7 Tips for Surviving the Black Clouds in Business

Attempting to eliminate or prevent all worry in business is a fruitless pursuit. At any given time, we can find ourselves tiptoeing through landmines and navigating unexpected twists and surprises. CEOs and owners who desire to build a business of significance and success often get derailed by what B2B CFO^® calls black clouds. Take a moment to assess if any of these seven black clouds are haunting your business.

BLACK CLOUD #1: DECISION-MAKING
Making sound business decisions is a critical part of every owner’s job and is vital to everyone’s future. Most owners can quickly gather facts and use their intuition to make decisions. Therefore, having accurate financial information is paramount to the process. Formulating decisions based on accurate and timely information from your financial statements (balance sheet, income statement, and cash flow statement) will fuel growth and operational efficiencies. Poor financial information that creates bad decision-making will negatively impact your competitive lead in the marketplace as well as profitability.¹

BLACK CLOUD #2: CONTROL
Few things frustrate an owner more than feeling a loss of control over the company. Delegating tasks to a trusted employee can help you steer the ship but be cautious in relinquishing total control. We frequently see that loss of control stems from a lack of proper infrastructure in core areas of the business such as accounting, computer hardware and software, management data, websites, and backup of data. This leads to employee fraud, which can cost the average company up to 5% of its annual revenue.²

B2B CFO^® recommends  segregating certain duties of staff handling financial reporting and accounting. Avoid allowing the original version of any important document to leave the company. A strong infrastructure should include routine backups of key data. A well-documented disaster recovery program is another key element that will help your business regain operations should a disaster impact it. Owners should review their insurance coverage and make sure it is adequate to offset various risks, including disaster scenarios.³

BLACK CLOUD #3: TAX DAY
Tax day can stir up plenty of emotions for business owners. Our tax laws are complex and often change. Tax professionals warn us of the perils of audits. Penalties for late and erroneous taxes can be stiff and detrimental to our finances and our reputation. Income taxes are, after all, just math calculations.  Mathematical calculations can be computed at any time assuming the information being used to make the calculation is accurate.  Your company must have accurate financial data in order to make accurate  projections of the income taxes that will be owed.  Have a competent tax preparer review cash-basis financial statements, book/tax adjustments and verify estimated taxes each quarter.

BLACK CLOUD #4: OVERTIME
Companies often struggle to keep up with the Department of Labor amendments to overtime rules that employers must follow.  Changes are also mandated by other Federal and state authorities. The penalties for making errors in overtime can be severe.  Be proactive and initiate a comprehensive review of your company’s compliance with current Federal and state labor laws. If this review indicates points where the company is out of compliance, formulate a plan to make the changes needed before an auditor knocks on your door.

BLACK CLOUD #5: BEING HELD HOSTAGE
Many owners have experienced that demanding employee who makes outrageous requests or even threats (for a salary increase, promotion, time off). A disgruntled employee can hold the company hostage and threaten to leave or cause serious damage to the business. The key to preventing these issues is to accurately assess the risk related to high-impact and key employees and take action to reduce the concentration of risk associated with these individuals.  Internal controls and other systems need to be in place so the company can continue to function if the person leaves, either voluntarily or involuntarily. Cross-train whenever possible. Create processes so that customers have multiple points of contact within your company to alleviate the entire relationship being dependent on one employee.  Each role should have clearly written instructions on how each job function is executed. Each employee should document any critical information or expertise in their job role so it can be easily shared.

BLACK CLOUD #6: THE BALANCE SHEET
Many owners put less emphasis on the balance sheet than on the income statement. However, if the accounts on the balance sheet are not maintained and routinely reconciled, it is highly likely the income statement will be incorrect. Understanding the economic substance of the line items on the balance sheet is key to obtaining an accurate picture of the company’s financial health.

Having accurate and timely information on the balance sheet gives other interested parties (CPAs, lawyers, auditors, investors, bankers) a clear overview of the company’s financial position an decision-making. As a business owner, an accurate balance sheet offers peace of mind knowing that your financial house is in order.

BLACK CLOUD #7: EMPLOYEE PAY
Creating competitive compensation plans to meet the needs of both the company and its employees can be a complex and frustrating task for business owners. Salaries are typically determined by market pay rates for people doing similar work in similar industries in similar regions.  Having a market-appropriate, objective plan for starting pay and future increases tied to performance are a recommended best practice.  Clearly communicating the plan and performance expectations to prospects and employees will help attract higher quality employees, improve retention and reduce conflicts about pay.  Consider a combination of a lower base pay plus variable pay arrangements such as bonuses, commissions or other incentives to reward outstanding behavior and results.⁴ A  pay-for-performance model can improve productivity, motivation, and retention.

Sources:

1. “Reduce the Staggering Costs of Poor Operational Decisions,” Gartner.com
2. “How to Mitigate the Risk of Employee Fraud,” CFO.com
3. The Danger Zone: Lost In the Growth Transition (4th edition), 123
4. The Danger Zone: Lost In the Growth Transition (4th edition), 138