’s work through this concept in three parts using a project as an example. As with any project you first need to clarify what the project is to accomplish. Next, you need to decide what steps are necessary to accomplish the project or at least to make progress toward completing it. Second, record these steps in a system that you can review on a continual basis. They do not need to be detailed, only enough to keep you on track. Third, keep reminders of the steps you need to accomplish in order to finish the project but more importantly to concentrate on the one next step you need to complete to keep the project moving forward. This concept of the next step is the most important part of any system. When you are looking at a large project or commitment it can be overwhelming. If you concentrate, however on the one next step you need to accomplish to keep the project moving, it is not so intimidating. This is especially important when you are managing multiple commitments. If you have say, five projects, you could have 25 or more steps to accomplish, but if you concentrate on the one next task to be accomplished with each of them, you will not be overwhelmed with 25 steps but can concentrate on only 5. This is much more manageable to our minds. When this task is complete, then establish the next one task to be accomplished. It is easy to keep progress moving forward, one step at a time. Everyone works differently with this process. Some people like lists where they can cross things off, others are more big picture oriented and want to see the whole project. There is no right an....
Posted by: Phil Elworth in Articles The Three Fears of Service Providers By Philip Elworth Patrick Lencioni, author, consultant and speaker recently published the book, Getting Naked, which describes his vision of the way a professional service firm should operate. His approach is basically one of fear avoidance. His views mirror so many of my own and how as a partner with B2B CFO® I have been trained to provides services, that I thought I would wet your appetite to investigate this topic at a deeper level. Previously, I have written that many more businesses provide professional services than is normally recognized. You can manufacture a product but still provide service to your customer in the design and manufacturing process. Thus this topic applies to many organizations. Patrick simplified his view of providing service into three simple fears: 1. The fear of losing the business 2. The fear of being embarrassed 3. The fear of feeling inferior You become successful by getting past the fear. The fear of losing the business is negated by demonstrating your competence and ability to help the client, showing them that you care about them instead of just growing your business. You do this by giving away your service. As a partner with B2B CFO® I provide, what we term, a phase I analysis. In order for me to understand the problem faced by a business owner, I ask for permission to dig deeper into the underlying cause of the issue. I do this at no charge.&n....
Posted by: Phil Elworth in Articles Can Your Business Really Be Sold? Millions of Baby Boomers own their own business, where they have also stored the majority of their net worth. Sometime over the next 10-15 years these businesses will need to change hands. Many of these owners, if they consider their transition at all, will say they will sell the business when the time comes. But can they? Is their business really saleable? What makes a business saleable anyway? John Warrillow has written a very interesting book on this topic, Built to Sell. The book is written in a very easy to read story format that mirrors many of the experiences he faced when he tried to sell his business. I had the chance to meet with John at a conference in New Orleans, and unpack these concepts a little further. The reality is that there are many factors that go into answering the question posed above and I will start by detailing a couple key points. These are the same issues I see often, while working with my clients as a partner with B2B CFO®. Many businesses are an extension of the owner. If the owner where to walk away from the business; there would be no business. Often a large percentage of the business is linked to one or two key customers, who in turn are controlled by their relationship with the owner. This is a high risk scenario for any business; being dependent upon too few customers. From a sale of the business standpoint, this business is often worth considerably less than the owner would like, if he were able to sell it at all. To move the business toward being saleable, you will need to make some changes. These changes will often take years to initiate. This is the reason- in my articles and when dealing with my clients- I emphasize the need for strategy around the real, long term goal of a business owner. To move a business toward salability you may need to change what you sell and how you sell it. If you set up a graph and put “Teachable” on the vertical axis and “Value to Customer” on the horizontal axis you have a method to gauge your current product mix and set a new direction. Next, plot the products or services you sell as points on the graph. First by teachablility, how easy is it to train someone new to sell or produce the product or service you sell? Second, how valuable is this product or service to the customer? Do you sell a commodity that can be purchased anywhere, or do you sell something that is unique and therefore carries a premium price? Clearly your goal is to have product that can be placed in the upper right hand corner of this graph. Then you are on your way to having a business that has value. I do not propose that this undertaking is easy, but if you want to create lasting value in a company and allow for an easier transition, then you need to begin moving down this road. If you want help with this, as a partner with B2B CFO® I am well positioned to lead the process. You can contact me at pelworth@b2bcfo.com. Posted by: Phil Elworth in Articles What is Your Number? By Phil Elworth Recently, while reading the book “Traction” by Gino Wickman, I came across the story Gino had retold of Charles Schwab, who ran the Bethlehem Steel Company in the early 1900’s. In the story Charles was speaking with a plant manager about the low level of performance in his plant, and how the employee, as a very capable plant manager, did not know how to increase the production. It is said that Charles stopped one of the workman coming off the shift and asked him how many batches of refined steel they had produced that shift. He received the answer of 6. Mr. Schwab then took a piece of chalk and wrote the number “6” on the floor and walked away. When the second shift came on duty they asked what the six written on the floor meant and were told that this was the number of batches the day shift had produced. The next morning when Mr. Schwab returned to the plant the six was replaced with the number “7”. When the day shift arrived they too saw the 7 and proceeded to produce 10 batches that day. Soon the plant moved from being a subpar producer to one of the most productive plants in the company. So I will ask again, what is your number? This story, which was originally written by Dale Carnegie in his book “How to Win Friends & Influence People” shows very clearly the power of having the metrics that help you cut through the complexity of managing a business and give you clear indications that you are on target or not. Every business should understand the drivers that help them generate sales; generate a profit or move the business forward. When you know what these drivers are, then you need to identify the key metrics that help you know just how you are doing. Let me give you a page from my own playbook. As a partner with B2B CFO® I provide a level of service for business owners, helping them understand, manage or grow their business. As such, I have a personal goal of how much revenue I wish to achieve in a given year. I even break this revenue down into a weekly basis. However knowing where I stand in my weekly revenue does not help me understand why I am short in reaching the goal. I need a better number. In my business I know that a business owner will not talk to anyone about their bu....
Posted by: Phil Elworth in Articles Creating Value for Your Business Part II Minimizing Risk By Philip Elworth This is the second in a series of white papers on getting your business ready for a transition. As previously discussed this could mean a sale, a recapitalization or a gift. There are many things a business owner can do-- long before the time to transition-- to maximize the value of the business. Every business owner should be in business to create value. Businesses are often purchased based upon a dependable revenue and net income stream. When this occurs a multiple can be taken of the EBITDA (Earnings Before Interest Taxes Depreciation and Amortization). Another way of describing EBITDA is the Operating Earnings of the organization prior to ownership related expenses. Therefore, to the degree an owner can minimize the risk of fluctuation of this earnings stream and the associated cash flow, the higher the value of the business. When a buyer is purchasing a home there is a clause in the sale contract that allows the buyer to bring in a home inspector to review the house and let the buyer know the risk they are assuming with the purchase. The same holds true with the buyer of a business. They will send in a team to “look under the hood” of the business and assess the risks they see. So what are these risks that an owner should begin to identify and correct now, prior to initiating a transition process? Below I will unpack the most common risk factors of any business. In addition, each business will have its own unique risks. One of the surprising things I see with business owners is their tolerance for certain risk in their business. When you start up a business or have been running one for a long period of time you become immune to certain risks and actually stop seeing them as risks because you manage around them. These types of risks are the ones a new buyer will be less prone to live with and provide full value. Accounts receivable is the first area we discuss. Do your customers pay you based upon the terms of their agreement or have you allowed slippage in the payment patterns? Do you have current legal sale or credit documents behind your accounts receivable or have you operated off an old agreement or no agreement at all? Are your sales concentrated in a few key customers or are your sales to your largest customer under 10%? If your sales are by credit card and/or online, is the legal language of your website and the storage of credit card information properly documented and protected? Inventory; is your inventory properly valued based upon a singular recognized accounting me....
Posted by: Phil Elworth in Articles Creating Value for Your Business Part I Growing Revenue By Philip Elworth This is the first in a series of white papers on the topic of getting your business ready for a transition. This could mean a sale, a recapitalization or a gift. There are many things a business owner should do, long before the time to transition to maximize the value of the business. Every business owner should be in business to create value. Growing your revenue is the first theme we will discuss to create value. Nothing creates value more than a dependable revenue stream. Therefore to increase the value of your company you should be growing your revenue. So how does one grow their businesses revenue? There are four basis ways to grow revenue: · Add new customers · Add new products or services for your existing customers · Target new markets with either exiting products or services or devising new offerings to new markets · Strategic partnering to provide access to new markets or customer groups To accomplish any of these targets you need to be efficient in your processes. You need to own your intellectual property, which drives your offering, and control the space you operate in. Start by asking the question from your customer’s perspective; What Is in It for Me (WIIFM)? If you understand why your custo....
Posted by: Phil Elworth in Articles Is Your Business Prepared for a Catastrophe? By Philip Elworth According to the Small Business Administration, 25% of businesses that close because of a disaster never reopen; 80% of businesses that do not recover within one month are likely to go out of business. “It will never happen to me” is not an answer. The fact is- it can happen to you because you cannot control the total environment. I recently attended a panel discussion on a local charity re-sale shop that just a few months ago had a fire that totally destroyed the building that housed their shop. The fire was caused by a major wind storm that dropped a power line on their building, which then caught fire. Nothing could have done to stop this catastrophe. There are three major areas of disasters to consider: · Natural hazards; fires, floods, wind storms, tornados, snow, rain; but this could also include an outbreak of H1N1 that knocks out half your production staff. · Technology hazards: Loss of critical data or computer; being hacked; losing a key piece of production machinery. · Terrorism: explosions or attacks, may not affect your business directly, but what about transportation of employees, supply interruption, both materials in and out of your area? What about a disgruntled worker seeking revenge? A theft of cash or other key assets? · Other major business risks: Loss of key customer; loss of key supplier; loss of key employee. I challenge you to take this Business-Ready Quiz: ·Are you in the “Service Sector”? Unless you sell a physical product, produced consistently and sold to customer as is, I submit you are. As such your service must be marketed differently. If you cannot touch it, taste it or smell it then, you must describe it and validate it differently. Usually, when selling a service, the work product or outcome you are selling does not even exist. So the question is how do you sell your product? Especially if your “Product” is you. How do you define what good service is? How does your client know the quality of the service they are buying? This is the essence of where to start your selling effort. Since there are few tangible ways to prove what a good service product is, you must start by removing any worry associated with the purchase of your services. In the Service Sector, clients do not often seek to purchase the best service available. They usually attempt to avoid a mistake by buying your service. The buyer will often go out of their way to avoid a bad decision. Again this is due to the fact that the quality of a service is hard to define. For example, how do you know if your tax return is of a high quality? When it comes to selling services, make yourself into an excellent choice by eliminating all that would make you a bad choice. Therefore, first impressions are not only critical to the service business they are vital. Buyers of services become anchored to their first impressions of you and the company you represent. People “hear” what they see. Make sure they see you. Start taking a look at the anchors you leave behind. Are you dressed appropriately? Is there a quality and consistency to your brand? Is your positioning statement clear and concise, so your prospect knows exactly what they would be buying? Are you demonstrating the value you bring to the client? Are you validating your quality? Are you removing any concerns the owner has about you or your company or service? A positioning statement will help you to clarify how you may be perceived in the eyes of a potential client and will leave behind an anchor that is clearly understood. This position statement will include: Posted by: Phil Elworth in Success Stories For 31 years, I had steady employment, having only been out of work twice and only for a total of about 8 months. Then came the end of a 24 year run with one company. This was a family business, in its second generation that was not going make it to the third. We were in the commercial real estate business and in 2006 we were at the top of the current valuation cycle, so we sold off assets and I began the process of looking for a new position. I was fortunate to have been offered outplacement, which taught me to network and gave me a support system, very much like FENG offers its members. I tried to move out of real estate but with 24 years experience and over the age of 50 I knew this would be a tough challenge. After eight months of searching I found a position as CFO with a real estate development company. This was October 2008. The job lasted exactly one year. I had just spent eight months finding a job that lasted twelve. Something needed to change. I had always wanted my own business but being in accounting and finance I was not sure what this would look like. In 1991 I had read an article in CFO Magazine which spoke about being a part time CFO and building a client base. This appealed to me and led me on a search as to how to make this happened. I knew that I could go off on my own and hang out a shingle but what support would I have or more importantly, would I need? I looked at some regional players, which to me were marginally better. Finally I landed on the largest firm in the nation supplying senior financial leadership to private companies, B2B CFO®. I joined B2B CFO® in October 2008 and have never looked back. The firm, of which I am a partner, allows me to go anywhere in the country and perform the work I love to do without any of the politics of joining a company as the CFO. B2B CFO® has taught me how to sell and has supplied me with the tools I need to plan out an assignment. My 171 partners provide technical support that allows me to work in many different industries. I can get an answer to any question within 24 to 48 hours. Since joining the firm I have had 15 different clients of which 6 are currently active with an additional 9 firms in various stages of discussion as to the services I can provide. My first client is still a client where I provide ongoing CFO level services to him, helping him grow his business in a cost effective way. For me, the goal of helping business owners be successful with their business and with their goals is very rewarding. Posted by: Phil Elworth in Articles So You Want To Sell Your Business As the baby boomer generation approaches 60 more and more business owners will begin to look at the option of selling their business as a way to finance their retirement plans. One critical aspect of this process is the valuation of the business from a market perspective versus the business owner who has a tendency to place a higher value on their business than the market will. This in turn makes the closing process unduly tense and as often as not will lead to a non event when it is time to sign on the dotted line. So what can be done to set the table for a completed transaction? One must start with an understanding of how value is created in the business arena. In many respects it is the same as buying a stock, which is investing in a public company. An investor buying your business is investing in your company. You start by looking at earnings, - is the company profitable and how are its key metrics in relation to the industry overall? Is it better than its competitors, the same, or worse? You then move to cash flow- specifically what is called Free Cash Flow. Free Cash Flow is defined as net income plus depreciation & amortization minus working capital and minus capital investment needed to sustain the revenue stream. Ultimately a business is valued as a multiple of income and or Free Cash Flow. After the earnings and cash flow are determined, a risk factor is added that measures the sustainability of this cash flow. The riskier the investment, the lower the price. There are a number of things that go into the risk profile of the business. Is there a strong management team in place that can function without the owner being present? Is the market the business operates in a growing market or is it declining? Are there new products in the pipeline? What is the level of customer satisfaction with the business? What is the quality of the products or service? How strong is the corporate culture? Is the compensation structure appropriate to the business and industry? Each of these sections could have its own white paper written on it. But in addition to the top level review of the business, looking under the hood must be clean as well. Surprises will raise risk and lower the value of the business. Are the financial statements accurate? Are there potential claims brewing that have not surfaced? Is the business OSHA compliant? Is the software, especially mission critical software, properly licensed or owned? A buyer will ask to look at everything pertinent to understanding the business. You, as the owner, need to be confident that everything is communicated accurately upfront. At the end of the day, would you purchase this business for this price at this point in time, knowing what you know? As a partner with B2B CF....
Posted by: Phil Elworth in Articles Captive Insurance for the Middle Market By Philip E. Elworth Every business self insures risk even though they have broad insurance policies in place. All insurance policies have a list of exclusions from coverage. If the exclusions are not covered under a separate insurance policy then you are at risk. In addition, there are many risks in your business that would be very expensive to purchase insurance for even if you could. These include credit risk, the inability to collect on your accounts receivable or the creditworthiness of your key customers or suppliers. Certain product liability items are often not covered as well as product or equipment obsolescence or changing market conditions. Are any of these risks potentially less catastrophic if they occur, than say a fire? There is a vehicle available that can help business owners cover these risks tax free as well as provide a mechanism for potential estate tax planning, key man retention as well as the safety of having cash assets beyond the reach of creditors. This vehicle, in its many forms, is called a captive insurance program. This product has been around for over 100 years but has not been readily available to the middle market until the past decade. Basically, a captive insurance plan is your own private insurance company but the only company that can file a claim against it is your own. Premiums accumulate over time and if there are no claims then the cash is yours with more favorable tax treatment then the original premium cost would have allowed for. You have the ability to transfer up to $1.2 million in premium cost into the captive each year. This premium is a deduction on the insured’s books and is not taxable income under the captive. In order to qualify for a captive, the business should have at least two of the following; taxable income greater than $1.5 million; uninsured risks of $250,000 or more; 100 employees or more; or actual premium costs of $500,000 or greater. The reason for the requirements is the captive insurance program will cost $40-80,000 to set up and $18-40,000 per year to maintain. All of this should be more than covered by the tax savings in the first year to make it worthwhile. Since this cash will leave the business, the premium dollars must not be necessary for ongoing operations for the program to be effective. Captive insurance plans are complex and should not be entered into lightly, but can be a very effective means of managing risk and ultimately potential vehicles for estate planning, wealth transfer or business exit strategies. Posted by: Phil Elworth in Articles The funny thing about planning- it is often most useful when it is performed before you need it. If you were going to sell your home, wouldn’t you plan out a number of critical elements first? When is the best time to sell? What do I need to fix to maximize the value? Who will I list it for sale with? This same logic is true with a business but is much more complicated, time consuming, will take far longer than selling a home and there are many more options to choose from. With the help of Pinnacle Equity Solutions I am going to detail a number of questions every business owner needs to consider now-- in order to have a successful exit-- whenever that may be. Your business is probably the largest single asset you own. Isn’t it worth spending the time necessary to properly think out your own goals and develop an appropriate exit strategy? As a partner with B2B CFO® in partnership with Pinnacle Equity Solutions I am well prepared to help you develop these goals and plan for their successful achievement. Posted by: Phil Elworth in Articles Business Risk By Philip Elworth Business risk has many facets and can come at a business owner from any directions. So what is business risk? Many owners would probably agree with WiseGeek.com which defines Business Risk as being, “The risk that a company will not have adequate cash flow to meet its operating expenses”. Unfortunately this definition only scratches the surface of the risks that can cause such a shortfall. Many of my clients scratch their heads and become frustrated with the various types of risk they face every day without even know it. The reality is that any company can get caught in a risk situation that becomes intolerable if someone in the organization is not paying particular attention to the details. Every business is faced with risk factors that may be the result of both external and internal elements often times beyond their control. External factors can encompass such things as a change in the demand for their goods and services. Therefore you may find yourself either under capacity or over capacity. One results in lost sales and profits while the other is a drain on cash. External factors can be the result of government regulation, where a company operating in multiple states does not realize they have a nexus situation in a particular state and finds itself with heavy fines and penalties a drain on both time and resources. How secure is your bank? Will they have the capital to loan you the funds you need at the appropriate time? Internal risks can be the result of processes, internal controls, and lack of attention to financial data, key metrics or lack of a cash flow projection, all of which are necessary to properly manage a business. Other factors come into play as well. How is the financial health of your largest customer or supplier? Are you overly dependent upon one customer or supplier? What is your plan to diversify? Is your employee manual current with all the latest employment laws? If you are selling on the internet and taking possession of customer credit card information, are you properly controlling this sensitive data? Do you have the appropriate legal language on your website? Are you properly insured for all the types of coverage you are eligible for? If there were a catastrophe in your primary place of business do you have a plan to get back into operation as quickly as possible? Are you properly covered with business interru....
Posted by: Phil Elworth in Articles The Three Things in Life You Can Count On By Philip Elworth The old saying goes there is nothing in life you can count on except death and taxes. I would like to add to this statement something that is closely related. If you are a business owner you can also count on the fact that you will exit your business. How you exit your business is a choice and one you will need to plan for if you want to maximize its value. To begin this planning process, let me ask you, as a business owner, how you view your business? Is your business a job or is it an investment? How you answer this question will help determine how you plan for an exit. If it is an investment then you will want to protect it and maximize it. If your business is just a job, I would ask you to reconsider why you started or bought the business in the first place and what you would like your legacy to be. Exiting a business has many variations. The exit could be an outright sale to a third party. It could be in the form of a recapitalization, where you sell the majority of the company, stay active in growing the business with an infusion of capital by the new majority owner with the intent to sell it for even more down the road. You could sell the business to your key managers, or all the employees through an ESOP. Your business may be large enough to do an IPO and take it public. You may want to gift or sell it to your children or gift it to a charity. The method you choose starts with a needs analysis and a financial plan for you, the exiting owner. Working with a certified financial planner to understand your long term needs, as well as how you will reinvest the proceeds from a sale goes a long way to helping you understand how to maximize the value of the business. The further out you begin this planning process the better positioned you can be to fulfill your goals. The need to sell in the next six months is a very different strategy than one where you have years to execute. Once you have a general plan, you can begin to clean up and run the business with this plan in mind. When I meet with new clients one of the first questions I ask is for them to describe their exit or long term strategy. The recommendations I make are dependent upon the direction the owner wishes to go. It usually takes a period of time to position a business for sale. This time frame is further affected by the economy at the time of the sale. The opportunities to maximize value of a business transition fol....
Posted by: Phil Elworth in Articles 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?True North What do you think of when you hear the term true north? The technical definition refers to the line up the earth that takes you directly to the North Pole. A compass on the other hand points you to magnetic north. So which is correct? How do you know where you are going? I would like you to consider another definition of True North, one that applies to how you live your life. Diving a little deeper, to use this definition to define your leadership. True North, as it applies to your life, incorporates the values, passions and motivations that are most important to you and help you find satisfaction and fulfillment in your life. I submit further, that these same values translate into how you can lead authentically. Brenda Barnes, CEO of Sara Lee says “The most important thing about leadership is your character and the values that guide your life.” So I ask you, are you guided by an internal compass that represents your true values? Do you live out these values in every decision you make? Bill George in his book entitled True North explores this topic in great depth. Bill tells us all to discover our authentic leadership in order to lead in our passion, but to do so while remaining true to our innermost values. Every one of us has an arena where we can lead. But it is up to us to discover for ourselves what our authentic leadership is and then to put it to work. What are the traits of an authentic leader? According to Bill George there are 5 of them: · Pursue purpose with a passion · Practice solid values · Lead with your heart Posted by: Phil Elworth in Articles Whether you are planning a personal strategy, a business plan or a production process, I have found that strategic planning follows the same steps. The first step in this process is to decide what is important. What is your mission, your vision, your values? What are the guiding principles you will use to filter every decision you make? At B2B CFO® our values are honesty, integrity and objectivity. Once this is understood it is then easy as a firm, as well as for an individual partner, to align any decision against this value statement and make the right decision. The second step in the process is to have well thought out goals. If you are going to be constructing a building, you start with a clear idea and visual of what the building looks like. You have the engineering drawings, blueprints, elevations, site plan, all of which are necessary to build the building that was envisioned by the customer. This same concept applies to a personal plan. Do you want to retire? When would that be? How much in assets would you like to have to maintain what lifestyle? All of these questions and many more, help develop your plan. The third factor in the plan is to align the various systems necessary to achieve the goal. By systems we mean such things are your HR policies, how you hire, train, motivate and compensate your employees. Do you have the tools, processes, technology in place to facilitate the goal attainment? Do your overall company policies align with the values you wish to follow and help you achieve your goals? I was recently in a retail office supply store attempting to return a defective product, a charger for a laptop computer, which broke within two weeks of buying it. When we spoke to the service people they told us that unless we had the originally packaging for this $99 item they could not refund or replace the item. The reason for this was that they could not in turn get compensated from the supplier. Therefore if they could not get their $99 back then I could not get mine. I am not sure what their mission, vision, values and goals are as an organization, but I do know that customer service is not one of them and for $99 they lost a customer for life. On the flip side, one of my clients is a manufacturing operation. One of their value propositions is that no defect will knowingly leave their shop and should there be a problem in the field their value statement is to fix the problem within 24 hours. They operate in all 50 states, but hey take pride in telling story after story about how they solve these problems. But not just that; they learn from the story telling so that the same situation will not be repeated. Their systems are correctly aligned to their value statements. I believe the next step is the most critical and the one where many organizations fail. This step is the ....
Posted by: Phil Elworth in Articles If you’re Company Was A Soccer Team…. Steven Covey in his book The 8th Habit, which I highly recommend, quoted the results of a Harris Poll of 23,000 U.S. residents employed full time within key industries and in key functional areas as follows: · Only 37 percent of those polled, said they have a clear understanding of what their organization is trying to achieve and why. · Only 1 in 5 was enthusiastic about their team’s and organization’s goals. · Only 1 in 5 workers said they have a clear”line of sight” between their tasks and their team’s and organizational goals. · Only half were satisfied with the work they have accomplished at the end of the week. · Only 15 percent felt that their organization fully enables them to execute key goals. · Only 15 percent felt they worked in a high-trust environment. · Only 17 percent felt their organization fosters open communication and better ideas · Only 10 percent felt that their organization holds people accountable for results. The One Goal Have you ever witnessed an organization operating at its peak performance? When this happened did you notice that all parts of the organization were pulling together for one stated goal? What causes an organization to operate like this? Why doesn’t it happen all the time? In my opinion, if you were to dig deeper, you would find that this focus was often created by a crisis. A crisis that pulled the organization together, to fight the threat or deal with the disaster. I had the opportunity to witness, just such an event first hand. In the spring of 1992 a tunnel system that runs under the Chicago River, and throughout much of the downtown area, was punctured, filling the tunnel with water. This tunnel system was connected to many downtown office buildings dating back many decades to when coal was delivered underground to these same buildings. Many of these buildings had open access to the tunnel, and few, if any had water tight doors protecting it from the river many blocks away. I worked for a real estate firm that owned two buildings that were tied to this tunnel system in some way, totaling over a million square feet of prime office space. Within 24 hours one of the buildings was out of commission with over 11 feet of water in the lower basement level. This level housed all the heating, ventilation and electrical systems of the building. We were faced with a catastrophe that was costing us revenue, each day the building was closed. Within hours of the magnitude of the problem being understood our team was ready to roll. With strong leadership at the helm we put all our employees, our long term vendor relationships and every chip we could play to the task of solving the one problem we had, getting the building back on line ASAP. There were no power plays. There were no excuses. No one said “not my job”. Everyone understood there was only one goal and it was lead, follow or get out of the way and we accomplished our task in record time. Now the larger question is why do we need a crisis to work like this? Patrick Lencioni, author of the book “The Five Dysfunctions of a Team”, calls this type of goal a thematic goal. Patrick further defined a thematic goal as a single, temporary and a qualitative rallying cry that is shared by all member of the team. Every company needs to create a thematic goal. John P. Kotter in his book “A Sense of Urgency” defines this process as creating urgency. An urgent goal is a thematic goal and ....
Posted by: Phil Elworth in Articles Owners do not start their businesses hoping to spend a lot of time on accounting and finance but rather to do what they do best. All owners, however, need to have a high enough level of financial intelligence to know they are making the best possible decisions for their business. In addition, the more financial intelligence their employees have, the better the decisions of the organization will be as a whole. Financial intelligence, although it is a recently defined term, has its roots back in 1954 when the management guru, Peter Drucker wrote in his groundbreaking book, The Practice of Management, "[The worker] should know how his work relates to the work of the whole. He should know what he contributes to the enterprise...if he lacks information, he will lack both incentive and means to improve his performance." "It is in the best interest of the organization that the worker has the information". One piece of this information that Drucker was talking about is financial information. But it is not enough that the employee has the information, but that the employee knows what it means and what to do with it. Proponents of financial intelligence in organizations believe that if all employees understood financial information and how it is measured, then they will make decisions and take actions based upon this financial understanding, to the benefit of the organization. If everyone knows the mission and goals of the organization and knows how the decisions they make help achieve these goals, the organization will be far better off. Financial intelligence relates to the knowledge and skills of accounting and financial principals. It is not just theoretical knowledge, however, but requires practical real world application and experience. Overall financial intelligence requires understanding four key attributes: Owners, managers and employees in general, who understand these principals and the effect of their decisions on the organization, will provide a competitive advantage to their employer. Posted by: Phil Elworth in Articles Every Church Regardless of Size Needs a Chief Financial Officer I once heard a good definition of a CFO, someone who solves a problem you didn't know you had in a way you don't understand. There is some truth in this statement but in actuality a CFO really looks to the future and helps you to understand the problems you didn't know you had or better yet helps you avoid the problems altogether. The CFO is a senior leader who deals with all the business areas of the church, proactively involved so that the decisions affecting the financial affairs of the church are handled on task and on target. Every organization deals with risk, the CFO understands and quantifies this risk and seeks to mitigate it. For example, 2009 most likely will turn out to be a very down year for contributions, how will your organization deal with this and when? The speed and clarity of these decisions will impact the viability of your church. It is the role of the CFO to review expenses to determine not only are they authorized, but also in line with the budget and appropriate to the mission and direction of the organization, while tracking trends to respond appropriately to changing risk. Similarly, the CFO keeps an eye on the infrastructure (the support systems needed for everyday tasks) that is in place to determine their adequacy for the church to function efficiently. These systems allow for timely and accurate reporting to leadership. Teaching, mentoring and infusing financial intelligence to all levels of the organization allows the CFO to develop accountability and understanding of the financial impact of decision making to the organization as a whole. Maintaining banking relations, creating and balancing the budget, providing cash flow projections and strategic planning are key responsibilities of the CFO. According to Brian McAuliffe, the CFO of Willow Creek Community Church in South Barrington, IL, it is not just working within the guidelines of the budget but it is keeping enough cash on hand to deal with the normal cyclical nature of contributions. Brian says "he makes sure that Willow has 2.5 months of cash on hand to deal with normal cycles". All in all the church needs the same skill sets that every business needs to be successful. Bill Hybels, senior pastor at Willow Creek Community Church says of the CFO "I knew that every hour I spent on [the CFO] part of the ministry was keeping me from sermon preparation, leadership development and long range planning. So from the earliest days of my ministry I challenged gifted volunteers to help me with the CFO responsibilities". Bill goes on to say that when "we were able to hire a full time CFO we surrounded them with Board members who could ask the tough questions of the CFO and sharpen our collective thinking". At B2B CFO®, a national firm engaged in providing part time CFO services to emerging organizations, we have a saying that cash is key. The success of any church depends on its ability to raise cash and manage its use strategically to fulfill the mission. The graphic below shows what we at B2B CFO® call the "Danger Zone", the point where any organization crosses the line and their costs outstrip their ability to raise cash. When this occurs the organization is in desperate trouble. Understanding where this line is for your church is a critical role of the CFO. I have served for 24 years at Willow Creek Community Church initially as a volunteer CFO and later as chairman of the board finance committee. During this 24 years the church grew from $3 million in assets to where it is today at $146 million in assets and $40 million in annual operating budgets. During this growth period we operated with an eye on the danger zone. We would prepare a realistic budget but would spend based upon the actual dollars that came in. If contributions came in more slowly than anticipated we would put off expenditures until the revenue justified the added costs. If we beat the budget and generated excess cash, we would set up reserves t.... Posted by: Phil Elworth in Articles Good Management Every business owner is also a manager. According to Marcus Buckingham & Curt Coffman in their book First, Break All the Rules (which I highly recommend and upon which this article is based) there are twelve questions that every manager should ask of their staff. These questions measure the core elements that are needed to attract, focus and retain the most talented employees. These questions, to be scored on a scale of 1-5 are as follows: According to Buckingham, research has shown that the manager, not pay, benefits, perks or a charismatic corporate leader- was the critical player in building a strong workplace. As a manager, if you want to know what you should do to build a strong and productive workplace, securing 5's to the first six questions, is an excellent place to start. What all great managers should know: -People don't change that much -Don't waste time trying to correct weaknesses -Instead draw out the employee's strengths What Great Managers Do Remember every business owner is also a manager. As a individual you will accomplish the most if you work to your strengths. The same is true with your employees. Make sure each employee is performing the work that they do best.
Goals - Aug 13, 2011
What Not To Do With Your Business-Part Two - Jul 18, 2011
What Not To Do With Your Business-Part 1 - Jun 24, 2011
How Can I Get Anything Done? - Mar 31, 2011
By Philip E. Elworth
Have you ever awoken at night with the thought that you need to do something, and are sure you do not have it written down somewhere; therefore it is not possible to go back to sleep? This is sadly, an all too common occurrence. So how can you avoid this situation?
The Three Fears of Service Providers - Feb 26, 2011
Can Your Business Really Be Sold? - Jan 22, 2011
By Philip Elworth
What is Your Number? - Dec 19, 2010
Creating Value for Your Business-Part II - Nov 28, 2010
Creating Value for Your Business-Part I - Nov 1, 2010
Is Your Business Prepared for a Catastrophe? - Oct 24, 2010
Why Consider Alternatives to the W-2 job? - Sep 18, 2010
So You Want To Sell Your Business - Jul 25, 2010
Captive Insurance for the Middle Market - Jun 26, 2010
Ten Questions Every Business Owner Should Understand - Jun 16, 2010
Business Risk - Apr 25, 2010
The Three Things in Life You Can Count On - Mar 27, 2010
How To Change The Change Process - Feb 20, 2010
Strategic Planning Made Simple - Nov 28, 2009
If your Company Was A Soccer Team ... - Sep 24, 2009
Financial Intelligence - Jun 18, 2009
Every Church Regardless of Size Needs a CFO - Mar 12, 2009
Good Management - Mar 11, 2009
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