Over the years of working with companies as a consultant and running companies, it has amazed me as to how many accounting personnel within companies and, even worse, how many outside accounting professionals just don’t understand how that business is organized to “MAKE MONEY”. I’ve heard from clients all too often initially, “I just can’t get the information that I request”, or “I just look at the bottom line of my financials”. All too often financial personnel and professionals are not trained in the fundamental profit controls of the company for which they work, don’t ask questions to learn, and simply do what they know how to do, not what the business requires. Except in the larger, more heavily staffed companies, invariably financial presentation in support of banking and bonding requirements and bank covenant analysis is not foundational to the monthly financial information package.

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Over the 30 years or so of managing and advising businesses the most critical basic issue is cash flow. Managing it requires it to be a “war plan”, meaning that it must be a ruthless (meaning completely focused) process of planning beyond the simple budgetary forecast.

I’ve seen large companies with accumulated equities show profits and they were invariably “comfortable” in making a profit. However when viewed as just how much discounting on payables, interest income, the lack of normal debt funding of business impacts profit, the profit is often a result of the strength of the balance sheet, not operations. Operating issues and operating return are missed because the value of cash is not considered. This is typically a second or third generation issue, and a substantial “mask” to a well managed enterprise. The banks, accountants, and managers become inured in the “book profit” and are not motivated to excel in the operations. Losses are absorbed with less notice in the cushion of cash created by the strong equity balance sheet. How did it change? The value of cash became a line item cost, and every planning meeting and cash forecast listed a return on the value of equity/cash. The managers no longer had a “free ride”.

Companies in trouble become paralyzed with robbing from “Peter” to pay “Paul” sending a message to their vendors, banks, and sometimes customers that they are out of control. The focus becomes one of making payroll or paying for a delivery of materials to complete a phase of a job to get a check only to commence the same routine again. I’ve called it the “cork screw effect“. They keep turning the same process over and over again thinking that they’re getting something out of it, but in reality they are screwing themselves deeper into a hole of insolvency.

A recent client in this situation had the resolve to change this process. Within six month they were completely out of their problems, even though they had been in bank work out, had a negative equity, no owner had ever made $100k or more in salary, and over the past 2 years had a decline in sales of 40% - they were effectively bankrupt. It changed by focusing on a rolling 8 week cash planning process. End one week, add the eighth week. No hope, just reality to meet the business obligation of profitability. Operations were set to make a profit on each customer job. Meetings were held weekly to review the cash forecast, the ongoing jobs, sales leads and estimates awaiting response. Actions were taken each week to address every issue. The same team that had failed now succeeded. Commitments were made at a level that they could be met to condition banks and vendors “something had changed…the company was in control”. Within six months they had a new bank, a new line, and vendor credit, and were profitable every month after the initial changes began.

Knowing why you make money, what you should make, and a ruthless focus in managing cash and profit to that end nearly always creates the results you want and need.

On the heels of the my last speaking event (see previous post), I have been invited to speak to the NE region member’s group of  Vistage International, the world’s largest CEO Membership Organization, specializing in executive leadership development, CEO coaching and business coaching.

On August 16th I will be presenting one of the same presentations I gave at the SEBC, “Seven Deadly Mistakes Businesses Make…How to Recognize, Quantify and Avoid Them.” I will demonstrate how poor fundamental financial controls, poor cash management and misunderstanding of financial information can kill businesses. I will be explaining how to avoid those deadly mistakes to gain a protected business, higher profits and increased revenue in this executive, members only, business enhancing workshop.

I thought I would take this opportunity to talk about my experience at the SEBC (Southeast Builders Conference). I presented two well-received workshops on July 14th in Orlando, FL to the attendees of the annual SEBC. The Florida Home Builders Association-sponsored event drew a large construction business-owner audience. And I had an equally sizable audience at each of my two workshops: “Seven Deadly Mistakes Businesses Make…How to Recognize, Quantify and Avoid Them” and “Succession Planning: What, When, Why and How“. In both I explained how to improve construction businesses and I believe I was really able to make an impact on the personal lives of the attendees by showing them how to grow their business, improve their profit, increase their revenue and protect their businesses and families with his practical expertise and guidelines.

If you didn’t have an opportunity to watch the presentations, or would like to know more about what was discussed please feel free to contact me.

Create Trust in the Workplace, Efficiency,
Greater Profit and a Culture of Performance.

Whenever our firm is implementing change in an organization, we emphasize to the executive and middle managers that truth telling and truth facing will be the hallmark of our process. If the people with whom you are working can’t trust that you’ll tell the truth, you can’t get commitment, and when you make commitment, you build hope…when you keep that commitment, you build trust, when you have trust and commitment, you get ownership of the work performed and results!. Respect guides you to tell the truth and adds momentum to doing the right things well. If you can’t establish respect, you can’t get trust. If there is no trust, there is no commitment. If there is no commitment, results are poor and time is wasted. Having said all that, simply by listening and responding respectfully to an employee and encouraging their input, all else becomes possible.

It is difficult for most to embrace changes in the way things need to be done. Business owners are naturally concerned about changes to the way the business got to where it is now. They wonder, “Will key personnel quit? What about the cost? Will it really make us better?” Thus, for our firm, we establish trust as an immediate goal. We establish trust by delivering the results intended and by accomplishing what we were hired to do on time and within budget. To establish loyalty to both the company and to the process, we always seek to acknowledge the contribution of others and promote it, both in front of them and in a public forum. Problems are discussed in private, yet we expect that “pride” will not get in the way of a manager or executive apologizing to the targeted parties and doing the obvious “right thing” when an obvious “wrong action” has been done.

Finally, don’t blame someone else when things go wrong. Demonstrate your own accountability to the commitments made to the company. “Step up”, listen completely, ask questions, clarify employee communications, make commitments, accomplish commitments, treat co-workers with respect and be completely honest in communications. As a result, you will not only “get what you measure”, but you will find a defined process for positive change, and you will create a powerful workplace, greater profits and increased revenues.