CFOWise

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. 

Servant Leadership – Graduation Speech

On a recent stroll down memory lane, I came across the following speech I gave at the graduation ceremony for my MBA class from the University of Georgia.  The speech was delivered on May 9th, 2003, and here is it for your enjoyment, just as I gave it 7 years ago:

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.

4 Signs Your Business Partnership will Fail

Business partnerships are one of the most unique and trying relationships we will ever enter.  Some work, but most fail.  I did a quick test.  I searched Google for “business partner problems” and found about 169 million results.  Compared to only 143 million results for what I assumed would be the more common term of “business partner,” I think it is clear that many struggle to make these arrangements work.  Here are four warning signs that our relationship with our business partner(s) may be headed for failure.  Please note that this article assumes that business partnerships are in the common form of a Limited Liability Company (LLC).

1.   No Operating Agreement - many states do not require an LLC to have an operating agreement, and, therefore, many business owners and entrepreneurs do not understand the importance of this legal document.  The operating agreement is the agreement between all of the owners, or members, on how the business will run, who will be in charge, and so much more.  Let me share one brief example to portray the need for an operating agreement.

While at a social event recently with my wife, we connected with one of her friends from college.  He has started a business and his product is starting to sell and pick up some nice momentum.  He spoke for quite some time about how excited he was, how much fun he was having, and his new-found joy in finally pursuing his passion.  I asked if anyone else was involved with the business, and he said he had two partners.  The entire tone of the conversation changed as he described how his “partnership” had evolved, or perhaps a better description would be disintegrated.  It started with three friends getting excited about an idea.  They decided to split everything three ways and they failed to put anything into writing (namely, an operating agreement).  As time passed the expectations, time commitments, investment, and basically everything else related to these “equal” partners fell completely out of balance.  Arguments replaced friendship and greed supplanted a desire to share everything equally.  The problem – they never created an operating agreement that defined all of the important legal, financial, management, and time issues for their business.  The lack of an operating agreement has sent this budding partnership into a death spiral that will likely end in a painful and expensive divorce.

Please know that I have many more examples like this than I do of successful partnerships.  One thing all of the successful partnerships have in common – they have an operating agreement.  While certain online resources can help entrepreneurs organize their entities legally, special care and consideration should be paid to the operating agreement.  It is very wise to seek appropriate legal counsel as well as have healthy and lengthy discussions with your partners before you finalize this agreement. 

2.  Partner Pride -This is something that usually shows up when a partnership begins to have struggles and accelerates its demise.  Here is one real-world example of partner pride.  Two men started a business, each owned about 45%.  The remaining 10% went to other key employees.  As the business grew and became quite successful,  one of the 45% owners took great pride in the success of the company.  He began to tell his family and close friends that it was his company and that he was the major contributor to its success.  His pride allowed him to minimize his main partner and falsely establish himself as something he was not.  When this partnership began to fall apart and his partner extended a very fair offer to buy him out, he refused.  Why?  In his mind, he could not communicate to all of his family and friends that the business could exist after he left.  He was so infatuated with his fictitious position that he could not make reasonable or logical decisions.  The matter was finally resolved, but not without great distractions and damage to the business.

The best way I have seen to keep pride out of a partnership is to regularly review the contributions of all involved as well as discuss how each partner can improve.  If done correctly, this serves to keep everyone grounded and grateful for each other.

3.  Compensation and equity are confused -Let me be as straight-forward as I can with this topic.  Too often I see entrepreneurs, founders, and business owners that confuse equity and pay/compensation.  These two items must be separated in order to set your partnership up for success.  A few years ago I was introduced to a business with 50/50 partners.  12 months earlier one of the partners had become permanently disabled and unable to further participate in the business.  The partner remaining in the business was frustrated that the other partner put zero time into the business yet was still getting 50% of everything the remaining partner generated.  This partnership was about to fall apart until we set a fair and reasonable wage for the partner still working in the business.  The other partner’s wage was reduced to zero since he was not working in the business, although he was still entitled to 50% of the profits based on his ownership stake in the business.  Problem solved.

Ownership does not mean you should receive a wage or guaranteed payment.  Ownership means you participate in profits after all expenses are paid, including the wages of those working in the business.  In the spirit of understanding the difference between equity and pay, each partner’s compensation should be reviewed at least annually.  In this scenario, it would not be uncommon for one partner to receive a higher salary than another, especially if there is a difference in the amount of time put into the business.  Please note that the legal and tax structure of the business may determine the best ways to receive both wages and profits, but that should not dictate the separation, at least mentally and emotionally, of the two.

4.   Beginning without the end in mind -perhaps all of these points lead to this one – the need to contemplate every way the partnership will need to end or be dissolved.  Here is just a brief list of the different life events that could impact a partnership: death, disability, lack of interest, relocation, new opportunities, family changes, and more.  How will each of these situations be handled by the partnership?  An operating agreement and potentially a buy/sell agreement should contemplate these events. 

In addition, beginning with the end in mind implies that a partnership will have planned exits as well.  Selling a business can be very rewarding, and a partnership needs to look down the road to how each of the partners will exit.  For example, one partnership for which I serve as the part-time CFO consists of three partners under forty and the fourth partner is almost 65.  The younger three want to stay in the business for a long time while the older partner is hoping to exit the business and retire in a few years.  Orchestrating this partner’s exit while not hurting the business from a cash flow and leadership perspective take thought, consideration, and planning.  

The point is this – if a partnership does not properly plan for expected and unexpected exits, it will likely fail.

Do any of you have good or bad partnership experiences to share?

Top Ten 2010 Trends for Entrepreneurs

With 2009 coming to a close, we look ahead to what we can expect and should plan for in 2010.  Here is my list of the top ten trends founders, CEOs, and entrepreneurs of start-up, emerging, and medium-sized businesses should consider as they prepare for the new year.

1.     The recession will not end, regardless what anyone says - There are just too many issues that still need resolution before this economy can rebound, like the write-down of ALL of the bad assets on the books of the financial institutions.  The fact that they are still not lending much to existing or new customers should be a sign that they know they still have a lot to lose before they can begin to gain again.  In addition, the new business models that are emerging in this recession are leaner and meaner than we have seen in a long time, meaning they aren’t going to help unemployment any time soon.  The effects of this recession could last quite a while.

[Author's Note:I realize I will take some heat for this prediction, but please know that I am only bearish on a macro-economic level.  There are and will continue to be many businesses that grow and thrive through this time, and I applaud them all for it!  If more businesses were like them I would be much more optimistic about an economic recovery.]

2.     Bootstrapping will be king!- Usually you will hear me say that cash is king.  In 2010 the entrepreneurs that have learned to boot-strap will be king – because boot strapping is the best chance for cash generation.  Many of their competitors have gone out of business or are in some sort of a death spiral.  Those who made changes early and are continuing to adapt to the changing economic market are going to win.  I hear lots of businesses take the mentality of: “If we can make it through the recession will be poised to do well.”  That attitude is just not going to cut it.  Survival cannot be the only goal – those that can figure out how to generate positive cash flow in the tough times are the ones that will win when things turn around.

3.     Solving lots of customers’ needs will raise capital- If you are starting a business and your whole focus is on raising capital, you will not get any in 2010.  If, on the other hand, your focus is on getting and satisfying customers with a great product or service, then you have a much better chance to get the money you need (if you even need it).  Ben Peterson, a successful entrepreneur and angel investor, identified one of the major sources of this problem.  He said that the focus in business schools and entrepreneurial education is on teaching how to raise money, not how to grow a successful company that is actually worthy of investment capital.  Get to work, and the money will follow you if you can take care of lots of customers and your need for capital will really add value to your efforts to serve your target market.

4.     Business Lending requirements will increase – It got a lot tougher to borrow money in 2009, and it will continue to become more difficult in terms of requirements and complexity.  For example, a business just obtained a small $125,000 line of credit and the legal documents the bank sent to their customer were over 150-pages in length.  Even though the mean credit score in the US is on the decline, banks have raised their requirements on business owner credit scores and they are mandating more collateral (as a secondary source of repayment) than before, especially if it is real estate.

5.     The cloud will continue to gain a share of all things computer- We are seeing more and more companies abandon traditional software and convert their operations to the cloud.  This is a great trend for entrepreneurs who can accomplish just as much as big businesses for a lot less expensive cloud-driven solutions.  Here is just one example: 2 years ago almost every business used Outlook or some other computer-based email client for its employees.  Today we are seeing some companies, especially those with entrepreneurs under the age of 40, switch to web-based and SaaS applications.  Google Apps seems to be the most popular for now, but the point is clear - the practices of purchasing expensive software to load on each computer and servers to host all of the company’s data are becoming antiquated and cumbersome. 

6.     Social media overload will drive users to the best content sources and filters- Even status updates in LinkedIn are tough to keep up with anymore.  The flow of information through social media tools has grown so dramatically that most feel like they are on overload and like it is impossible to keep up.  While providers are trying to figure this out, we are all going to be driven to the sources of the best and most reliable content, especially if it allows us to filter it quickly and effectively.

7.     Health insurance will continue towards high deductibles and consumer-driven care - I have long been an advocate for high deductible health insurance plans with HSAs or other medical savings accounts.  Yet such plans represent such a stretch from traditional health insurance that adoption rates have been very low.  It seems like employers and employees alike are warming up to this idea and the popularity of these plans will continue to increase.

8.     Being big will become less advantageous to being small – Big will no longer necessarily be better.  There are many reasons for this, but here are the main two – small and medium-sized companies are often more flexible and more hungry to satisfy their customers and big-company economies of scale are becoming less relevant.  For example, with its use of remote, flexible, and contract workers, Jet Blue is able to do more for its customers than any of its larger rivals – and that is in a very capital-intensive business.  Service businesses may find even greater advantages as compared to their larger competitors.

9.     Focus on relationships will pay- Relationships have been and will always be the key to building a successful business – mainly because they help us establish trust.  I’ve included this on my trend list because it seems like to some the practice of building trust is a lost and fallen art.  Obtaining more followers on Twitter and increasing your pool of friends of FaceBook are only relevant if we build relationships in the process.  We will see relationships and trust-building come back to the forefront of business as filtering tools allow us to connect with those who matter most and with whom we want to foster and strengthen our relationships. 

10.    Knowledge workers will take more contract and less full-time work - This recession is helping to accelerate our economy to more of a knowledge-based worker model.  These knowledge workers are finding more benefits in contract and part-time work.  Some appreciate the flexibility, while others feel their value-added to and sustainability in these roles are more secure and potentially more profitable.  Our CFO services business is just one of many examples of this trend.

I would love to hear any thoughts, concerns, questions, modifications, additions, or deletions you have for this list and how 2010 will impact you and your business.  All the best for a prosperous 2010!

The Problem is…

As I sat trying to explain the deal points of a transaction for one of my clients to a business attorney, I was amazed at how he began every sentence with: “The problem is…”  He spent my entire time with him explaining all the problems with the deal, so I invited him to share some solutions.  He offered none.   I’ll share how this story ends, but first I want to address the challenges that professionals who only focus on problems create for themselves.

Have you ever had an experience like this with a professional service provider like a CPA, attorney, insurance agent, banker, etc?  Were you as frustrated as me?  Please know that I have a lot of respect for all of the professionals I know and with whom I associate, but my philosophy on hiring a professional is more than just to define problems.

Sure I want them to use all their expertise, experience, and wisdom to help me identify existing and potential problems, but I am also looking to them to solve those problems.  The more people focus only on problems and not on solutions the less value they bring and the less we want to work with them.  I was once asked by someone unfamiliar with our CFO services if we were like all the consulting companies that come in and tell you how bad you are at everything but don’t ever really help you get any better.  I quickly explained a few of our drastic differences with this negative philosophy, but I was amazed at the bad taste this person had from their prior experiences.

My point is that only focusing on the problem leaves everyone with a bad taste in their mouth.  If a professional in any field dares to point out a problem, then they need to be ready and willing to design and implement the solution to that problem.  If not, then they will slowly lose their influence and they will have fewer and fewer opportunities to discover any problems at all, let alone solve them.

So, how did my experience at the beginning of this post end?  The attorney had done some work for the company before, but he was clearly not experienced in transactions.  After a brief discussion with the client, I approached another attorney with a lot of background in our type of deal.  After just 30 seconds with him he said he knew exactly how to draft the document and would have it done for us in a few days.  Did he think there might be some problems with structuring the deal correctly?  I’m sure he did.  But is he going to focus on solving all of them so this transaction can close by the end of next week.  You bet he is, and he’s going to get more business from us as a result!

Grow with People or Technology – an Entrepreneur’s Dilemma

Two different companies, each in a different industry, face the same dilemma.  Growth and success have created significant pressure on their business, specifically their people and their technology.  In order to solve the short-term constraints as well as build the most scalable solution for the long-term, how much investment should be made into new technology and how much should be made in people, or human assets?  

Both companies have found a shortage of “off-the-shelf” software to solve their technology needs, so they have built powerful databases and other platforms from which they run their business.  It seems that many entrepreneurs under 40 have the attitude that they should hire a full-time programmer and build their systems from scratch, which often ends up much more affordable in the short-term.  The spirit of bootstrapping is alive and well, even in young entrepreneurs.

The challenge, however, with this scenario is what happens after a year or two.  In both situations, the customized solution has already become antiquated and the company is beholden to the developer who, after some analysis, used non-traditional coding and programming language that is difficult to comprehend and unwind.  These developers often become a little lazy and create shortcuts and work-arounds that begin to rear an ugly head in the most inopportune moments.  What worked in the short-term may not be the viable long-term solution.  At CFO WISE, we have found this to commonly be the case.

Both companies are very conservative in their hiring practices, careful not to over-staff their operations.  Yet failing technology systems put so much pressure on their staff that the entrepreneurs begin to hear things like: “I’m going home at night and on the weekend and working several extra hours each day remotely to try and keep up.  We need to hire more people or I’m going to burn out.”  Often we hire more people to keep our staff happy, but we are actually perpetuating the problem created by insufficient technology.

I tend to operate under the following two premises when it comes to people and technology in a business.  First, use technology to automate as much of the business as possible so that the company can focus on hiring bright, smart, talented employees to help the company grow.  Second, do not buy or implement technology to solve your problems – your employees need to solve the problems first, then you can purchase and implement technology to automate the solutions they develop.  Each of these is worthy of a separate blog of their own, but we’ll let this serve as the basis whereby we approach this dilemma.

Obviously the answer to this dilemma will differ with each situation, but I challenge all entrepreneurs to think hard about the investment they are making into people and technology.  If we are confident that your technology can support the next five to ten years of growth in terms of scalability and relevance, then we are in a fantastic position.  If we are not confident in this and we are just doing the necessary things to “band-aid” our way through each day, month, and year, then ultimately we will probably have to scrap that system and start all over again, anyway.  And we’ll spend a lot of money on people trying to hold it all together in this process.  We should seriously consider getting it right the first time if at all possible.

In addition, we need to strongly consider which operations performed by employees could be automated, and we need to start down the road of automating those functions.  Our competitors are going to do it, and we will need to eventually, as well.  For almost 2 years I put myself through college in a call center for one of the largest investment companies in the world.  At the time, automated telephone systems were becoming popular and many of my co-workers thought they would lose their jobs to automation.  Not only was this not true, but we also found that instead of wasting our time answering questions and resolving concerns that the automated systems could handle we could focus on the more value-added elements of the company’s service mission.  The point – our knowledge worker society will progress only as fast as we automate the simple stuff and add more value to our customers with our human assets.

Times are Changing – Is Your Business Keeping Up?

When I was young and received a new baseball hat, I would work the bill of that hat until it formed a symmetrical arch - in the general shape of a rainbow (see photo above).  This was accepted as the best and most stylish thing to do at the time.  Today no young people engage in this ritual.  They take their new hat, flat bill and all, and put it right on their head – and they never work the bill into an arc (see photo above).  It is straight-as-an-arrow and, in my opinion, not very attractive.

This is a small example of a world that is constantly changing.  Business is no exception to this rule.  In fact, unlike popular fashions and trends that may come and then go as quickly as they came, business change is about finding more value, efficiency, cash flow, and profit.

Some of the traditional business models, or old ways of doing business, are under serious overhauls in our new economy with the help of technological advances, social media growth, and a general philosophy that leaner is not only meaner but powerfully more effective.

Here is an example: the professional services industry, as a whole, has been shifting towards a flat fee business model in opposition to its entrenched hourly-rate model.  Those leading this charge are seeing phenomenal success.  Those unwilling to change will continue to see their revenues, and more importantly, their profits fall.

I recently met a manufacturing firm that has had the same ownership and leadership since 1976.  This is impressive, with the exception that the leadership has failed to adapt their business to more effective business models through the years.  Their inefficiency, lack of technology, and resistance to change in general has them teetering on bankruptcy.  In other words, they are still focused on putting the arch in their baseball hat when the rest of the market, especially their competitors, has a new and better way.

I’m not going to change the way I wear a baseball hat – I guess that makes me old and I am willing to deal with the very minor repercussions of my decision.  Some changes in business are fads and will not have any impact on the most effective model for an industry.  But some of these changes are monumental and must be adopted if a business hopes to survive.  The executive team, which inlcudes the CEO, CMO, COO, and CFO jobs, is to continue to drive the business model towards acceptance of those changes that will bring great value and true competitive advantages.  This should be at the premise of any strategy  a company develops for its future.

CFO & Controller – The Differences and Why You May Need Both!

I have met many great and intelligent people on Twitter.  Ben Paramore is a great CFO mind who uses his financial savvy to guide companies to success.  I especially enjoy his blog, and want to briefly discuss a recent post that made on his blog BEYOND BEANS.

Ben wrote a post he titled: Difference Between CFO & Controller.  Here are some additional thoughts to add to his:

There are really a limited number of CFOs worthy of that title.  The reason is because it take a special breed who can master the technical elements of the accounting and finance trade, but also be visionary about how everything will work together and how the organization can best maximize its value in both the short and long term.  Many long-time CPAs get a rude awakening when, after 20 plus years in public accounting, they take their first CFO role in private industry.  Many have commented to me how it is a profession unto itself that has certain elements that can only be learned through experience.

Here is an experience I had that may help to clarify just one of the differences.  The Controller of an organization was overwhelmed by a particulalry difficult month to close.  The trial balance was all out of whack and several major balance sheet accounts were not reconciling very easily to the detail statements.  After much work on her part, she successfully balanced and closed the month.  She was so excited she rushed to the CEO’s office and exclaimed: “The month is closed.  I am finally done.” 

After thanking her for all of her diligent efforts, the CEO asked: “So, how does the month look?  How did we do?”  The Controller’s response, “I don’t know, but it finally balances.”

This gap in communication was not intentional, but it highlights the difference in both perspective and priority of between the CEO and the Controller.  I have found that CEOs, founders, business owners, and entrepreneurs can sometimes become very frustrated with this gap between the Controller and their perspective. 

A CFO fills this gap in a very unique way.  You see, a CFO knows how to speak in the language of accounting, and a CFO also knows how to speak the language of business ownership and CEO.  We sometimes call this the language of entrepreneurship, too.  This is the reason I made the statement earlier that there are really a limited number of folks who can successfully and productively fill this role.  It is rare when someone can understand and even perform all of the technical aspects of a CFO, let alone the strategic vision and leadership to help the executive team guide the organization to success, too. The combination of these two skills makes anyone ideal for a CFO career. In fact, there are many CFO consultants who deliver CFO services in the role of part-time CFO and business financial consultant.

We often hear that CFOs become CEOs.  I know that this is probably not as frequent as some would hope, but hopefully you can start to see why a great CFO is often a great candidate for a CEO role, and sometimes the best for that role.

What Every Entrepreneur Should Learn from the Hudson River Emergency Landing

As I watched the footage from the Hudson River of US Airways flight 1549 emergency landing and rescue, I couldn’t help but make a few comparisons to the journey of every entrepreneur. Here are just a few of the lessons we should all take very seriously.

First Lesson
You want Chelsey Sullenberger flying the plane. This guy is as seasoned as they come, and he knew exactly what to do when the double-bird strike occurred. He had trained his entire life for an emergency like this, and he handled it masterfully. Even if you do not have Chelsey Sullenberger running your company, you need to surround yourself with people like him. People with the experience, training, and background to advise you at every critical point in your business.

Second Lesson
The leader is the last one off the plane. The pilot walked the plane twice to make sure everyone else was safe before he exited. Most entrepreneurs know how this feels. They are the first to forgo a paycheck if cash is tight, and they are the first to make sacrifices of time and resources for the sake of the entire business. Do not become an entrepreneur unless you are completely comfortable with this.

Third Lesson
A motivational focus brings people together and creates synergy. Few of the 155 people on this flight knew each other before they boarded this plane. They are all now friends for life along with all who helped in the rescue efforts. The human spirit is powerful, and we catch a glimpse of it when we see such emergencies. Successful leaders understand this principle and they bring people together to a common “rallying” cry. With everyone motivated on a common purpose, much more good is accomplished than each person working independently with varying motives and incentives.

Conclusion
These and other lessons helped avert a disaster and saved 155 lives. When applied to your entrepreneurial efforts, they can also help you avert disaster and successfully grow and offer financial help for small business.

Giving Usually Turns into more Getting

I have long been an advocate that the more a business focuses on giving the more it will get. Focus on giving more value to customers, and they will pay you more. Focus on giving more to your employees, and they will give you more productivity. Now we have proof that giving to charitable causes can acutally improve a company’s bottom line (USA TODAY ARTICLE).

Here are a few interesting stats from the article.

The percentage of people who think it’s acceptable for companies to involve a cause in their marketing has increased from 66% in 1993 to 85% last year, Cone says. Almost 80% of people say they’d switch from one brand to another if the other brand is associated with a good cause, and the price and quality are about the same, up from 66% in 1993.

More than 75% of 1,100 consumers polled in August said companies should still support social or environmental causes and non-profit organizations during an economic downturn. In the survey, by Opinion Research for cause-marketing company Cone, respondents said businesses should give as much as ever — or more.

When asked if they had to choose between two gifts priced the same and of similar quality, 77% of 1,070 people polled said they’d pick the one supporting a cause, according to a November 2007 survey by Opinion Research for Cone.

While C-Corporations receive a deduction for donating to charity (which creates some tax benefit), it appears the largest benefit from such charitable giving is the increase in the top line revenue of the firm and the brand loyalty increases. If you would like to see if your company can benefit from charitable donations please contact our CFO Consultants.

A Great Entrepreneur Story

I love to read a story about an entrepreneur who overcomes the critics and drives his ideas into a success. The USA TODAY fueatured one such entrepreneur, and he comes from a crowd whose failures far outweight its successes. His name is Magic Johnson. You can find the entire article at: USA Today Article

I grew up watching Magic Johnson do amazing things as he led the Los Angeles Lakers to multiple championships. Little did I know then that his entrepreneurial spirit was forming a passion for his target market – a common trait among successful entrepreneurs. He knew how to reach the inner-city and urban communities that had to drive long-distances for decent entertainment and restaurants. He has built a multi-billion dollar enterprise on his idea.

Perhaps all entrepreneurs and CFO consultants could learn something from his advice when he cousels that we should pick a niche, something we are good at, and don’t stray from it. He says we should pay to our strengths.

Human Capital

An article I recently read in Fortune magazine discussed the global competition for human capital. In essence, economic growth and success will be mostly driven by an economy’s commitment to build and retain its human capital. From the perspective of the 6,000,000 businesses in this country with fewer than 500 employees (which happen to employ the majority of America’s human capital), here is an idea of what this means.

The first or second largest expense category in almost every business is LABOR. Of all of the assets used and things input into a business, studies show that 60-75% of a company’s general and administrative costs, or overhead, are consumed by labor. By adding all of this up, this means that the largest expense in almost every business is people.

Now, imagine if your labor, or human capital, could be just 5% more productive every day. Obviously, this would have an enormously positive impact on your bottom-line. So, the question of the day is: How can you improve your human capital?

On a global level, things like education and opportunity are major parts of how large countries are trying to improve their human capital to improve their economies. These strategies and internal controls take a long time to implement, and even longer to measure the results. I have seen a lot of business owners think that by giving a raise or a bonus or even a stake in the company their human capital would become more productive. Generally, this does not work. Those things become entitlements and do not create sustained productivity, unfortunately. The best long-term strategy to maximize a firm’s human capital is a holistic human resources strategy that has a healthy budget for training.

Just giving a training budget could be a mistake unless specific results are measured. I recently heard an employee say that the company’s training was horribly boring and as soon as they went to a training class they could not wait for it to be over. Just as with any other investment you make in your business, you should measure the return on your training dollars. Sometimes this is a little hard to do, but it can be done. Part of this budget could be used for tuition reimbursement or on other incentives that encourage the staff to improve themselves.

In total, many are concerned with the United States’ human capital strategy because, according to some standards, the US is falling behind relative to other large countries in terms of the education of its people. Without delving into the political realm of this subject, as business owners we can possibly learn something from this. The future of the US and the global economy rests squarely upon our human capital. The future of our businesses rests squarely on your human capital. Your ability to attract it, improve it, and retain it will have everything to do with your long-term growth and success. A knowledgable CFO Advisor can help you achieve this.