By Lee R. Goldberg
Esq.Of Counsel – Ford & Diulio, P.C.

lgoldberg@forddiulio.com

We are currently going through some very difficult times – no doubt. Business is challenging at best. I have read professional economists’ forecasts that business will not even start to return to “normal” until the end of June or July, some predict well later. At the very least, that is 3-4 months from now. The good news is that the overwhelming opinion (quite nearly unanimous) is that when the economy comes back, it will do so with a vengeance.

During this COVID-19 crisis, I have not only been addressing my clients’ pressing and immediate business challenges, I have also been spending considerable time counseling my clients as to how they can be proactive and use this economic slowdown to prepare their businesses for the explosive growth to come.

Below are 7 categories of the most common proactive strategic planning considerations recently discussed with my clients.

I. Cement Client/Customer Relations.

Your clients are going through similar challenges as you. They will remember the companies that supported them during this time – you should be one of them. This protects your current base of business in two ways: (a) It may help them survive to continue to be a client; and (b) the better clients will be grateful now, and loyal after the downturn passes. Some strategies I have counseled include: (i) proactively (before they ask) offering your clients with outstanding accounts receivable discounts for quick payment (it helps the client and your business – during these times, cash is king more than ever); (ii) offering EXISTING clients extended terms on their ongoing – regular orders; (iii) offer clients deferred or reduced fixed monthly payment for a period of time (basically a new payment plan – with short term relief); and (iv) continuous contact with clients with business relevant updates, order/service status letters, operational status letters, and most importantly, with no business agenda, just to see how they are doing.

II. Protect Important Assets – Like Your Labor.

Most businesses think of employees as an expense and not an asset. But, what happens to your business if you do not have the labor to support it? What happens when your employees feel you have treated them poorly during this downturn? I will tell you from much client experience, when the economy comes back, they will leave your company in need at a time when every business is competing for the best employees. However, it takes very little to protect this asset. If you are still operating as one of the 16 critical sector companies, protect your employees with enhanced COVID safety policies and practices. If you have had to furlough and/or layoff employees, at the very least help them with access to support services, and keep constant contact with them during the downtime. Your HR should be their one-source “go-to” for referral assistance. Maybe even help in some tangible manner (financially or otherwise). When this passes, you will be glad you did. Your HR professionals can be a great help in this endeavor, with resources, policies and practices to help maintain your very important labor asset.

III. Re-Evaluate; Reorganize.

Perhaps your business had been good, but no business is perfect. Address the challenges in your operations during this downturn. Maybe you have a challenge in accounting, production, sales, or other department – fix it during this time. It’s also time to evaluate and possibly restructure your debt, or qualify new vendors. You should also evaluate and employ new methods to reduce operating costs; After all, “a penny saved is a penny earned”. (If you don’t understand that expression as it relates to business, I almost guaranty your operating costs are too high.) In addition, specifically identify the matters that you need to change, but cannot adjust today, putting a detailed plan in place of how to address the issue when the time is right (and identify that time). You may even need to entirely restructure your operations for future strategic plans, or changes in the law (e.g., California’s new 1099 contractor laws). Now is the time to get those business structures and/or modified operations in place, or at least moved forward.

IV. Marketing Plans.

Let’s be clear – I am not talking about marketing during the downturn. In general, people are tired and annoyed with hearing all the great offers they can get, but only so long as we are in quarantine. However, this is the perfect time to re-assess and identify your target market and develop and prepare marketing plans that can immediately be placed into effect when the current business challenges are eased.
Traditional marketing consultants, web-marketing professionals, advertising consultants and related services have availability now. Businesses that do this will realize two very important advantages over competitors that do not: (i) They will be ready and visible in the market the instant that the time is right (before unprepared competitors); and (ii) They will not be scrambling to get the attention of the best marketing professionals and consultants when all other businesses are doing so at the same time.

V. Invest in Your Business.

Notwithstanding the current downturn, there is plenty of business capital available out there right now, including possibly held in your own “retained earnings”. Moreover, everyone is talking about the SBA Emergency Relief Loans (which if you qualify – there is no better current business debt/grant structure out there of which I know), but that is only one source of available debt capital.
Both institutional and private lenders are lending. So, maybe you have capital improvements that have been deferred too long. Perhaps you need to acquire equipment or software to increase efficiencies and reduce operating/labor costs. Maybe your business facilities need to grow, or even relocate (including potential real estate acquisitions). Maybe, your employees can use better training. All of these things can and should be addressed, assessed and planned at this time, as well as proceeding with the steps to put these capital investments in place.

VI. Acquire Additional Capacity.

If your business was “bursting at the seams” before the slowdown, now may be a great time to consider acquiring additional business capacity or capabilities. Perhaps you’ve even been considering a vertical integration of your production operations. In addition to real estate and plant facilities, you may want to consider new strategic alliances or even acquisition of a competitor. This downturn has many business owners considering sale (some at deflated values) – this may certainly be a good time for the bold and well financed – not so much for the timid. These are all things that can and should be assessed, planned and even placed into action during the downturn, so when the economy surges, you will be able to take advantage as quickly as possible.

VII. Strategic Business Planning.

Of course, all of the foregoing are elements of a strategic business plan, but there are many other elements, including market analysis and demographics, competition and market share analysis, capital requirements, sources and uses, new product/technology development and availability, etc. Now is the time to review and re-evaluate your written strategic business plan for both the current circumstances and the anticipated business boom. And goodness gracious, if your business does not have a written strategic business plan that you regularly follow, re-visit, and revise based upon operating experience, now is the perfect time to get that in place. Operate your business with intent … the results may pleasantly surprise you. There are many professional consultants that can help with this process.

So, is your business going to shelter-in-place until the storm passes, focusing only on the very real immediacy of the challenges you currently face; or are you going to use this time to re-group, re-assess and re-position your business to rise like the phoenix from the fire when the economy comes roaring back.

Economic/market history, anecdote and common sense alike, all evidence that it will be the businesses that do the above trench work in the downturn, as the ones that grow and flourish in and after the recovery, and truly become the “phoenix”. Will your business be ready?

By Scott Cosper

Scott@scottwcosper.com

A Southern California Guide to Budgeting

(Links provided for translation purposes)

What, budget? Whatever. You cubularhoadads do what you need to do, as for me…grab board, hit beach, shoot e-curls.

Okay you SoCal surfrepreneurs consider this while you’re waiting for your perfect wave; Mark McCormack, in his book, “What they don’t teach you in Harvard business School”, sites an interesting study. A group of Harvard business students were asked about their personal goals. As it turns out, only 3% had written goals, the other 97% had either unwritten or no goals. After 10 years, the group with written goals was earning 10 times more than the other 97%. So, even though this applies to individuals, I think it makes a good, if not compelling case to have goals for your business. In business lingo you can call that a budget.

But I can totally understand why you’d rather be in the curl. For the most part, and I’ve been there, budgeting is a colossal waste of time and energy. As soon as you set one in place, you know exactly what is not going to happen. So, what’s the point and how do you make this work for your business?

For that, you go to the sage, Jack Welch. In his book (sorry, another one), “Winning”, he recounts his effort to re-tool the budgeting process at GE. Typically, a budget is established, submitted to the powers, then you live in fear of the day at the end of the year when it is dragged out and your bonus is shredded because you couldn’t foretell the future. Or you got lucky, hoodwinked the boss with a low ball budget (aka: UPOD – under promise, over deliver), got your bonus, laughed all the way to the bank with nary a thought of how you really contributed to the success of the business. A culture of game playing, not winning takes hold.

Jack promotes the “stretch budget”. In this case, rather than the zero-based budget where you start from scratch, your goal is to improve over the prior year andto beat your competition. Stretch budgeting harnesses your creative energy to find better ways to do what you did before and harnesses your competitive drive to beat the competition. These are the characteristics that a business needs to succeed.

So, for example, say you came up with a budget to grow 12% over last year. You only hit 6%. This would be a clear improvement, but still short of expectation. So, management has an excuse to axe your bonus and everyone feels like they’ve failed no matter how much improvement was made or how hard they’ve worked. But if performance against your competition is a factor and your toughest competitor only was able to squeeze out a 3% growth rate in a tough economy, you’ve stomped them. In surf terms, it takes the quality of the swell into account in determining how sweet the ride. Now you’ve made budgeting something that is motivating and relevant, not just an exercise in chance.

Something to ponder as you sit in that space between waves

I was having dinner at Houston’s with a friend a while ago and the topic of fraud came up. He asked, “You’ve got CFO’s, controllers, all sorts of staff, auditors and regulators…how does this stuff even happen?” I said that fraud in a situation like with all those people is pretty rare. In those cases, you’re apt to have a pretty strong “Control environment”, separation of duties, cross training, dual control, that sort of thing. It would be difficult for someone to steal in a situation like that. Don’t get me wrong, fraud is a serious thing and a well-designed and well-staffed financial accounting function is critical to keeping things in check. But these are publicly traded companies with serious resources and legal requirements that compel them to create these systems.

But it struck me that I should write about the risk as I see it in the small business environment. I’m not going to discuss the statistics or behaviors to watch for; there is plenty of good information on that. Just click this linkto see an article by Jan Norman of the Orange County Register on the subject.

But, for the small business owner, unfortunately the risk comes from misplaced trust.

The typical scenario is a small business owner who is working his fingers to the bone and finally finds someone who can handle the back office tasks and accounting. The person becomes a fixture in the business and receives almost total reliance from the boss. Usually what you see is a single person in charge of the administration and accounting with almost unlimited access to the company’s cash and assets. Often this situation is accompanied by what I call “Title Creep”, a title given to someone who is clearly unqualified for the role as a reward for being so indispensible. Trust and the shame of violating that trust, are the only controls the owner has to protect against fraud. And once you have this situation, you are now at risk.

You’ve probably heard it said in one way or another that reason doesn’t stand a chance in the face of emotion. Trust falls into the reason category and it can go right out the window for a whole host of emotional reactions. Greed, envy, personal tragedy, mental illness, you name it, can all stack up pretty high and make “trust” seem like a silly little annoying thing. I don’t know how many embezzlers set out to steal from the first day on the job, but life has a curious way of throwing emotional changes and events at us over time. And at some point, the trust will be tested. Maybe the thought occurs to a person, but then is immediately rejected as wrong because of good character and values. Or, maybe not.

One eventthat I often sited in my teaching days occurred in Orange County in 2009. The trusted employee embezzled $577,000. She went to jail, but the owner will never get that money back. I don’t know if the business ever recovered. That kind of cash loss is likely fatal to a business. Imagine what that does to your sense of trust. If you’re a business owner in this situation, don’t leave this door open. It’s just not a good idea. If it happens to you just one time, it could wipe you out.

Obviously, hiring a heavy accounting person for oversite and control is expensive. So consider hiring a fractional CFO to do the job. There are lots of benefits here and the money is usually well spent.

An on-going consistent relationship with a Fractional CFO adds a level of oversight to the finance and accounting function. They know what to watch for and just the fact that staff is being overseen helps to keep people in check. They also will not want to have access to any bank transactional abilities, nor should they be check signors.

Trust in others is something that we naturally desire. It is critical for things to work properly and there is a great sense of satisfaction in a mutually trusting and productive relationship. But it is also a natural desire for humans to be safe.  So by putting the proper boundaries and controls in place, we can have the safety we want and need and also be able to enjoy the full value of a trusted relationship.

By Lee R. Goldberg,Esq.

Of Counsel – Ford & Diulio,P.C. lgoldberg@forddiulio.com

Most business owners are not aware that it can take up to two (2) years or more to properly position a company for sale. Proper positioning means that at the time your business “goes to market”, your company is structured, organized, documented, protected and operating in a manner that: (i) attracts the right business broker (which can be extremely important); (ii) will attract the right buyer (not just any buyer); and (iii) position your business to maximize your return on sale.

The following are 8 general exit strategy planning and execution considerations common to most businesses. Many of these considerations can (and perhaps should) be implemented well before it comes time to sell your company.

1. Get Your Financial House In Order. Once a potential buyer understands your business, the first thing they will review and analyze are your financial statements. By the time your company is ready for sale, you should have 3-5 years of consolidated and consolidating financial statements, prepared by professional independent accountants (not internal), including all accountants’ notes. These should either be audited or auditable. This will take some time and will require professionals. Your accountants, financial consultants and CFO (whether in-house or fractional) should be engaged to help with this

1. Organize Corporate Documents. When was the last time you reviewed your corporate documents? If you are like most, it’s been a while. This is the first category of documents that a potential buyer’s counsel will want to review. Make sure your documents are complete and up-to-date. This will include, but not be limited to, all formation documents, all shareholder/member agreements, all stock purchase/sale agreements, completed stock/shareholder register, all annual minutes, all options, warrants, etc., SS-4, registrations in foreign jurisdictions (other states); and re-sale certificate, among

• Maximize Your EBITDA. EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is the single most important business metric in the vast majority of business sale transactions. Generally speaking, it is an accounting measurement of your business’ “profits” from operations. Most business sale prices are based upon some multiplier (which can be fractional) of EBITDA, as discussed below. Smart potential buyers will not only look to your EBITDA in the year of (prior to) sale, they will also look for year-over-year increases in EBITDA. There are 2 ways to increase EBITDA: (i) increase gross revenues (as long as you are similarly profitable on the increased margin); or(ii)

the preferred, most efficient, and usually easiest method, … decrease business operating costs. The more efficiently that your business operates, the higher the EBITDA will become, and the higher the EBITDA, the higher the sale price.

There are a myriad of great business consultants that can help with this effort (they used to be called efficiency experts).

1. Enhance Your Blue-Sky. In modern colloquial usage, “Blue-Sky” is anything that enhances the value of your company beyond EBITDA. It is the multiplier discussed above, also known as “turns” on EBITDA (also, the measure of how long it should take the buyer to earn back the investment, all things being stable and equal). This is generally determined by uncontrolled factors including market condition, industry, local economy, unique buyer need, etc. However, Blue-Sky also includes things you can control, including extraordinary inventory and equipment, real estate, significant market penetration, and in vogue these days, intellectual property, including trade secrets, trade processes and/or unique trade supplier relationships. It always amazes me how many businesses do not even know they own and use protectable (possibly valuable) intellectual property. Find what makes your business unique and successful in the market. Then develop it and protect it as a separate asset. Again, experienced business and legal consultants can help with this

1. Ensure You Are Operating Legally. I know it sounds silly, but this is what a potential buyer’s legal counsel is conducting due diligence to ensure. Make sure he/she is not disappointed. This does not only relate to business licenses, and building and occupancy permits, it also means that you have any and all specialty permits and licenses required to conduct your particular business, all necessary export-import licenses, all required hazardous waste treatment/disposal permits, etc. This will also mean that your company is operating in compliance with all labor laws and health and safety laws. If required, make sure that you have your HASSP program prepared and written as well as your employee handbook and other similar documentation. Hazardous waste is a big issue. Make sure you are in

1. Shore-up Your Contracts. If your significant contracts are not in writing, they should be. Review your customer, trade supplier, independent contractor and service provider contracts to ensure they are well written and protective of your business. Buyer’s counsel will review this in due diligence. Take note of all contracts in which you have given indemnities, limited the company right of assignment, or agreed to confidentiality. These types of restricting provisions found at the end of your contracts (sometimes disappointingly called boilerplate) should be assessed and limited in the future as they can have an effect on your business sale down the road. Also, get all of your intercompany contracts, leases and licenses prepared and signed. Finally, make sure you are protecting your business’ intellectual property, not only by registering patents, copyrights or trademarks, but also by documenting your trade secrets, legally protecting them and, above all, keeping them

• Review Your Business Structure/Operations. Your current business structure and operations may not be the best option for a proposed sale. The best structure may depend upon a number of factors including, whether you are preparing for a stock or asset transaction, the extent of the business you intend to sell (retain), the target buyer, and/or your particular tax situation. As an example, a business operating as an LLC may need to convert to a C-Corporation to attract a particular class of buyer. Another example is when ownership wishes to retain certain assets (e.g., spin off and retain real estate then lease-back to the company, or spin off and retain intellectual property and license-back to the company). There are usually ways to accomplish these restructures with little or no tax consequence (other than the tax implications of the new structure). Your accounting and legal professionals should be engaged before any of these steps are considered or taken. Either way, it is always better to be operating for a while under the “sale structure” than to first realize a problem when your company goes to

• The Document Dump. The due diligence requirements of most every transaction will entail a detailed review of just about every document generated by the business. I will be happy to share my 15-page Due Diligence Checklist upon request at the above e-mail. If the company has been operating for a number of years, the assembly of these documents can be a monumental task requiring hundreds of person-hours. The last thing you want to do is scramble to compile these documents in the 11^th Not only does it become expensive and tedious, but the disorganization will be noted by the buyer. My best advice is to start your “document dump” now by establishing a stand-alone database (not on the internet – you will have sensitive files) and start populating it with all of your business documentation (separated into appropriate sub-files). Spend a few hours each month getting and keeping it up to date. When it comes time to sell your business, your business broker, legal counsel and you will all be extremely glad you did so.

In summary, as the great Paul “Bear” Bryant stated, “It’s not the will to win that matters – everyone has that. It’s the will to prepare to win that matters.” Will you be prepared when it comes time to sell your business?

I hear far too many accounts of fraud from my clients and contacts. Sadly, most of the cases are similar and come down to the issue of misplaced trust in the person in charge of the accounting function. I can send you articles of this happening right here in Orange County to some high profile organizations. Most of the time, after the fraud is exposed, the money is gone with no chance of getting it back. Someone who steals usually isn’t someone who saves and invests.

The following bullets comprised of an assortment of things that a business should consider with respect to protecting its self.  Buy the way, if you are the person in charge of the books, you need to put forth these items to both protect your company and validate your integrity. By not insisting on controls like these, you are doing a grave disservice to your employer.

• Dual signature checks– I wouldn’t count on a bank checking the validity of a signature on a check, but they can easily check to see if there are two. It might not stop a forger, but everyone knows a second party is required to sign all checks on a regular basis; it will tighten up the process.
• ACH/EFT blocks– If you don’t need to have these electronic payment services for your normal accounting process, see about having them shut down by your bank.
• A list on the wall– Never, ever, EVER leave a list of your bank accounts out for anyone to see – including credit card numbers. They should be locked up and pass worded if possible or done with enough abbreviation to prevent their appeal to thieves. I’ve been in businesses where a list of accounts was pinned to the wall in the AP cube, the payroll office AND the controller’s office. If these numbers fall into the wrong hands, you will lose. They should not appear anywhere where they are not needed, and this includes the title on the accounts in the general ledger in your accounting software.
• Quality checks and printers– Yes, they can be costly, but I showed a controller one time that I could cleanly lift the payee’s name off a check with a strip of scotch tape due to cheap ink. Also consider the chemically reactive checks; it is very hard to manipulate these documents.
• Reconcile constantly– with access to online banking, you no longer need to wait until the bank statement shows up in the mail. BUT the person doing the reconciliation should not be the one who is also doing the bookkeeping. A second person, or even your tax accountant, who doesn’t have any access to the accounting functions and isn’t a party to the transactions can do it. The fancy word for this is “separation of duties”. Bank reconciliation is a very powerful control for many reasons. If it is not being done consistently, cleanly and easily, something is wrong. If reconciliations are not as current as they can possibly be, there is a process problem. If you ever hear that they are behind, find out why and immediately correct the problem.
• It is not just paper– Try this, walk through your accounting department after hours and check the desktops, mailboxes, drawers and filing cabinets, printer trays, shred boxes and even the trash. If you find any voided checks, bank, or credit card statements or even payroll records, you’re at risk. They are critical documents and need to be controlled.  Another reason is that if this information gets out into the open where other employees can see it, you could have problems on your hands not only from a misinterpretation of the information that leads to toxic rumors, but, God forbit, a leak of payroll data.
• User ID’s and Passwords – This happens far too much, especially with accounting systems. For some reason, I see too many businesses that do not seem to think security here is particularly important (maybe it is because QuickBooks software seems so inexpensive). But when something goes south, and it has for me, if you cannot identify who did what and when because they are all using the same credential, you will not have evidence if a disciplinary action needs to be taken.

Here are a few of my experiences that would have been avoided by having some of the above procedures in place:

• A receptionist opened mail from the bank which she was told clearly not to do. The next time the bank statement came and the accounting manager reconciled the account (yes, promptly upon receipt of the statement) there were $8,000 of transactions charged to the company by the receptionist – her name even showed on the transactions! She bugged out shortly after we called her on it and the money was gone forever.
• A client of mine noticed a large unusual check clearing his account. Someone got into his check stock (in an unlocked drawer) and stole a check from the middle of the batch. If he hadn’t been watching his bank account regularly, it could have been months before he found out. Fortunately, he got his money back from the bank, but it was not a simple process.
• In another instance, credit card account numbers had been stolen by cleaning company staff after hours in a branch office. Our employees had copies of company credit card statements lying around pending completion of their expense reports. Sure we got our money back, but all of the cards needed to be re-issued and each of the fraudulent transactions had to be formally addressed in writing by the company.
• An AP staffer entered late invoices after financial statements had been issued to the investors. The change in the bottom line caused a loss of confidence by the investors in the integrity of the entire accounting function.

Hopefully, these ideas resonate. But above all, if there is not a strong attitude in the accounting department that data and security are important, there is risk – risk that can easily be reduced. Like him or not, when Regan said, “trust but verify”, he was offering sage advice. 

When accounting is done right, it should be boring.

The expectation of most people outside of accounting (and administration) is that things should be done right. Paychecks must be accurate, financial statements must be free of mistakes, vendors must be paid on time, documents must not get lost, procedures must be followed, reports must be ready on time, employees must get correct answers about their benefits, customer invoices must be sent promptly without error, laws or regulations must be complied with. On and on it goes. It’s just the way it is. A mind-numbingly boring machine that runs constantly, always dispensing what is needed without error on demand and without complaint. That is the expectation.

If your machine is running like that, someone deserves a lot of thanks. It takes a lot of work and insight to build and manage a machine that works so well. It does not happen on its own and it is NOT automatic. To paraphrase Buzz Lightyear, “this isn’t boring, it’s accounting with style”.

A couple of things to note if you are a business owner and this is your situation:

1. Don’t take it for granted. You might hear others complain about how much the person supposedly running this boring machine is getting paid. Since all they see is the “boring”, why not save some money and get rid of that person who must not have anything important to do? Don’t buy it. If you do (or if you already have), guess who’s now going to tend the machine? You might get some mileage out of the staff, but it is YOU that they are going to be coming to when they run into something they can’t handle, or when they have a tough question, or when something goes wrong, or when a customer or manager calls with a complaint.
2. Keep in mind the “invisible benefit”. When things are working this well, you can bet that some pretty significant problems are being avoided. You MUST put value on this; out of sight should not be out of mind. The people outside your business can help you get a grip on how valuable this is. Just ask your CPA, attorney, banker, insurance brokers, customers, suppliers and vendors. They’ll tell you how much they appreciate your boring machine. They will also tell you how messed up some of their other clients are because they don’t have their machine under control and how much time and money that’s costing them because of it.

All this brings to mind something I saw years ago on TV. Remember that guy who would spin six or eight dinner plates on top of those skinny flexible poles? He’d go through a lot of work to get things up and running and once they were how it didn’t take much effort to keep it going. It looked like things weren’t even moving…sort of…boring! But do you also remember what happened when he walked away?

NEXT TIME – WHAT IF YOU DON’T HAVE THE MACHINE?

In my previous post on this subject I discussed the expectations of the accounting and administration functions of a business and the benefits to the business when these things are being done right, i.e. – boring. First, it keeps the Owner/CEO away from the endless demands of the accounting and administration processes and focused on core business activities.  Second, there is an invisible benefit to the company by having a well-oiled machine that can solve current problems and prevent future problems. Since you can’t put a dollar sign on this benefit, it tends to get ignored or forgotten, but it is there, and it is very valuable.

What I just said seems simple, unfortunately it doesn’t appear to be the norm. I teach accounting on a part-time basis and usually start out the class talking about this subject. It is a night class of usually 25 students, most of who are working. I ask how many of them work in some sort of accounting department. Most raise their hands. Then I ask if the place seems crazy, out of control, clueless or on fire. Most raise their hands. Ask other people you know that work in accounting departments to see if this is true. Ask bankers and CPA’s. It is a sad situation.

The following items explain why I believe this situation exists and what can be done to remedy the problems:

1. In practical terms, it is up to the owner to make the decision about whether or not he is in business to support his lifestyle, or if he has embarked on a mission to create as much enterprise value as he can for a future exit. The perspective will drive the issues. If lifestyle is important, the money won’t be spent, and things will limp along like they always have. If enterprise building is the focus, then these choices become much more important and critical to a successful exit. Building the machine will cost money and take effort, but it is the expected situation in a sale to a competitor or private equity buyer.

1. Let go of the details – you can’t do it all. This is not to say that an Owner/CEO should walk away from knowing about these business functions, but if you’ve hired good people to take care of it, let them. They want to do a good job so please give them that chance. You picked who you trusted, now trust who you picked. Don’t fear the mistakes they might make, if they’re good, they’ll learn, and the department will be stronger for it. Let them take a run at solving the problems; they need to be more than bearers of facts. When this environment doesn’t exist, the good people get frustrated and look for other work and the remaining staff will be tasked with work they are not qualified to do. It will create problems that consume your precious time to solve and make it harder to hire a qualified replacement.

3. Spend the money – it is an investment. If you try to use the least expensive people and tools you can find to run the accounting and administrative process, you may think you’re saving money, but you’ll very likely have one of those departments that just doesn’t flow smoothly and is always fraught with problems and risk. Of significant importance is that you will be unprepared when the time comes to sell your business. Yes, it is overhead and yes operations should be efficient, but low costs doesn’t equal efficient. It only takes a couple of bucks an hour to make a big difference in the quality of an accounting person. If you’re running QuickBooks 2001, update. If your department doesn’t know Word or Excel, seek training. I’ve found that having two screens on my computer makes a world of difference in attitude and efficiency. You don’t have to spend a lot more, but if you spend and spend it well, you’ll gain considerable progress in making your machine work the way it should. Haven’t you ever heard a contractor say, “good work aint cheap and cheap work aint good?

4. Title creep. When I explain to people the services a fractional CFO can provide it often includes a discussion about the concept of title creep. This is a highly prevalent problem with small to medium size businesses. I define title creep as rewarding a person with a title because they are highly trusted and dependable NOT as an indicator of their skill set and level of authority.The title has become a complement. It sounds good and the recipient is probably grateful, but if they don’t have the skill set that goes with the title the CEO/Owner is now hooked. Titles in these cases tend to lock people into an organization. The recipients have been rewarded for their performance and have therefore “arrived”. Since their past performance has been validated as sufficient the forward momentum of the accounting and administrative process development stops. Also, another resulting difficulty is that no one of any greater skill can be brought in to help without offending the title holder. Stakeholders such as employees, owners, bankers, CPA’s and investors who need information and performance from the accounting and administrative functions are often frustrated by the lack of quality and timeliness. Often things stay as they are until the issues get so serious that a CEO/Owner is forced, usually by outside influences, to confront the issue. It does not help to call anyone someone something they are not. *

If your machine is broken or underpowered, you’ll spend a lot of money on outside accountants, consultants and lawyers just to resolving problems just to stay in place. If your looking for a high-performance engine, you’ll have to spend more and brace yourself for the fits and starts that go along with the building of any endeavor. The first scenario is like paying rent, the second like buying the home.

* It’s somewhat unfair to the recipient of the title. They either get demoted or let go, neither of which is good. They are probably used to the status and pay of the title but will always suffer in the marketplace due to the lack of the proper skills and education. They will not experience a successful career due to lack of proper foundations and will continue to take the same abilities from job to job trying to get back to that trusted role, rather than growing professionally with proper advancement opportunities.