CFOWise

Don’t Eliminate Your Full-Benefits Plan Yet

Rising health care costs and vanishing profits have led many small businesses to cut back their health care benefits to high-deductible HSA plans that cover mostly catastrophic events and not much else. Although these plans can make sense to help bolster profits in the short-term and can be popular among younger employees it can become a disadvantage to your firm when labor markets reverse and employers again need to look for competitive advantages when hiring.

An ever-growing section of the labor market has become increasingly more interested in a full-benefits package rather than the size of their paycheck. A growing segment of the workforce is looking at an increasingly distant retirement date, worried their nest egg could vanish at the appearance any medical condition that will require ongoing treatment with a hefty prescription bill to boot. There are many well-seasoned and experienced professionals willing to work for the benefits package rather than higher wages.

Hanging on to your benefits package will give you an opportunity to scoop up these valuable employees at bargain prices when hiring becomes difficult again.

Important Business Lessons from the Highest Peak in Utah

2 weeks ago I was one of 26 14-18 year-old boys, youth leaders, and fathers that embarked on a 63-mile 5-day backpacking trip in the Uinta mountains.  King’s Peak, the highest mountain in the state at over 13,500 feet in elevation, was just one of the many challenges of the week.  Here are some important lessons we learned, and how they apply to our businesses:

Lightweight Business Model

When I prepared my pack for this grueling adventure, every ounce counted.  And trust me, by the last day I felt every fraction of an ounce.  I started with the staple needs – tent, sleeping bag, stove, water filter, headlamp, etc.  Regardless how many days I would be gone, I would need the same amount of these items (one tent, one sleeping bag, etc.).  These are like the fixed costs in your business.  We want them to be as light as possible, because we will be adding more weight to them per day we are gone – changes of clothing, food, fuel, and more.  A lightweight business model is one that does not over-burden the business with heavy fixed costs and tries to structure itself to function, as much as possible, on variable costs.  The lighter the fixed costs, the lower the break-even point and the more flexible the business will be to change its course and take advantage of the right opportunities as they come along.

Foundation Determines Success

I quickly learned that feet, the foundation of the body, were the most important part of the body on this trip.  One person bought a new pair of shoes 2 weeks before the trip and had several blisters after just the first day of hiking.  He was plagued by these and the rest of the blisters that appeared thereafter throughout the duration of the trip!  He had to go much slower than the rest of his body wanted because of the pain from these blisters.  Those who experienced the least amount of pain and enjoyed the most comfortable experience were those with the right shoes and socks and they worked to keep their feet dry while hiking (we were rained on every day, with the worst torrential downpour I’ve ever experienced on Friday) and warm at night (temperatures dropped into the thirties each night).  In business, we have to strengthen and take-care of our foundation, which is usually a combination of working capital, the best employees, and our customers.  Without these three things we are in for a very painful business experience.

Difficulty is in the Eye of the Beholder

We hiked 12 miles on Monday, 15 miles on Tuesday, 7 miles on Wednesday, 13 miles on Thursday, and 16 miles on Friday.  Before Monday, the youth would complain before a 5 mile hike.  By Wednesday morning, after days of 12 and 15 miles, respectively, 7 miles was the easiest thing they had ever heard of.  Comments like, “Oh, we only have to go 7 miles today,” and “Today is going to be a piece of cake,” became the opinion.  The business application – what may look difficult today is likely not nearly as difficult when put into context.  You may be going somewhere you and your team have never been, but few challenges end up as hard as they might initially appear.

Snapshots are Less Valuable than Overall Perspective

Kings Peak is not all that intimidating when you are next to it.  On Wednesday night we camped just south of Kings Peak in Painters Basin, only about 2,400 feet lower elevation than the peak – it would take a hike of just over 3 miles to summit the next morning.  What was interesting was the reaction of the youth.  “That doesn’t look like the tallest mountain in Utah,” one young man offered.  How quickly they forgot how far and how high we had to hike just to arrive at that point.  Just two days later we would finish our adventure at 7,800 feet.  The point is this – our perspective is often limited to the immediate surroundings of that at which we look.  We need to broaden our perspective so we can see the whole picture of our business.

Conclusion

One of the leaders on this trip frequently said that it would not be an adventure if we knew the outcome.  Starting, owning, and running a business is, therefore, an adventure.  With these four lessons learned, we can hopefully create the outcomes we desire!

“I do and I Understand”

Confucius taught: “I hear and I forget.  I see and I remember.  I do and I understand.”

The 2 Problems with Dashboards

There seems to be a lot of buzz around businesses having a dashboard.  Even Intuit has jumped on board and tried to provide this functionality in QuickBooks with its Snapshot Center.  For those unfamiliar with this concept, a dashboard is one place a business owner should be able to look to see all of the key metrics and performance indicators of their business.  To learn more about this concept, please visit my blog post: The Key Business Metrics Every Entrepreneur Must Know.

Great SMB Resources and Information

A few weeks ago I came across a blog post that mentioned all of the blogger’s favorite blogs and online resources for his passion.  This sparked an idea for me – why not list and give a little commentary on some of the blogs and other websites I frequent to fuel my passion for helping start-up, emerging, and medium-sized businesses.  Here it goes, in no particular order:

Feedback is a Gift

About 4 years ago I was approached by a man who wanted to give me some feedback – and none of it was positive. 

The One-Sided Effect of Healthcare Reform

Entrepreneurs, by their very nature, are usually very skilled at figuring out how to create opportunities out of even the most dire of circumstances.  They regard health care reform no differently.

Now that the dust has settled on this new legislation and employers are waiting to see what else transpires between now and 2014, let me shed a little perspective on how small business owners and entrepreneurs are planning to comply with the reforms.  Interestingly, the people that will feel the brunt of this impact are the employees, not the employers.

OVER 50 EMPLOYEES

Businesses with over 50 employees will be subject to a penalty of over $2,000 per year for not covering their employees.  This is steep, and amounts to a 5% increase in labor costs for an employee that makes $40,000/year.  In a recession in which double-digit percent margins have almost become extinct, how will these businesses survive such an increase?

The answer is quite simple.  The objective is to render the increased health care costs neutral to the firm’s overall labor cost structure.  I have heard many employers that will be impacted by this explain that it will have to be the employees who pay for it, primarily through wage and other benefit decreases.  So, it ultimately comes out of the employee’s pocket, not the employer.

UNDER 50 EMPLOYEES

Although businesses with fewer than 50 employees will not be subject to a penalty in 2014, they will be eligible for significant tax credits for covering their employees with health insurance.  Certainly the tax credits pale in their monetary benefit when compared to the cost for small employers to cover their employees, which means the business owners and entrepreneurs will figure out how to make the employees pay for at least the difference.

ONE-SIDED EFFECT

My point is that the average hard-working American will pay for this health care reform, not businesses.  We will see wages and other benefits decrease to offset the costs of health care.  I doubt this is the result legislators wanted, but it will certainly be the reality.

WILL PUTTING THE BURDEN ON EMPLOYERS WORK?

There are two common reasons these employers are not offering health insurance.  First, their industry’s business model does not have enough room in it.  Second, the employees do not value health insurance offerings from their employers.

By forcing employers who have operated their businesses without offering health care to their employees, this legislation is trying to tinker with proven business models and employee compensation packages that were not broken.  As we approach 2014, most businesses will prepare for implementing health care reform by “tweaking” their overall compensation programs to create a zero-sum result for the company rather than trying to absorb the costs into their business model with no additional value perceived by their employees.

What is your Definition of Success?

I was recently asked this question – “What is your definition of success?”  I thought back to a few conversations I had with an entrepreneur a few years ago and his issues with the word “success.”

Why the Economy will Rebound Faster than Employment

I have seen it happen over and over again.  Entrepreneurs and business owners hire people and then they grow to like them.  They build a culture of family and they genuinely feel a sense of pride in and responsibility for providing employment and security for so many families.

Then, when times get tough, they struggle to let people go because of this same sense of pride and responsibility.  These same entrepreneurs don’t hesitate to sell equipment, downsize their office, or cut other non-human expenses.  So why can’t they just look at their employees as an asset or a piece of equipment to sell or dispose of when they need to lean-up their operations?

I know, this question sounds silly.  Obviously we don’t build much of a real relationship with a piece of equipment, and we don’t personally know of a wife and five kids that the piece of equipment is trying to support.  So, what does this have to do with our ongoing high levels of unemployment in this country?

We have all heard the statistic from the SBA that that just over half of private employees are employed by small businesses.  And I would argue that the small businesses are those that have more of a tendency to view their employees as real people and real families – in fact, sometimes a good portion of their employees are family members.  In this context, I submit that owners and executives of the small businesses of America are still wounded from having to let people go during the recession.

Where a few years ago it was common to see entrepreneurs hire a new person at even the prospect of the need, these same entrepreneurs, still bruised from some tough times, are much more hesitant to pull the trigger on new hires.  Phrases like: “Let’s hold off on hiring until we are absolutely certain we need another person,” and “I’m fine to authorize overtime until we can really justify adding to the staff,” have become the new norm.

Even though the Business Outlook Survey published in CFO Magazine is predicting double-digit rates of growth in both earnings and capital spending over the next 12 months, it is also predicting much slower employment growth.  When asked why employment would lag behind other positive trends, two of the top three responses highlighted the reliance on :

- 44% plan to increase productivity per employee

- 37% will increase production efficiency

Entrepreneurs are simply asking for more from their current employees and looking to technology and automation to grow.  They learned their lesson and, as a result, are accelerating our economy’s change to a more efficient playing field, relying on people to add high-level value than fulfill lower-level tasks.

So, as the economy rebounds, it only makes sense that employment will lag behind.

A Mug, Dry Cleaning, and Customer Loyalty

This is the tale of a mug, dry cleaning, and customer loyalty…

3 Benefits of Financial Clarity

INTRODUCTION

Clarity in business has to do with three things – the past, the present, and the future.  Where we’ve been, where we find ourselves today, and where we are going – our final destination.  Like a three-legged stool, removing any one of these elements would damage our ability to see the whole picture of our business.  When we achieve this clarity, here are the three main benefits we receive:

BENEFIT 1 – MINIMIZE ANXIETY

Anxiety in a business is usually associated with fear, worry, and uneasiness about potentially undesirable outcomes.  For example, a business that is nine months behind with its financial statements may generate some anxiety in those who are running that business.  They might know what the balance in their bank account is today, but they have no idea if they are actually profitable and if they can sustain the business in the future.

I was recently introduced to a business experiencing financial difficulties.  It did not surprise me to learn that they had not received accurate or timely financial statements in years.  They lacked any way to measure their performance historically other than the cash in their bank account, which is often a false indicator of how the business is doing.  They lacked a way to measure their current productivity and success, and they had no clarity on where they were going and how they intended to get there.  Anxiety in this business was high.  It was not until they gained clarity in their past, present, and future that they could create a plan to turn their business around and return to profitability.  Not coincidentally, this clarity, even though it painted a very grim picture, reduced everyone’s anxiety and reinvigorated the entire company as they worked together to save the business.

BENEFIT 2 – IMPROVE TACTICAL DECISION-MAKING

We obtain clarity in the past with timely and accurate monthly financial/managerial reporting.   We obtain clarity in the present with weekly dashboard reports and other productivity and cash management tools.  Our clarity in the future comes from a combination of short-term cash flow projections, an annual budget, a 5-year plan, and an up-to-date financial model.   Knowing that tactical decisions involve the day-to-day functions in a business, here is an example from one of my clients on how we improved our ability to make tactical decisions with clarity.

In our monthly executive team meeting in which we discuss the past, present, and future of the firm, the President shared that one of our largest customers was requesting a new Request for Proposal (RFP) from all of its vendors for some of the services we provide.  Included in this request was an entirely new tier of services for which we had never had to provide unbundled pricing.  Within 30 minutes we constructed an entire financial model to determine the lowest possible prices we could offer without damaging our margins.  This information was powerful, especially when the President realized that her competitors would likely have much higher prices than our minimums.  The result – we won the business with prices that increased our margins but still came in at or below our competitors.

BENEFIT 3 – IMPROVE STRATEGIC DECISION-MAKING

In addition to improving tactical decision-making, financial clarity may bring its greatest benefit in terms of driving the strategic direction of a business.  Here is just one example:

Another growing company for who uses our CFO services became dissatisfied with the performance of its distribution strategy.  Sales growth had been less than stellar, to put it nicely.   We began to explore different distribution strategies, desiring to be open to all options and suggestions.  Because of our already-existing financial clarity, the process was quite simple – evaluate all of our options and find the distribution strategy that would add the most value to the shareholders.  We modeled each option and eventually chose the one with the most promise.  Although we are still in the development and implementation phases of this strategic change, we have already received several points of validation that we are moving in the best direction.

CONCLUSION

This post focuses on the benefits of financial clarity.  I will be publishing another article with some tips on how to obtain clarity on the American Express Open Forum site shortly.

Lessons Learned from Ponzi’s Scheme

I just finished a biography on Charles Ponzi by Mitchell Zuckoff titled: “Ponzi’s Scheme.” This was a very interesting understanding of the psychology and motivations of a man whose name has far outlasted the name of many men more respectable than him. His legendary rise and fall, and his manipulation of financial instruments in the process, have made him legendary, in a very bad way.

5 Ways Entrepreneurs Improve Cash Flow with Benchmarking

Imagine swimming from one end of the pool to another in 30 seconds.  Is that good or bad?  How do we determine how we are doing, what is going well, and what we should try and improve?  It primarily has to do with comparing our performance to ourselves and others.

Why Entrepreneurs Love Pain

This post is going to be more personal than most…I hope you never feel this pain.

Lessons Learned after One Year on Twitter

I created my Twitter account (CFOwise) on December 26th, 2008.  After one full year, this is what I have learned:

Twitter is like every other form of connecting with people (yes, I’m excluding all non-person driven Twitter accounts).  Whether it be face-to-face, over-the-phone, through social networking, or via some other medium, connecting with people professionally and personally is about BUILDING RELATIONSHIPS.  That’s it.  No secrets or amazing revelations.  But here are some thoughts on how Twitter has helped me to build more and better relationships during the last 12 months.

As my vision for my Twitter usage began to take shape, I found that there were some people with whom I wanted to connect that did not seem to feel the same way towards me.  It did not take me long to realize that they had nothing against me, rather, they did not understand the need to create and foster relationships.  They thought Twitter was a race to gain the most followers and that somehow that would be fulfilling.  Let’s be honest…most of those people have gained thousands, if not tens of thousands, of followers only to find that they were getting a lot of noise, or tweets, but they really didn’t have anyone with whom they could connect and create anything of value.  A lot of these folks have even written blog posts about how they have either unfollowed everyone to try and de-clutter their account and start building real relationships or they have started completely new Twitter accounts so they could start fresh with relationships, not numbers, as their focus.

Whether in business or in personal matters, just building relationships is highly ineffective.  You end up knowing a lot of names but aren’t able to add much value to any of them.  Building relationships of TRUST generates very effective relationships, the kinds of relationships we all want.  Twitter is a tool; it is still up to each end-user to build the best kind of relationships.  So, here is a brief list of the some of the key elements of building relationships of trust and how we can apply them to our relationships on Twitter.

Consistency- Be a regular, even if it is for a short time each day.  Respond to your @replies and Direct Messages (not the sales-oriented and spammy ones).

Add Value – Do not just listen to the conversation.  Jump into the fray and communicate.  Add value to what others have to say.  Say things that are valuable in the first place.  Re-tweet the really good stuff you come across.  Add value to the conversation. 

Be Genuine and Real - There is no faster way to destroy trust than to fake it.  Be yourself.  If you do that, you will be happy with the relationships you have built.  I sure am after my first year.

Stay Away from the Trash – Yes, there are certainly some undesirable Twitter accounts.  Just block them and move on.  Filter and flourish.

Help Others- Think about what others are trying to get out of Twitter and help them get it.  If they want exposure, then help them with re-tweets and #followfridays and whatever else makes sense.  This is an old concept, but it applies to Twitter just the same – help others get what they want and they will help you get what you want.  Sounds a lot like building relationships, to me.  If your only Twitter efforts are self-promoting, then you’re not going to attract many trust-based relationships.

Use the Tools- I love using Tweetdeck.  The search tools help me stay on top of my keywords and accelerate my efforts to connect with the right kinds of people.  There are many other applications and tools for making your Twitter experience successful.  Find what works best for you.

In conclusion, let’s consider the many advertising and marketing initiatives we have seen on Twitter.  Some have gone very well, and others have left a bad taste in our mouths.  Just like any other broadcasting medium (by the way, all of their revenue models are built around marketing and advertising), the ones who are building relationships of trust are the ones we listen to and the ones from whom we buy.  If that is true, then we need to try and be just like them.