How to Prioritize What is Most Important – Create Your Own Life Wheel

If you could put all your energy into what’s most important to you every single day, what would your life look like? Would it look anything like your present-day real life? If the two scenarios look more different than similar—if they look like two separate worlds—it may be time to reprioritize.

A time-tested tool for doing just that is known as a “life wheel.” These can be powerful for helping you refocus when you’re feeling off-balance. They give you a space to examine the most important areas of your life and help you restructure how you use your time and energy.

Life wheels have been around for a while, and there are many versions of them out there. They all split the areas of your life into different dimensions, as seen below.

Here’s how to create your own life wheel:

Step 1:
Download and print the Xenium Life Wheel. Choose your lens. You can use your life wheel to look at an overview of your life in general, or to take a deeper dive into smaller subsets of your life. For instance, you could decide to look at specific areas of your professional or personal life in more detail.

Step 2:
Brainstorm the different dimensions that are important for your life wheel. Within the lens you chose, think about what you care about most, what roles you want to fulfill, and what new priorities you want to establish. Fill in the spokes of your life wheel with your top 10 areas. Filled out, the life wheel should look like this:

Step 3:
Assess how you’re doing in each area, scoring them from 1-10, based on how much attention you currently give them. Plot these scores on the life wheel.

Step 4:
Now it’s time to analyze! From these numbers, you can clearly see where you are focused and where you’re not paying enough attention. Consider where you would like to be in each area and know that a 10 might not be realistic across the board. You may even find that you have been far too attentive to certain areas and would prefer to spend less time on them.

Step 5:
Brainstorm specific and timely ways you can improve your prioritized areas. Coming up with actionable goals will help you in your next step.

Step 6:
Take action! Incorporate your goals into your everyday life. You might find it helpful to review these goals each morning when you wake up, or you could keep them posted somewhere where you’ll see them often, like on your refrigerator or your desk at work.

Step 7:
Finally, be sure to check on your progress in a few weeks or a few months. See if you have created a more balanced life wheel or if you need to make some more goals to help you get there.

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Now You Wish You Were Beyond Your Budget

This is the third part in our series on budgeting and beyond.

In the first part I wrote about a long journey you were about to embark on in “Don’t Tell Me, You’re Still Doing Budgets?” and I gave you this warning: “…when you think all the moving parts are accounted for, something comes up that makes it all obsolete.” The world always develops differently than your assumptions. However, you still decide to produce a budget every year despite wishing you were already beyond your budget. So, let’s discuss how to make the best of your budget situation.

Good, but we can make it even better if…

Here is a list of how we can be good at budgeting… followed by how we can be even better.

  • It’s good to have a budget because it provides a framework for the activities the company plans to do during the year… It would be even better if we realized we must continuously evaluate what activities are the most profitable for our company.
  • It’s good to have a budget because it gives us a chance to discuss with all department heads how they see the coming year and what wishes they have for hiring, training, resources, etc. ... It would be even better if we view these discussions as fluid and understand they require continuous adjustment to achieve the optimum result. If hiring an extra person makes the company more profitable but exceeds the salary budget, make sure our process is flexible enough to hire the extra person.
  • It’s good to have a budget because we now have a forecast to start the year. …It would be even better if we treated the forecast like a moving target which needs constant updating to be an effective management tool. In fact, that is the power behind the forecast, making adjustments to fit current expectations. While we’re at it why not make them rolling forecasts so we don’t bump into the annual forecasting wall; a mid- year event that occurs when there is only 6 months left of our budget and the new budget isn’t complete.
  • It’s good to have a budget because it gives us a benchmark to explain how our business actually develops. It would be even better if we stop explaining our numbers against how we saw the world 6-9 months ago, but rather explain developments one quarter (or even one month) at a time. Rolling forecasts will make this possible and give us a chance to always catch up with an ever-changing reality.
  • It’s good to have a budget because it gives structure to our bonus program. It would be even better if we realized that, because the world is changing and we will never be spot on or even around our budget, we need a more short-term bonus program as well as a long-term one. The short-term program will measure our ability to deliver quarter over quarter while the long-term program will measure our ability to deliver on our strategy. Just think about the harm it will do to our business when 4 months into the year it already looks impossible for most of our staff to get their bonus. So much for the motivational factor.

I could probably go on and on about this one, but I think you get the point. It’s not that the traditional budget is useless, but there are just so many better ways to achieve the original purpose of the budget. Rolling forecasts provide a quarterly/monthly unbiased update from the business on what we expect to deliver. If we’re not happy with that we can take corrective actions. Our target setting process will allow for negotiation where we agree on what short-term actions are needed to fulfil the long-term strategy. Finally, effective resource allocation will ensure we continuously evaluate all projects on their merits and approve the best ones rather than the ones that made it into the budget the year before.

The first steps are quite simple, but there is normally a long change management journey to get this fully embedded into a business. Even if we don’t get our wish and need to stay in traditional budgeting we should at least be critical towards its limitations. So, here we are about to embark on another year. I recommend we seek inspiration from the Beyond Budgeting Network. They too recommend replacing the annual budget with three separate processes addressing precisely the above, namely: target setting, forecasting and resource allocation. Practice shows that this is a great way to get started on a Beyond Budgeting Journey.

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3 Reasons Your Budget Is Already Outdated

This is the second part in our series on budgeting and beyond.

Let’s play part one of our budget series forward a few months. It’s a new year and we have just started comparing actuals to our brand-new budget. However, we are already finding the world hasn’t developed exactly the way we predicted when we were compiling our budget “back in October”. Perhaps we thought the oil price wouldn’t go up farther than $70 per barrel, or the USD/EUR wouldn’t go higher than 0.80 or the US economy would begin to wane. Oops. While things might still turn the way you saw them chances are your budget assumptions will never be accurate and will always be outdated once you begin the budget year. That is OK. We need to quit treating the budget as a static document. Here are the 3 reasons why the budget is important; as a target, as a forecast and for resource allocation.

  • Many times the budget process is used to create a “target” for compensation purposes. It is often different than the forecast budget because it may be subject to negotiation between owners and managers.
  • The forecast is our best prediction for what will happen. It’s future based on expectations, not facts. The forecast will change as variables that created the forecast change.
  • The allocation of human and capital resources is the driving force behind a budget and a key link to the long-term corporate strategy. As business drivers continuously change our resources must be constantly realigned to meet the new business conditions.

The solution is simple. Go beyond budgeting. Start by splitting up your budget into a means for target setting, a rolling forecast and a resource allocation tool. With this you will achieve the following:

  • A separate target setting process will enable us to link our strategic direction setting with our compensation plan. The targets, whether they are quarterly, annual or more long-term, will now be based on where the company expects to be strategically at the end of the target period and also leave room for negotiation without distorting the company’s view of the future.
  • Whether we do it monthly or quarterly, updating our forecast will keep us abreast of the changing landscape our businesses face and give us the opportunity to adjust to those changes.
  • Resource allocation will be based on corporate objectives and return criteria. This will ensure good projects get funded whereas bad projects, even if included in the budget, will not.

This framework gives us a lot more flexibility to manage our company and make the right decisions. Have your company take some steps. Go beyond the budget this budget season.


Read the next article in the series: Now You Wish You Were Beyond Your Budget

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Don’t Tell Me, You’re Still Doing Budgets?

This is the first part in our series on budgeting and beyond.

Today you may be in the midst of a long journey that will take months of hard work, long hours, and heated discussions. Alliances will be broken, and new ones will be formed. At the end of it all, when you have your goal in sight, you suddenly see a storm coming out of nowhere which moves the goal in a completely different direction. What do you do now? Continue towards the original goal or change your course to follow the moving target?

Doing budgets is like a long walk to the Promised Land

The above may sound like quite the adventure. In fact, it’s merely a description of the budget process for many companies. It takes months to complete. You face off in tough discussions with business leaders about a few dollars here and there. At the end of it all, just when you think all the moving parts are accounted for, something comes up that makes it all obsolete.

So, you go back and re-do the budget to make it fit the current environment that will almost certainly change before the ink on the new budget is dry. In any case, the number is done and signed off when suddenly oil prices drop 30%, USD appreciates with 15% and all raw material prices drop because China is growing much slower than anticipated. Granted there are winners and losers in every scenario - except your budget, which loses out every time. Whether it means you will never reach the budget or will grossly over perform doesn’t really matter as the purpose of your budget – as a target for compensation, a forecast for planning and a resource allocation tool - is flawed no matter how you twist and turn it.

Just go Beyond Budgeting

Before going through your annual budgeting process please consider asking yourself some of these essential questions:
The answers can be found in the principles of Beyond Budgeting. This is not just a process change but more importantly a cultural change. By changing the company culture and mindset in addition to the process we can create a sustainable means to answer the questions above.

  • How do we set targets that align with our long-term strategy yet still fulfil our short-term goals?
  • How do we ensure having an updated unbiased forecast for future periods as often as we need it?
  • How will we succeed with allocating funds to the projects that have the highest impact on the bottom-line?
  • How should we conduct performance management throughout the year to keep people focused on delivering the best possible outcomes for the company?

The silliest budget assumption

It’s common to begin the budget process using the status quo and tweak some variables we can control to improve the business. The chance of the status quo continuing is slim to none. We all know our 5-year strategy with all its assumptions will never turn out exactly the way we imagined it. Whether it’s the world economy, industry behavior or poor internal performance that surprises us, we can be sure things will change. We need a process that is dynamic and can adapt to the shifts in the world around us. Expect change. Expect that we’re not able to predict everything accurately and accept that it’s time for a change. Our budget process is no longer as useful as it should be.


Read the next article in the series: 3 Reasons Your Budget Is Already Outdated

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How to make financials more meaningful

For many businesses, financial reports are a formality, but how often do key decision makers challenge the data to find out more about what it really means?

by Phil Wright | Director, Menzies LLP – Guest Contributor


Financial directors within small and medium-sized businesses often say that profit and loss reports prepared for the monthly Board meeting get little or no reaction. In some instances, this could be because the data is not being interpreted fully or accurately enough, or else it lacks the layer of interpretation needed to make it meaningful.

When smaller businesses grow, business leaders may find that the financial data being reported back by the in-house finance team is no longer as useful as it once was. For example, it may be too historical or focused in an area that is no longer relevant or necessary. In other cases, the data sets may have been added to over time, which has caused monthly management reports to become too long and difficult to navigate.

If a financial report has grown to 25 pages or more and is at best skim read, or at worst, ignored completely, it would probably benefit from a review. In general, reports tend to get more favourable feedback if they are much shorter, more relevant and focused on the future. How does the past impact the future? How can we use this information to spark positive change?

…reports tend to get more favourable feedback if they are much shorter, more relevant and focused on the future.

As business advisers, our teams are often asked for advice about how to improve financial reports and make them more user-friendly. We usually recommend that a management pack of information is prepared and circulated in advance of board meetings; making sure there is the right amount of analysis to ensure the data is understood. This should be accompanied by a ‘one pager’ summarising key data in an easy-to-digest format.

As part of its monthly reporting, the business should establish Key Performance Indicators (KPIs) and keep them under review as the business grows. Sales and cash flow forecasts should also be prepared to provide a realistic picture of where the business is heading. The management pack should share facts about the performance of the business against these pre-agreed KPIs – for example, are sales figures higher or lower than targeted? How might this affect the forecast for next month, the current year and the year after?

…the business should establish Key Performance Indicators (KPIs) and keep them under review as the business grows.

Keeping the data as up-to-date as possible is also important. Board directors are bound to lose interest if the only numbers they are being shown each month relate to the previous month’s performance. If this is happening, financial teams should try to find out why the information is late. For example, if the business is waiting until the 21st for all supplier invoices to come in and be entered meaningful financial reports arrive much later. Introducing a new rule whereby all supplier invoices must be in by the 7th of the month, to get paid by the end of the month, could make all the difference and improve your internal reporting timetable. Do you really need to wait that long?

Reporting financial data can be more complex in businesses that operate on a project basis, such as those in the construction industry. Some projects may last just a few months, whereas others might last a year or more, and it is important to account for them on a project-by-project basis. As well as keeping track of payments made and invoices issued, the business will want to know whether each individual piece of work is profitable or not. To calculate this accurately, the financial team will need to stay in touch with operations and make sure they know what stage the project has reached and whether it is likely to complete on time and on budget, and if not, due provision is made.

Depending on the number of projects underway at any one time, it may be important for the financial team to understand the point at which each is expected to turn cash positive. This could help to reassure decision makers that the cash position of the business is secure, even if the project appears to be unprofitable in the early stages. Conversely, a profitable contract still may put a huge cash flow strain on a business if early expenditure is significant, before recovering from your customer. If this occurred on multiple contracts, at the same time, clearly the impact is compounded.

forecast modelling should be introduced to provide a view of how strategic decisions could impact the performance of the business over time.

To ensure financial data is relevant and forward-looking, forecast modelling should be introduced to provide a view of how strategic decisions could impact the performance of the business over time. For example, the Board may wish to know what would happen if the business increases or reduces prices by 1%, or if it recruits a new senior manager to head up an expanding sales function, or ventures to new territories. Demonstrating the cash impact of changes or differing scenarios should keep the whole management team engaged. This type of cash modelling can help to make financial data more meaningful and integral to the running of the business


Phil Wright is a Director with Menzies LLPMenzies LLP, Chartered Accountants and business advisers on the South Coast of England.

This article was first published in the Financial Director

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Why Your KPIs Are Mush

KPIs may be the most quoted lousy leadership tool in the book. They are lousy because they’re used the wrong way. The concept is powerful, both for redirecting company effort and to test new initiatives, among many benefits.

Stand this checklist alongside your KPIs and see how you score. Answer yes or no.

  • We have more than four KPIs for each major activity in the business.
  • Our KPIs are mostly on internal processes.
  • KPIs are designed by our financial team, because they’re numbers people.
  • KPIs are available most weeks, usually by Wednesday.
  • Our KPIs are accurate.
  • Our KPIs are primarily used by management.

Answer Key:

▪ Any “Maybe” or “Partly” or “Sometimes” is a “Yes.”

▪ Any “Yes” answers mean that your KPIs are underperforming.

SPEED BUMP: KPI design is too vital to be left to a smart young intern.

What’s a better way?

  • Have three to four KPIs MAXIMUM. Three is better.
  • Measure at the end of the process or at delivery to the customer. Earlier has limited impact.
  • Design by the workers doing the job being measured. Use the finance folks to clear up the math and make data delivery reliable.
  • KPIs are best if they track daily or weekly. Sooner is better, so it’s clear how we did and figure out how to do better.
  • KPIs need to be simple, with the fewest calculations possible. Accuracy of 80 percent is okay.

ACCELERANT: We have designed a quick KPI Assessment for you. Thoughtfully answering 10 questions will measure how well your KPIs are performing in 4 important areas: Impact, Frequency, Clarity and Insight – providing a roadmap to improve how you use KPIs as a valuable business understanding tool.

You can access the tool by clicking HERE

Example output from the KPI Assessment
Example output from the KPI Assessment

SPEED BUMP: If everyone in your organization doesn’t see them how can you expect everyone to help achieve them?

  • KPIs are for workers, so that they can manage themselves, see ways to do better, and take pride in doing well.
  • Your workers will believe in them when they see that responses to the KPIs improve their results. To reemphasize an earlier point, speed and simplicity trump accuracy People making the product don’t need KPIs to the last decimal point. They are making a product and need KPIs to help them make it better.

Remember “Autonomy, Mastery, Purpose”? KPIs are the door to all three, if they are designed and delivered to help your workers. Management can peek, but principally to spot good results and hand out praise. Problems will become obvious (reported by your people, your quality system, your customers). Excellence is recognized less often, in spite of its reputation as a prime motivator.

There. That wasn’t hard, was it?

ACCELERANT: NOW will you clear the mud for your people and let them see the score every day?

For more information on how you can accelerate revenues and profits in your business, please call or email me.

A note on SPEED BUMPS: Use them to click quickly with an idea that can immediately be implemented in your life as a business leader. Think: “How can I use this today?” or “Who can use this?”

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Why CFO.University

The language of accounting and finance is the native language of business. In many ways our language is also the language for all economies, including; nations, states, corporations and households. It is the recognition of how critical our profession is to all our economies that inspired the Why behind CFO.University.

The senior financial role is defined differently at each individual company. Some include oversight of the human resource department, some the information technology team, others are in charge of legal, some responsible for all administrative functions.

However, all senior financial roles consistently include these four areas of responsibility:

Accounting, Finance, Treasury and Leadership

I call them the Four Pillars of CFO Success. This is the foundation for the learning model we use at CFO.University.

The highly technical parts of the CFO role are learned in school or at specific seminars along the way. The practical parts are learned informally from family, mentors, other senior financial officers, co-workers, other colleagues and friends. At CFO.University we pass on the practical aspects of being a great CFO. We commit to providing you with many great learning opportunities.

The objective of CFO.University is to help learning-hungry financial professionals grow the skills, technology and leadership qualities needed to accelerate their careers. CFO.University is about you - but there is more to it than that. By helping our Member-Scholars grow we are increasing the capabilities of our global financial community. In today’s world, the future success of our economies is dependent upon sound financial principles. The same principles the foundation of CFO.University education is built on.

I am passionate about financial professionals engaging in our communities because we are in the best position to improve them. Many of our economies - nations, states, cities, companies and households - are facing fiscal crisis (learn more here). There is no better trained group of professionals to add logic, facts and tools to help our economies face these predicaments. In addition to improving yourself through some resource like CFO.University, I am asking you, as a professional in our financial community, to accept the responsibility of teaching the citizens of our economies the sound financial principles you have learned over the years.

That is Why I built CFO.University.

If you have an opinion on the model or our place in the economies of the world, please share it.

About me:

I was no different than many of the freshmen at Augsburg College (now Augsburg University) in Minneapolis, Minnesota. I wandered into orientation on the first day of school without a clue for a career path. I enjoyed learning about History, so I signed up to major in studying the past. But a wise counselor suggested I also take some “more practical” classes in Business Administration. I did earn my History degree, but thank goodness I also took my counselor’s advice.

Although it seems like yesterday, unbelievably, I made that decision 40 years ago.

If your experience has any similarities to mine you will grasp the value our skills, technology, experience and leadership bring to the business community and to our different economies.

I started my finance career with Cargill, Inc. in 1981. Since then the discipline has grown its capabilities and the stereotype of a “bean-counter” has been transformed into “strategic leader”. I learned the nuts and bolts of accounting and finance in the “P&L department” at Cargill’s grain division; took on my first accounting manager’s role in Chicago in 1983; learned risk management in Cargill’s Financial Market’s Division as an Administrative Manager.

My first senior financial officer role was running the accounting, finance and logistics team for Cargill’s global energy operations. In 1999 I became CFO at ConAgra Malt, a joint venture between two multi-national companies. At Cargill, the treasury function was run centrally – I never had to raise a dime. At ConAgra Malt, our owners weren’t interested in using their credit capacity to fund our business. I had to learn how to raise funds.

In 2004 I ventured out on my own, providing CFO advisory services to middle market companies. During that time my role has evolved from being an active CFO at a number of companies to mentoring CEOs and Senior Financial Officers. My exposure to many different senior finance roles provided the framework for the model described above. It seems so obvious to me now - I sometimes wonder why it took almost 40 years for the lightbulb to turn on.

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Where’s the cash? Check your Balance Sheet

An important question financial executives are often asked by the Board, their CEO and executive peers is where did our cash go? The folks making these inquiries know sales are being made while money is being spent on salaries, inventory and equipment, but they don’t really know how, when or where it flows.

We know the answer lies in the balance sheet accounts. But that is not a simple concept to grasp for professionals who haven’t been trained in accounting and finance.

To help you effectively handle the cash generation and cash consumption questions your Board, CEO and executive peers have we have developed this simple tool called Where is the Cash?

Look at the following comparative balance sheet.

There are some principles in cash flow we learned early in our training that aren’t intuitive. Be sure to help your audience understand these.

1. An increase in all asset accounts, except cash, have a negative impact on cash. Given we normally look at assets as a good thing this may sound counterintuitive to your audience. Here is an example you can use to make your point:

  • An increase in accounts receivable has a negative impact on cash due to more sales not being collected which ties up the cash required to make the product sold.

2. An increase in all liability accounts have a positive impact on cash. Again, this may seem counterintuitive. Here is an example you can use to make your point:

  • An increase in accounts payable means we are funding our business partly through our vendors which has a positive impact on cash

3. An increase in equity accounts have a positive impact on cash. This is more in line with our intuition.

  • The simple transaction of capitalizing a business is a good example.
  • When cash is received for issuing stock there is an increase in cash.

This thought process on cash flow emphasizes the importance of the full business process cycle, which is normally completed with the collection of cash from customers. Research, production, marketing, consulting, sales and shipments don’t create cash. That happens when customers pay us.

Here is a link to the Tool Where is the Cash?

Enjoy it. We expect it will help you more easily understand and thoroughly answer the question Where is the Cash? There is an excellent chance discussions arising from this tool will create better cash management practices at your company.

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It’s about trust: why you should invest in a Quality of Earnings Report

You’ve owned your business for years, possibly even decades. You’ve built it into an enterprise you’re proud of, and you believe it has a bright future. However, you’ve never had a need for reviewed or audited financial statements.

Why would you? After all, you file your taxes and turn an impressive profit. However, now that you’re considering a sale, you realize your finances need a little work before they’re ready for the scrutiny of third-party buyers.

A complicated trail of owner-related adjustments needs explanation too. Your M&A advisor or CPA might recommend reviewed or audited financials. However, a popular alternative accepted by many buyers and banks is available: a Quality of Earnings Report or “QofE”.

What is a QofE?

A QofE is an independent analysis primarily focused on the quality of your income statement and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization).

A potential buyer will have value in a QofE for a couple of reasons:

  1. To quantify true earnings of the underlying business; and
  2. To verify the reasonableness of “add backs” added to the earnings by the seller in order to properly represent future profits the new owner can expect.

When preparing the QofE, the CPA firm may find or make recommendations related to:

  • Revenue or expenses accounted for in an incorrect period
  • Improper accounting methodologies
  • Discontinued operations
  • Open employee or shareholder positions
  • Missing expenses
  • Improper or additional add-backs
  • Pro-forma adjustments
  • Tax exposures (especially complex state and local tax issues)
  • Tax strategies related to the transaction (for example, 338(h)(10) election strategies or purchase price allocation strategies related to personal goodwill, non-completes and/or depreciation)

Identifying one or more such issues during the final due diligence phase is likely to give the seller a major headache and could change the LOI terms. That’s bad news for the seller.

A QofE report tends to be less expensive and intrusive than a full audit and will contribute to maximize the business’s value, making it a prudent investment.

The QofE enables the owner to present the company’s most accurate financial picture. This allows the following to be addressed before due diligence:

  • Non-GAAP (generally accepted accounting principles) issues
  • Revenue recognition issues and accrual accounting issues
  • Financial reporting issues
  • Anomalies in the numbers
  • Non-recurring adjustments and one-off events
  • Working capital issues and the calculation of normal working capital levels
  • Tax and accounting compliance issues

As you can imagine, the valuation agreed to in the letter of intent (LOI) could be subject to renegotiation if the buyer discovers these during due diligence. Done beforehand, with time to address any accounting nuances, you will be able to anticipate potential problems, prepare answers and plan corrective actions. This will give you a real advantage if the buyer tries to raise issues down the road.

Just a reminder – due diligence should be a verification process and not a discovery process.

Key goals of the due diligence process: speed and value

A business owner engaging in a sale transaction with a QofE in place is assured a better experience than one without. Ultimately, once the right buyer is identified, owners in due diligence are focused on closing a deal quickly while maximizing value.

After the LOI is signed, the due diligence process and timing may vary based on whether a QofE is present. Without it, the buyer may hire their own accounting firm to scrutinize your financial statements and internal controls. This can add 6 to 8 weeks to the closing process.

Let us remind you: there is an inverse relationship between sale price and the duration of the due diligence phase.

Fundamentally, transactions are about trust.

A prudent buyer is not going to believe everything they have been told about the business and EBITDA adjustments prior to due diligence. A QofE provides a professional, third-party analysis by a reputable CPA firm that validates the financial information an owner has shared about the business.

Here’s the bottom line: an owner is well advised to have a CPA firm help with financial due diligence and a review of controls early in the sale preparation process. You’ve saved money for years not having your financials reviewed. It’s time to invest in proper financial due diligence prior to the sale.

Distrust kills deals.

Trust closes deals.

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Preparing for a Downturn in the Economy – It’s No Different than Preparing for an Upturn

Turning an economic downturn into a financial upturn for your business.

Whether it’s around an inverting yield curve1, asset bubbles about to burst in the housing and stock markets2 or just a “long in the tooth” expansion3 ; there are loads of discussions taking place on how our robust economy could be nearing a downturn.

How can you determine what this might mean for your business? Here are some thoughts I recently developed with John Major, a colleague of mine who specializes in process improvement and optimization. We applied the concepts to our businesses to help us prepare for a changing economy.

First, we concluded changes in the economy will impact our businesses by how those changes impact our customers. So, to kick things off we need to anticipate the answers to these two questions about our customers:

  1. What are the leading indicators our customers are being hit by a downturn?
  2. How will a downturn impact our customers?

The first question can be answered by deeply knowing our customers and having transparency into the key drivers of their business. For example, if our customer is highly levered, interest rate increases could put pressure on their cash flow.

Answering the second question can make the difference between being a valued “partner” and losing the business.

My colleague was insightful on this aspect. He asked, “When are we most valuable to our customers?” The obvious answer, “When we can help them the most.” Normally that is when they are under some type of stress. Giving thought to how our customers will feel the impact of a downturn allowed us to develop a plan that can best serve our customers during their most critical time of need.

Moving along, we now had:

  1. Some leading indicators to identify when a customer will be impacted by a downturn in business and
  2. Ideas on how our customer could be injured from the downturn.

We then used an age-old planning technique, the SWOT Analysis, to determine how well we were positioned to help our customers through their downturn. We applied each parameter of the SWOT to the specific situation we anticipated our customer to be in. Using our strengths and opportunities we developed plans around how we could best serve our customers in their predicted state. Using weaknesses and threats we began the process to evaluate new offerings and how to protect our turf.

As I reread the action we took and plans we put in place it became apparent to me, this simple (but not necessarily easy) process also applies during an upturn, or for that matter, a no turn.

Success hinges on two key aspects.

  1. Developing a relationship with our customers that provides us with the information we need to anticipate when significant change is about to impact them.
  2. Creating the capability (discipline and process) to position our businesses to serve them more effectively when that change occurs.

Know your customer and continue to build new capabilities. Isn’t it funny how core business concepts never seem to get old.


1 After averaging 129 bps since early 2009 the U.S. Treasury yield curve (10 year/2year) has fallen to under 25 bps for the past month.

2 Since January 2012 the Compounded Annual Growth Rates on the S&P 500 Index and the Monthly House Price Index for the U.S. are 13.1% and 6.1% respectively. (MSN/Morningstar and FHFA)

3 “It’s… the second-longest economic expansion in American history.” (CNN Money)


Watch this interactive instructional video for tips on how to identify the leading indicators for a downturn in your customers business. It includes an exercise and example that will point you in the right direction.

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The Balanced Digest Survey Results – August 2018

Thanks to those subscribers of The Balanced Digest who participated in our survey two weeks ago. Here is a recap of the results and how we plan to use your feedback to improve your experience using The Balanced Digest:

We are encouraged that most subscribers rate The Balanced Digest as Fairly, Mostly or Very Valuable, Important and Fun to Read. But we also realize we can make improvements to all three areas. One of the most effective ways we can do that is to get specific feedback from our subscribers on how we can do better. We would love to hear from you.

94% of respondents indicated they would recommend The Balanced Digest to other colleagues. We feel good about this but are also curious why 6% do not find the TBD compelling enough to share. Our goal with The Balanced Digest is to provide executive level topics that assist in the professional development of executives who specialize in accounting, finance and treasury.

We were delighted that nearly 20% of respondents have an interest in contributing their knowledge to improve our CFO.University community. We are following up to bring a wider array of CFO-Centric learning to our community.

About 35% of respondents to the survey are Member-Scholars at CFO.University. We would love to hear from financial executives who aren’t Member-Scholars on what you are doing in terms of professional development. We believe CFO.University is a very strong option that not only provides professional growth but development in a way that can be specifically applied to your current job – Getting better results for your company while expanding your skill set.

The responses to “Anything else we should know?” were all very positive. It is gratifying to hear that we are headed in the right direction. There is a downside to only getting positive comments. To make sure we keep improving your experience we also need to hear what we aren’t doing so well.

Here is a sample of the comments we received:

  • Excellent initiative!
  • I fully encourage such initiatives as they truly contribute to professionalism!
  • Continue submitting good articles and information
  • Keep up the good work! Many helpful topics for our small business.
  • You’re doing good work - keep it up!!!
  • Great job.
  • I value receiving your newsletter.

Thank you for the time you invested in the survey to help us get better! In the long run we believe you will reap the benefits too.

See you around CFO.University.


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Stop Credential Compromises with MFA

Multi-factor authentication (MFA) has come of age at just the right time. Statistics show that password compromises are by far the most likely reason companies experience data breaches. The most recent Verizon Data Breach Investigation Report indicated that 81% of hacking-related breaches leveraged either stolen, default, or weak passwords. The time has come to “up the ante” and strengthen the way we prove identities beyond the plain old simple password.

Businesses have realized that a more mature approach to identity and access control is needed both on-premises and in the Cloud. This is particularly true when securing important applications, devices, data, and infrastructure. The easiest way for a cyber-attacker to gain access to sensitive data is by compromising the employee’s identity and credentials which allows them to operate undetected. Many times this is done without raising any red flags whatsoever. In fact, most of today’s cyber-attacks begin with credential harvesting campaigns using approaches such as password sniffers, phishing campaigns, or malware attacks.

To limit exposure to these attacks, organizations need to rethink their security strategy and move to a model with stronger verification of user identity through improved access credentials and authentication. Unfortunately, some organizations still use single-factor authentication such as simple passwords. Even with stricter password strength policies (length, reuse requirements, and renewal intervals, for example), people with privileged accounts often have too many passwords to remember. This makes them prone to either creating passwords with a pattern, sharing passwords across different environments, or even openly recording and storing them in unsecure locations.

To achieve a better identity management posture, organizations need to leverage MFA because knowing a login name and password is no longer enough to assume a person’s identity. The likelihood of a hacker gaining access to something their victim has in their pocket (their cellphone) in addition to something they know (their password) is very rare.

Many of the newer MFA systems send a text to the person’s cell phone while others combine passwords with some kind of device (access card) or biometric identification such as finger prints. Some security systems ask for answers to security questions for additional password strength.
In balance, the real question is whether the extra security outweighs the inconvenience – and that may depend on the nature of the business. Finance firms will reap high benefit for little extra effort, whereas businesses with limited confidential data may find there is too much cost and hassle for the effort.

There are pros and cons to multi-factor authentication:


  1. MFA gives an extra layer of protection for everyone; the business, the employees, and customers.
  2. The technology has become more affordable, easier to implement, and less to manage than in the past. MFA solutions that send cellphones extra numbers to enter are lower cost than older solutions.
  3. When thieves become aware you are using multi-factor authentication, they are likely to choose an easier target.


  1. It takes a little extra time to log in because an additional code on a cellphone must be entered.
  2. Employees who forget their phone, have no access to a cellphone, or lack a cell signal may be unable to login.
  3. If a thief steals a cell phone with a weak security password, they may have full access to other passwords stored on that phone.
  4. People who have little appreciation for security risks are likely to be irritated by new steps. Some people don’t like using their personal cell this way and others don’t like to provide their phone number. Having a clear login policy in the employee handbook will reinforce the company’s commitment to security.

One final consideration is the setup and maintenance of the MFA application. Businesses using a technology services provider should make sure that they offer a strong suite of security services that include MFA as well as staff training and testing.

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Identify the Required Outcome Before Applying an IT Solution. 

I discovered early in my career that there are different ways to look at a business challenge. How you look at those challenges determines: a) the degree of success that can be achieved in overcoming them, b) the speed at which they can be overcome, and c) the degree of pain associated with overcoming the challenge.

Early in my career, as a systems implementation specialist with a large Hospital Information Management Systems software company, I traveled the country installing dozens of systems and witnessed one life-changing event. One of my client hospitals, (Hospital A), had a profitability problem. Another hospital (Hospital B) across town also had a profitability problem.

They solved their nagging profitability problems by “exchanging” procedures. Low profit procedures at Hospital A were exchanged for procedures that were low profit at Hospital B each hospital taking in exchange only profitable procedures they were good at. It was a huge, painless win-win.

The impact of this is illustrated in the Before and After graphs below (the figures used are fictional, but the principle is the same). In this example, each hospital exchanged their unprofitable procedures for profitable ones. By doing so each hospital significantly increased Total profitability.

The HIS system I was installing would never have solved that fundamental business problem; while it certainly would make the hospital easier to manage, management efficiency wasn’t the problem.

“It was at that point I realized that what is ultimately important is achieving a company’s needed business outcomes – not installing hardware and software systems.”

Achieving Your Needed Business Outcomes

Here are six ways to think about your business challenges before deciding their solutions are more and better IT.

Outcomes: A clearly communicated corporate outcome is invaluable and must be the “North Star” of all investment and effort. It must be the prime gravitational influence on all that is done. Sometimes, it can be encapsulated in a tag line like, “When it Absolutely Positively has to be there Overnight”.

If there is no North Star, investments become misaligned and move toward their own goals – ultimately making their realignment, once it becomes obvious they have strayed too far, extremely difficult.

Process Effectiveness: If your fundamental business processes are not sound, efficient, and consistently producing quality outcomes, IT won’t solve that problem. Fix the process first.

Business Model: If your fundamental business model is not sound, efficient and consistently producing quality outcomes, IT systems won’t solve that problem, either. Fix the business model first.

Operational Bottlenecks: The Theory of Constraints says that you can only process as much of anything as the processing capacity of the slowest and least productive operation in a chain of operations. Widening bottlenecks is the fastest route to increased revenue and corporate earnings. That is typically a process or quality problem – not a systems problem.

Data Quality: Fast and efficient software and hardware have the potential to quickly deliver the information you need to make a sound decision only if the raw data it is processing is accurate and timely. Assuring the Quality of the data first is essential.

Data Security: The number of separate repositories for data geometrically increases the probability for data to be mislabeled, misinterpreted, unavailable for compilation and susceptible to mishandling or breach.

Implications and Advice for CEOs and Business Owners

It is too easy to hide behind the “delegation” word when a business leader is not an expert in a specific aspect of their business. If you are not an information systems specialist, (and few CEOs are), I respectfully caution and recommend a few questions when you are approached by your team with requests for information and systems investments. These questions simply follow the five ways to think about business challenges.
These are the tough questions that are too infrequently asked. To your IT manager, impatiently awaiting approval of his/her next project, they may seem a stalling tactic.

  1. How does this proposed information systems initiative align with our intended Corporate Outcomes?
  2. What have we done to assure our business processes are effective and optimized before we invest in automating them?
  3. How, and how long ago, have we challenged our business model to assure its still valid?
  4. How does this information systems investment relieve any operational bottlenecks we have?
  5. What are we doing to assure the quality, consistency, integrity and security of our data?

They are not! They are essential, admittedly tough, business questions – the answer to which your firm’s future success depend. I challenge you to have the courage to ask them.

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Six Symptoms Your Company Needs ERP Therapy

Many of our human physical discomforts are associated with the suffix “-itis”. There’s tonsillitis, arthritis, bursitis, dermatitis, hepatitis and more. If our “itis” discomforts persist, we typically seek expert advice and treatment.

The suffix “itis” simply means something is irritated or inflamed. With minor bodily discomforts, one may choose to “just live with it.” But in business, as in health, the implications of these symptoms may not be something to go undiagnosed and untreated.

ERP Systems have irritants too

In years of working with client ERP systems, we’ve identified six common irritants.

  1. Capabilit-itis: When you ask for information, your people respond that your ERP system doesn’t have the capability to provide it in the form you need to see it.

  2. Excel-itis: Financial closing is not push button. It is consistently delayed because financial data requires extensive use of pre-and-post processing in Excel worksheets to complete.

  3. Data Integrit-itis: The data is available in the system but can’t be trusted.

  4. Integrat-itis: The system is not connected to other key systems required to run the business efficiently and competitively – such as an ecommerce or CRM disconnect.

  5. Limit-itis: The systems are not capable of supporting planned or expected growth of the business.

  6. Costing-itis: The system can’t tell you what it’s costing you to build or sell specific products.

The Implications of ERP-itis

Choosing to live with such irritants and constraints has economic, competitive and corporate cultural consequences well beyond the difficulty of employees trying to do their jobs. To conceptualize those implications quickly, you can simply ask yourself 3 questions:

  • How much have these irritants cost us in the past 5 years in terms of unnecessary expense or lost revenues?
  • How would our competitive position erode if our toughest competitor had an “itis”-free ERP, while we continued to struggle with ours?
  • What would the impact be on the value of our business, if, during due diligence performed by a potential suitor, these performance irritants were discovered?

ERP-itis Treatment and Therapy

Here are some recommendations if you find your business afflicted with ERP-itis.

Don’t Panic: Over-reacting and impulsively commanding the team to immediately replace the ERP system can lead to poor decision-making with long term implications and costs.

Get a Specialty Diagnosis: Get expert help. Let the expert run an objective diagnosis before writing yourself a prescription or commencing your own treatment and therapy. Specialists know things you don’t. They typically have experience of a wide array of ERP situations. Along the way they have learned what to look for beneath the symptoms to find root causes. They know what to do and what not to do. Trying to fix the wrong things may exacerbate the problems.

Don’t Build It Yourself: Don’t believe that to achieve a perfect ERP system it must be designed and programmed by your internal staff because “our business is unique.” You may think it’s unique, but truth is, it isn’t.

In our experience self-developed ERP systems take two to three-times longer to deploy than originally anticipated, cost more, carry with them many bugs, and require extensive ongoing maintenance and support. Commercially available, integrated and configurable ERP systems, on the other hand, have had the benefit of hundreds of installations from which to evolve and work out the bugs.

Form a Collaborative Multi-Functional Team: Combining the best of your team with systems and deployment experts goes a long way to assuring few surprises, directly addressing the specific problems and accelerating bump-less deployment and switchover.

Make sure you have adequate committed resources: An ERP implementation can take considerable time, resources and mind-share. It may require rethinking some existing processes or developing new ones to fill gaps.

Do your homework: The more preparation, the better off you will be. That includes process review and development as well as data clean up. The last thing you want is to bring bad Master Data into your new system.

Leave the Past Behind: Avoid customizations and let useless history go.

Attempts to customize a new system to replicate “the way we’ve always done things” is typically unwise and costly – and locks-in the old dysfunctions you are trying to improve upon.

Bringing excessive “History” into a new system typically requires extensive data format changes, while increasing the risk of bringing bad data (aka Garbage) into your new system. Three years of financial history in the General Ledger at a Trial Balance level should be adequate.

Any other desired data – Sales, Production, etc. can be preserved in an easily accessed database, allowing access to your history without the hassle of converting it.

Plan a Quick “Go-Live”: We have seen clients whose self-designed ERP deployments have spanned several years and, in the process, burned up several project managers. In contrast, well-planned and selected ERP deployments can be accomplished in less than 4 months – with just one project manager.

Preserve the Core, Stimulate Progress: This is one of the key premises in Jim Collins’ “Built to Last.” You are changing systems for a reason and making a significant investment to do so. Stay true to your core values and competencies, but don’t let the past – “How we’ve always done it” – constrict your future.

A Final Word

In one form or another, ERP systems have existed for 50 years or more. They have become functionally integrated, technologically optimized and proven to function smoothly. The journey to a successful ERP deployment is not to be feared.

If objectively and expertly guided, there is every reason to believe in a favorable prognosis.

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CFOs Must Build a Solid Foundation First

Lately I have read a myriad of articles and blogs regarding the CFO role that..

  1. Claim the role is going the way of the dinosaur.
  2. Claim a CFO who doesn’t have a digital transformation plan being implemented yesterday is about to have the earth fall from under their feet.
  3. Claim If you aren’t a near clone of Winston Churchill or Martin Luther King your chance of getting a CFO role are slim to none.

Certainly, the CFO role is changing but none of these claims are true for senior finance leaders at businesses today.

Why is that?

  1. The fundamental role we play at our companies is still Leading the Accounting, Finance and Treasury functions for our businesses. Many senior financial officers have other important responsibilities – sometimes human resources, sometimes information technology, sometimes legal, etc. - piled on top of the Four Pillars. A CFO’s success depends on mastering the Four Pillars. There are no new species waiting to take over these critical corporate functions.

  2. It’s important we learn how to use technology wisely; for decision support, to speed up and make our processes more effective and to increase revenue while reducing costs. These technology opportunities aren’t unique to our experience or mystical in nature – we have been using technology to improve our activities for the past 500 years. I don’t mean to yawn, this is important stuff, but there is a good chance you and your executive team are taking many of the right steps already.

  3. Having a big picture view and good communication skills go a long way to getting your Four Pillars of Success properly erected and functioning. You don’t need an “I Have Dream” or a “Never Was so Much Owed by so Many to so Few” speech in your resume to be a successful senior finance officer. But you must understand how to lead each of the CFO Pillars to make your team value creators for your business.

Through all the changes on the horizon we must not forget the fundamentals of the CFO’s role. Without these foundational activities cemented in our business the CFO will not be capable of garnering the support of the Board or the CEO to take advantage of new technologies – they will either escape the grasp of our companies or be managed outside our arena.

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Team Sky – Lessons from the Tour de France –  Lessons for our Teams

Geraint Thomas, supported by Chris Froome
Geraint Thomas, supported by Chris Froome

Thanks to cycling fans who responded to our call for teamwork examples from Team Sky. Sky has dominated the Tour de France by winning the general classification (racer with the fastest time over the 21 stage race) in six of the last seven years. Although cycling may look like an individual event, team tactics, drafting and teammate support play a huge role in the outcome of a stage race, especially a race that is 3329 kilometers long.

Here are the teamwork lessons that go hand in hand with building our teams at work:

  • Sky has a clear goal – win the Tour de France
  • The support riders take pride in achieving the team goal – even when only one teammate stands on the podium
  • The domestiques (support riders) are the real winners behind any team. They provide the horsepower, seat belts and defense in an unselfish manner. These teammates are the glue that hold many teams together.
  • Four-time winner and this year’s favorite, Chris Froome, relinquished his chance to win in the later stages and offered his full support to Geraint Thomas, helping him win the race. (That is not only superb teamwork – that is great leadership.)
  • They have a plan and execute it. It looks simple – stave off attacks from contenders and protect our leader – but when its 167 opponents vs 9 teammates – the coordination and communication it takes to successfully execute your plan is extraordinary.
  • It helps to have money, and Sky has that. But to their credit, it isn’t squandered. It is applied to equipment, research, training and diet that yields the best return. Sky understands the ROI on where their capital is invested.
  • They set out to improve everything they do by 1%, thoughtful about the many small improvements that add up to large gains.
  • Team Sky management has maintained team unity by keeping the cyclist’s egos in check, knowing each rider well enough to position them as an important part of the team’s success.
  • Here is quote from Geraint Thomas that speaks volumes about team effectiveness, ‘We’ve just been open and honest with each other from the start.’ Thomas said. ‘I think that’s the main reason for our success so far at this Tour.’
  • They leave no stone unturned. Diet, sleep, equipment, cycling position, aerodynamics, mindset are all aspects the managers take into account to put their team in the best position to win. What’s left is training, planning and execution.
  • Be agile and prepared to refocus the team when it’s called for. In the 17thstage when Chris Froome cracked all of Sky’s team support, including Froome’s, went behind Geraint Thomas. There was no hesitation, lost time, our disagreement – the team was prepared for the new orders.

Here are some apt quotes made by members of Team Sky:

“The domestique’s lay the foundation for their leader’s and the team’s success”

“The domestique’s must have faith in the leader they are working for”

“The domestique personal satisfaction comes from doing their job well and meeting the team’s goals”

“The leader must appreciate the support the domestique has afforded them”

“Celebrate successes together” (even though only one rider wins a stage its clear from the team celebration after a stage win that all teammates feel they contributed.)

“Prepare for moments when you have to overcome what seems like insurmountable hurdles” (our training must accommodate a mental state that will overcome these barriers)

“Doing your homework and hard work prepares you mentally for victory”

“Don’t forgot about the Grupettos – the last group of riders who rode as support early in the race and must still finish the stage to stay in the race”

There is so much in the above we can apply to our teams at work. I am excited just thinking about it. Use this list wisely and make your team a champion.

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A Proactive vs. Reactive Approach to Risk Management

Welcome to CFO.University’s audio version of Nick Warren’s CFO Ed Talk, A Proactive vs. Reactive Approach to Risk Management Nick invites you to learn how to maximize your return on investment by using a proactive risk management strategy

Enjoy. Learn. Engage.


So we all love insurance. Well, actually that’s just me. Most people tend to tense up when they hear the word “insurance”. Organizations typically buy insurance based on catastrophic events that can cripple their business. I’ll never forget when I was twenty-two years old and had just become an insurance broker. I sat down with the owner of a sign manufacturing company. After fifteen minutes of talking about risk and their insurance needs, the owner turned to me and said, Nick, “I really have no idea what you’re talking about, just make sure that sh—is covered when it hits the fan.”

Those types of situations are what we typically run into; more of a reactive approach than focusing on a proactive situation. Most people don’t like to buy insurance. Insurance has a negative connotation. It has a negative ROI for a lot of companies. So a finance executive, when thinking about the insurance world, sees spending a lot of money on premiums without a return. When they do get a return it’s because there’s been a claim submitted and that’s not a good situation either. From a finance executive’s perspective, insurance tends to be the thirtieth item on their priority list and typically why they’re willing to outsource it to a broker.

So when do people actually like insurance? Well, here’s a case, when there’s a burning building.

But there’s an adage in the insurance world “you can’t insure a burning building”. Typically that’s when people want to talk about insurance; when the buildings on fire, when their employees have gotten hurt, when there’s some type of catastrophic event that’s caused damage to their property or to their people. I’ve spent most of my 15 year professional life trying to master the art of risk management. I’m going to share a few of my stories.

Why Take Risks?
Why Take Risks?

So back to basics, what is risk? Risk is an activity or an action that causes something to go wrong. Another way of saying it is certainty versus uncertainty. Certainty is obviously something that everyone’s comfortable with when they understand what the situation is or what the need is. Uncertainty is where we start getting into risk. Why do we take risks? Think for example of a person jumping off a cliff into the water. They’d likely walk to the edge of the cliff and take a look down to see that there was nothing at the bottom. Hopefully they actually walked to the bottom, swam around a little bit, checked out the bottom to make sure there were no issues with the rocks underneath, climbed back up did their dive, came back to the top and did it again. Enjoyment!

In the world of business, why do we take risks? Well, we take a lot of risks because there are certain things that can be enhanced in our businesses by doing so. Whether it’s efficiencies, cutting costs, or maybe finding some type of market advantage against our competitors. There are all types of reasons why companies take risks. They feel it will be beneficial but, that’s obviously not always the case.

How Do We Identify Risks?
How Do We Identify Risks?

How do I identify risks? When we sit down and talk to organizations/clients about where they’re at from a risk perspective, we look at four quadrants: Financial, Operational, Strategic, and Hazard. I will dive into each of the four areas with a few topic related stories to lighten the mood on a topic – insurance – that can be a little dry.

Financial Risk: I was with a company in Alaska recently and our client was talking about theft. He had about forty thousand dollars’ worth of inventory stolen, including a power generator. Obviously not a fun way to start off the week when they found out that the storage facility had been raided by an unknown source. Fortunately, we had talked to them two years ago about putting cameras in so they had film of what the suspects looked like. Unfortunately, they were wearing masks. They were however able to I.D. the truck used in the heist because the license plates were visible.

Another example of financial risk is from a cyber-security perspective. About ten years ago the topic of cyber-security was a foreign concept to a number of organizations. Everyone thought that their systems were beefed up. They had no issues in terms of focusing on the need to prevent the risk from happening. They had the money and they had the I.T. staff to be able to solve the issues proactively. Well, we’ve learned through the years now, looking at T.J. Maxx, the Federal Government and Delta that people are realizing, if the Federal Government can get hacked into, likely my mid-size company is susceptible too. So we’ve really ramped up in terms of the financial risk and looking at transferring that risk from a first party to a third party. When we work with companies on that regard, we think of proactive risk that you can actually mitigate, eliminate or avoid. Then there’s a transfer of risk; working with an insurance company on coverage that transfers the risk of a cyber security breach to a third party.

Strategic Risk is the positive and negative outcomes from strategies focused on moving your company forward .Think about hiring and firing. Every company is hiring and firing. There are typically issues that come up whether it’s in the on boarding process, having employees as they operate within your organization or the off-boarding process if you have to ask them to leave or they leave to a competitor. There is also strategic risk related to mergers and acquisitions and real growth. There are various ways to grow. You can grow organically, so you can keep growing and doing the same things you’re doing to increase revenue. You can grow through expansion; buying other facilities, going into different geographies, expanding internationally. However, seventy to ninety percent of acquisitions fail. So there’s obviously some strategic risk both positive and negative when figuring out your best route in order to optimize the strategy from a risk perspective.

I have two interesting stories in regard to Operational Risk, the third quadrant. In the world of manufacturing and doing manufacturing jobs, finger dexterity can be very critical skill. It helps with lifting and pulling. The ability to put your finger and thumb together can be required in some operational jobs. We had a client that unfortunately had a circumstance where an employee was working the night shift and lost the top of his finger down to the first knuckle. He ended up going out on Worker’s Comp, had some significant downtime and was awarded twenty-five thousand dollars for his pain and suffering. That is an insurable risk that comes through Workers’ Compensation.

Now, we also had a very clever second employee who assumed that with twenty-five thousand dollars for one knuckle, maybe if you lost two knuckles you would be awarded fifty thousand dollars in damages. He was burdened with debt. He wanted to buy a truck and a ring to give to his girlfriend when he proposed. He figured by losing his index finger, not a big deal, he would be able to get the fifty thousand dollars. After the first accident and Worker’s Comp claim we suggested the client focus its safety monitoring features on the specific machine the accident occurred on. Cameras were installed throughout the facility and caught this gentleman doing what he did. His finger was severed up to the second knuckle. It was an uninsured loss because intentional acts are uninsurable events. When you talk about risk management and insurance there are Insurable Losses and Uninsurable Losses. Part of risk management is creating an environment that prevents uninsurable losses being paid out as “valid” claims (fraud).

Hazard Risk is when Mother Nature decides to have an impact on our business. Whether it’s an earthquake, a flood or a wind storm, it can be devastating to our organization, causing interruption, delay or maybe even shutting down an operation. The really “Big One” that everyone’s heard about came out of a New Yorker article and created discussions with many of our clients. This was of special interest in the Pacific Northwest which includes the Cascadia Subduction Zone. An area that appears geologically ripe for an earthquake. As soon as it was understood that there was a threat, that it could shift and cause a massive earthquake, we all of a sudden saw a huge uptake in people being concerned about their facilities; where their employees are, when they’re looking for expansion and relocation, where they’re going to be located and really taking a focus on these catastrophic types of risk scenarios.

So overall the four quadrants of risk, financial, strategic, operational and hazard, are the basis for getting an organization started in terms of looking at what their risks truly entail.

Prevention of risk starts with PEA.

The P stands for proactive versus reactive. We’ve talked a lot about being on the forefront of actually analyzing your risk and looking at certain ways to help mitigate those risks; finding ways to evaluate and eliminate. The adage we use is “plan your work and work your plan”. We have so many organizations that have policies, whether it’s your employee handbook or other types of policies and procedures. You put these beautiful nice glossy binders together and what do you do when they’re all finished up? You put them on the shelf never to be seen again. Well that really is a great first step but it must be more than a check the box exercise. It doesn’t help prevent the losses from occurring in the first place if it’s not an active plan that you’re actually working. Interesting scenario; we noticed that there was an increase in clients submitting wire Transfer frauds. A lot of international operations probably similar to your organization get rush requests for a financial need overseas. A wire transfer is typically made to fulfil these requests. Well, hackers are now figuring out creative ways to hack into organizations and then create false requests. I had a large steel manufacturer that I was working with. The CFO had been there for twenty years. She retired and within a week of the new CFO coming on my client (treasurer) received an email from him saying “I need a wire transfer of one hundred thousand dollars as quickly as you can to this new bank account”. Fortunately, we knew this was a fake wire transfer. A) The request wouldn’t go to the Treasurer it would go to the Controller at the time and B) This one week CFO was so brand new he was not familiar enough at this point and would not be sending this immediate request. So, our plan worked. The request was sent to the wrong person and we had previously set up a procedure to make sure that anything over twenty-five thousand dollars would be signed off by two finance executives before being processed. Throughout the last couple of years we’ve caught a number of fake wire transfer requests.

OSHA statistics, confirmed by Liberty Mutual Insurance, shows that for every one dollar spent on safety there are three dollars earned in reduced claims. This relates to both employee and facility safety. So speaking of return on investment, this is a significant way to earn a roughly three hundred percent ROI on an investment in safety.

The E in the prevention of risk PEA Model stands for empowerment. Empowerment is important within your organization for a variety of reasons, but traditionally in the risk management world the adage we use is, “It’s not if, it’s when”. This is particular to cyber-security and insurance which has started to affect every organization that has significant amounts of data internally and are also utilizing the cloud. I got together with the CFO, Finance Team, IT, Legal department, Security and HR of a food processing client. We sat around the table for two and a half hours talking about their overall risks related to cyber security. It was incredible what came out of it and the amount of concern each department had beyond simply the IT team. A disruption in HR ‘s systems could prevent payroll from being made, delay hirings and disrupt staff planning levels in the short term. The legal team would loss access to contracts that required frequent oversight. There were all these different inputs about what would happen in the event of someone coming in and shutting down the systems.

At the end of the two and a half hours the General Counsel actually turned to everyone and said, “We should do this more often”. We laughed and said this is such an easy way of empowering the people to speak about their concerns, figure out ways to get synergy and collaborate agroup in order to talk about risk and insurance needs.

The A is for awareness. Awareness is something that’s very difficult for a lot of organizations because everyone is working in silos. We had a building materials company that unfortunately had an issue with some decking that was a legacy claim and product recall originating twenty years ago. You can’t find every house this decking went into throughout the country, pull it out and replace it. So still within the last year, we’ve actually had a claim arise. The CFO was not aware that this claim had occurred and the Treasurer was the one that actually got the reporting. We were sitting around the dinner table one evening, mentioning the deck claim that had occurred. The CFO was upset that she was not aware of the permanent injury that had come upon a third party and the significant claim that would greatly affect the balance sheet going forward.

Prevention of risk starts with PEA. In a world where “Ten minutes can save you ten percent on your insurance”, there needs to be more focus on the proactive side versus the reactive side. The road to risk management success can feel uncertain. A singular focus on profitable ventures without time committed to risk management can often have you riding a high wire. Starting with the four quadrants of risk and focusing on the PEA Model can help you form a proactive strategy and protect your organization while improving your overall balance sheet.

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The “H"elp Word

How often in the last month have you used the “H” word? For most leaders, there’s a direct link between the number of H’s and the effectiveness of their leadership. That is, the more H’s, the better the results. Check out your leadership grade:

How many H’s in the past two weeks:

Number of H’s = Grade:

  • 0 = D
  • 1 - 3 = C
  • 4 - 6 = B
  • Over 6 = A

SPEED BUMP: To get an A, you need to be asking for help at least three times a week.

Skip the part about how you ask, and what the topic might be. If you need help on those, it’s a different discussion.

Once you decide to ask for help, whom do you ask? Here are the likely suspects, in order of helping power (1 is more powerful than 4):

Helper = Helping Power Rating

  • Boss = 4
  • Peer = 3
  • Direct Report = 2
  • Outside advisor = 1

You may think this is backwards, but here’s why it is often correct:

1. Outside advisor: Forces you to face reality, not your fantasy. An outside advisor will challenge you with a clear motive of helping you. (Yes, some folks in your firm may not want you to succeed.)

  1. 2. Direct Report: Asking her to help you can give you a realistic perspective, though it may be narrower than you prefer. The realistic look often will send you down a different path, allowing you to refine your solution to what you now see as the real problem. It will also give her a chance to grow and develop confidence in her skills.
    1. 3. Peer: If you can get your peer to stop and listen closely (requires time and unselfish focus), you sometimes get both insight and other useful data. It can also help bridge department differences (advantages obvious).
      1. 4. Boss: Requires you to frame carefully and listen closely, and then test to see if the boss solution really is best. Her title doesn’t guarantee good answers. (The best boss will give you questions instead of answers.)
      2. Asking for help boosts your confidence in both your skills and your resilience, because it lets you be uncertain and wrong. Uncertain and wrong people who ask for help are a delight to work with.

        SPEED BUMP: Step up and be the one who asks for directions. You’ll get there sooner.

        Asking works because it provides at least these benefits:

        1. Forces you to frame the issue clearly.
        2. Gets it outside the clutter in your head.
        3. Pulls in another person, providing either better data or commitment or both.

        ACCELERANT: When this week did you ask for help?

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        M&A 101: The difference between mergers and acquisitions

        This article is one in a four part series on Mergers and Acquisitions from PitchBook.


        Andy Shawber, a partner at Summit Law Group in Seattle, concentrates his practice on corporate and securities law, representing companies in all stages of their lifecycles, through formation, venture capital finance, IPOs, public company reporting, and mergers and acquisitions.

        Likewise, Laura Harper’s practice at Summit Law Group focuses on corporate and securities law, with a wide range of corporate finance and acquisition transactions.

        We caught up with Shawber and Harper to learn more about the basics of business combinations for the first in our M&A 101 series.

        The interview below has been edited for length and clarity.

        PitchBook: What’s the difference between a merger and an acquisition? What are the different types of acquisitions?

        Shawber and Harper: There are three main legal structures for acquiring a business: 1) asset purchase, 2) stock purchase (or membership unit purchase in the case of a limited liability company), or 3) a merger. All three of these structures are different types of acquisitions. A merger is a type of acquisition that has a particular legal meaning, which is discussed below.

        Asset purchase

        In an asset purchase, the buyer purchases specific assets of the target that are listed within the transaction documents. Buyers may prefer an asset purchase because they can avoid buying unneeded or unwanted assets and liabilities. Generally, no liabilities are assumed unless specifically transferred under the transaction documents. Because the liabilities remain within the selling company, buyers can eliminate or reduce the risk of assuming unknown liabilities. Further, buyers typically receive better tax treatment when purchasing assets as opposed to stock. If buyers are able to take a stepped-up cost basis in the acquired assets, they may reduce their taxable gain, or increase their loss, when they later sell or dispose of the assets.

        The main risk to buyers in an asset purchase transaction is that a buyer may fail to purchase all of the assets it needs to effectively run the company. There are also various aspects of an asset sale that can be time-consuming and drive up transaction costs: like listing specific assets and determining their value; for some assets, third-party consent may be required before the assets can be transferred to the buyer; and the manner in which title of an asset is passed to the buyer will vary depending on each kind of asset, and title to each purchased asset must be transferred individually. Finally, there is a risk that the seller could retain sufficient assets to continue as a competing going concern. This risk is usually mitigated by requiring the seller to covenant not to compete with the buyer.

        Sellers generally disfavor asset transactions because the seller is left with potential liabilities without significant assets it could otherwise use to satisfy those liabilities. Also, the tax treatment of an asset sale is generally less favorable to sellers than a stock sale. The company and its shareholders can each potentially incur taxable income, which could result in double-taxation of the sale proceeds. Entities that have pass-through taxation (partnerships, LLCs and S-Corporations) can avoid the problem of double-taxation, and thus may be more likely to accept an asset purchase structure.

        Generally, only approval of the majority of the shareholders or members is required for an asset purchase transaction. However, in Washington state and other states (not including Delaware), shareholders who vote against the asset purchase may have the right (called dissenter’s rights) to petition a court to obtain the fair market value of their shares in connection with the asset sale.

        Stock purchase

        In a stock purchase, the buyer purchases the stock of the target company directly from the target’s shareholders. The company remains an existing going concern after the purchase, and its business, assets and liabilities continue unaffected by the transaction. A buyer may prefer a stock purchase when the buyer wishes to continue the operation of the target company after the purchase. Further, absent unusual circumstances, consent from third parties would not be needed to approve the transaction.

        However, by buying the entire company, assets and liabilities, the buyer may be exposed to unknown risks. Buyers can reduce its risk by holding back some of the purchase price in escrow to satisfy any liabilities that arise after closing. Also, obtaining approval for a stock purchase can be problematic if the target has a large number of shareholders. Unless there are agreements in place beforehand, buyers cannot force shareholders to sell, and thus a holdout shareholder could refuse to sell to the buyer. This result can be very undesirable for buyers and could end up causing the deal to fall apart.

        Buyers may have less-preferential tax treatment in a stock purchase. Generally, buyers would prefer to have a stepped-up cost basis in the target company’s assets than a stepped-up cost basis in the target company’s stock. However, in certain circumstances, buyers can make an election to treat the stock purchase as an asset purchase, thus preserving the preferred tax treatment of an asset purchase.


        In a merger, two separate legal entities become one surviving entity. All of the assets and liabilities of each are owned by the new surviving legal entity by operation of state law. There are several structures that mergers can take. The simplest is a forward merger, whereby the selling company merges into the purchasing company, and the purchasing company survives the merger. Often, buyers will wish to keep the target company as a separate legal entity for liability reasons, so the buyer will instead merge the target into a wholly-owned subsidiary corporation of the buyer, called a forward triangular merger. When complete, the subsidiary survives the merger, holding all of the assets and liabilities of the target company.

        Both a forward and a forward triangular merger generally require third-party consents, as the target company ceases to exist after the merger and all of its assets are owned by the surviving entity. A reverse triangular merger is similar to a forward triangular merger, except that the target company is the surviving entity, instead of the wholly-owned subsidiary of the buyer. Under Delaware law, a reverse triangular merger does not constitute an assignment, as the targeted company continues as the surviving entity, and thus no third-party consents are required.

        In terms of needed corporate approvals, mergers generally require approval only of the seller’s board of directors and a majority of its shareholders (absent other requirements in its charter documents). This lower threshold is particularly appealing when a target company has multiple shareholders. However, shareholders who vote against the merger will generally have appraisal rights under state law. Appraisal rights (or dissenters’ rights) enable dissenting shareholders to petition a court to obtain the fair market value of their shares. This can complicate transactions and increase the buyer’s costs.

        How a merger is taxed depends on its structure. Generally, forward and forward triangle mergers are taxed as asset purchases, while reverse triangular mergers are taxed as stock purchases.

        Why would parties to an acquisition choose one type of structure over another?

        Asset purchase

        Asset purchases generally work best when the buyers are interested in only select assets of the target company, such as certain intellectual property (e.g., patents). If the buyer is not concerned about the company continuing as a going concern, an asset purchase is likely the best approach. The seller in an asset purchase transaction must be careful to ensure it receives sufficient consideration to cover any future liabilities. Further, the taxable income the corporation receives may be subject to double-taxation in a C-Corporation, both at the company level and then at the shareholder level, when the proceeds from the sale are distributed.

        Generally, when pieces of a business are sold, the price will be lower than when the entire business is sold as a going concern. However, buyers sometimes choose an asset purchase structure even when wanting to continue the business as a going concern, but are particularly concerned about acquiring unknown or contingent liabilities. Also, an asset purchase can be more difficult where there are a large number of contracts with third parties whose consent would be required to transfer those contracts to the buyer.

        Stock purchase

        A stock purchase generally works best when the buyer wants to acquire the target entity as a going concern, and there are few shareholders. Negotiations are more straightforward when there are fewer parties involved, and holdouts are less likely. Buyers will prefer to obtain all of the outstanding stock of the target company if possible. When there are minority shareholders who do not agree to sell, the buyer can approve a merger after the acquisition, although as noted above, this can trigger appraisal rights. Sellers will generally prefer the tax treatment of a stock purchase, while buyers will prefer the transaction be taxed as an asset purchase. As noted above, it might be possible to classify a stock purchase as an asset purchase for tax purposes by filing a special tax election, thereby affording the seller and the buyer the best of both worlds.


        A merger generally works well when there are multiple shareholders in a target company that a buyer wishes to acquire as a going concern. Instead of having to negotiate with multiple shareholders, once a majority of the shareholders consent to the transaction, the buyer can be assured of having control of the business going forward. In a reverse triangular merger, buyers can retain limited liability, by separating the target company in a wholly-owned subsidiary, obtain all of the assets by operation of law, and generally avoid having to obtain third-party consents.

        What types of laws give rise to the differences between the three acquisition types?

        M&A is largely a creature of the laws of the state in which the company is incorporated/formed; however, tax laws impact the analysis significantly as well. For example, the Delaware general corporation law (“DGCL”) governs asset sales, stock sales and mergers for all acquisitions of Delaware corporations. The business and legal terms of an acquisition will be negotiated and agreed among the parties, but the underlying state law provides a framework for, and the basic requirements of, how each of those transactions must be conducted. The essential features of each deal type are a function of state law as well. For example, the DGCL has separate sections of its code dealing with asset sales, stock sales and mergers. Federal tax laws also weigh on the determination of whether the parties choose to enter into an asset sale, stock sale or merger, as discussed above.

        So, why sell?

        The reasons a company decides to market itself for a sale are as varied as the reasons for starting a company. Family-owned businesses are often sold because no one in the younger generations wants to continue in the business. Some disruptive technology companies were founded with the aim of being acquired by competitors or partners. In VC- or angel-backed companies, the shareholders may see an opportunity to realize a return on their investment and encourage the directors to market the company. Founders may wish to pursue new business ventures, and thus want to divest and start a new project. In some instances, a company may not be actively considering selling when it is approached by an investment banker or even by a potential purchaser directly. Because of their duty to act in the best interest of the company and its shareholders, boards of directors must carefully consider even unsolicited offers.

        A buyer’s reason for targeting a company for acquisition can be equally varied. The target may have developed a market into which the buyer wishes to expand, whether a geographic expansion, price point, customer base, or a new product. The target may have disruptive technology that the buyer believes would be valuable to its business operations. Often larger companies can maximize the efficiency of a smaller concern or create other synergies by in-housing administrative or other functions that otherwise eat away at profits of smaller businesses. A buyer may also attempt to literally buy market share by purchasing a competitor.

        Regardless of the motivations from the buyer or seller’s side, the ultimate driver for an acquisition is price. A seller wants to realize a return on investment (as that term is used in the broadest sense), and a buyer wants to realize value in the long term through the target’s business or assets.

        Ultimately, we would argue that M&A is the culmination of capitalism, as stakeholders (founders, investors, employees, etc.) attempt to realize a return on their investment and reinvest those funds back into the economy at large.

        Read the article at PitchBook here.

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        M&A 101: What investment bankers do in mergers and acquisitions

        This article is one in a four part series on Mergers and Acquisitions from PitchBook.


        Giovanna Burns, a VP with Meridian Capital, plays an essential role in transaction execution and supports the Seattle-based firm’s business development initiatives. She has provided advisory services to middle-market companies across various industries on transactions including buy-side and sell-side engagements, IPOs, debt issuances and growth equity raises.

        We caught up with Burns to learn more about the basics of investment banking for the second installment of PitchBook’s M&A 101 series. (Check out the first part here) The interview below has been edited for length and clarity.

        PitchBook: What is investment banking? How does it differ from other forms of banking?

        Burns: “Investment banking” is a broad term that encompasses capital raising and strategic transaction advisory services for companies. It includes debt and equity issuances, private placements of capital and advisory on strategic transactions such as mergers, acquisitions and divestitures. That means we’re different than other forms of banking because we don’t act as a depository, and we don’t directly lend to or invest capital in our clients.

        By contrast, a retail bank serves individual consumers and small businesses, typically through the bank’s branch locations and online services with checking and savings accounts, mortgages, auto loans, safe-deposit boxes and cashier’s checks. Meanwhile, corporate banking (sometimes also referred to as commercial banking) largely resembles retail banking, with a corporate bank’s customers being medium to large businesses. A primary function of corporate banks is to provide business loans. Beyond loans, a corporate bank may offer other capabilities geared toward handling the day-to-day financial concerns of corporations, such as treasury management, foreign currency exchange and retirement plan services.

        What roles do investment banks play in M&A transactions? How do those services differ from, say, work on an IPO?

        The roles of the investment bank will differ depending on whether the bank is representing the seller of a company (“sell-side”) or advising a prospective acquirer (“buy-side”).

        On a sell-side engagement, the investment bank’s responsibilities include

        • Keeping our fingers on the pulse of industry M&A trends to set valuation expectations for client companies and helping them plan their timing and go-to-market strategies
        • Deploying our knowledge of the client and its industry to craft a set of key points that form a compelling investment thesis—then assembling marketing materials such as the “Information Memorandum” to convey these points
        • Identifying and contacting potential buyers, managing information flow and holding strategic discussions with interested parties
        • Establishing a formal bid process for the company, reviewing bids and helping select a buyer
        • Setting up an online diligence “data room” and serving as the primary liaison between the buyer (and/or its advisors) and seller during due diligence
        • Helping negotiate the final terms of the deal

        On a buy-side engagement, the investment bank’s responsibilities include:

        • Evaluating the potential target and its industry to set a preliminary valuation
        • Assessing the strategic fit of a potential target with the client; identifying and, to the extent that it’s possible, quantifying synergy opportunities
        • Crafting a bidding strategy and helping draft proposed terms of purchase
        • Identifying potential issues in the diligence process and following up accordingly
        • Analyzing the buyer’s capital structure to determine the correct transaction financing; helping the buyer find financing
        • Helping negotiate the final terms of the deal

        On an IPO, the investment bank’s responsibilities are very similar to those on a sell-side M&A transaction, insofar as it’s responsible for positioning the company to prospective investors, drafting marketing materials, conducting investor outreach and determining a reasonable valuation. However, instead of appealing to only one buyer, there are several buyers, so a “road show” is conducted, where management meets with and presents to several potential investors.

        Extensive buyer-seller negotiations characteristic of an M&A transaction don’t happen as part of an IPO. There’s also the extra step of the shares entering the market—they need to be distributed through the bank’s sales desk. IPO candidates will often enroll more than one bank to complete the actual sales and distribution portion of the IPO process, thereby leveraging more investor relationships.

        How does the size of the transaction impact the investment bank’s role?

        The responsibilities listed above will be the same regardless of the size of the transaction. From the banker’s perspective, though, some subtle differences generally hold true for public versus private deals. For instance, on the sell-side of larger, publicly traded companies, there is a smaller universe of prospective investors because financing is a constraint. Another difference is that for middle-market deals, bankers rely a lot more on our industry connections to test the M&A market, while for public company deals, information regarding corporate strategy, terms of precedent M&A transactions, and financial performance are openly available and easily accessed via public filings and press releases.

        As a banker working on middle-market transactions, you get to see and manage a greater part of the overall process. Because the deals we do at Meridian are typically for private or family-owned businesses, we’re walking individuals through the process of selling a company that they built themselves. So, there’s definitely a human aspect and a sense of a private deal’s impact that is different from those involving publicly traded companies.

        What are the different roles played by members of team as they work to source deals, perform due diligence and bring a transaction to the finish line?

        It’s always a team effort, so it depends on the particulars of the situation and the transaction. But generally, the division of work is as follows (in reverse order of seniority):

        Analyst – the analyst is responsible for much of the legwork that goes into sourcing and executing transactions. This includes putting together PowerPoint presentations and Excel models, organizing files and information, doing industry research, taking notes on calls and meetings, and tracking and recording sourcing and execution activity

        Associate – the associate is responsible for checking the analysts’ work, coordinating the creation of PowerPoint presentations, talking to clients and executing on day-to-day transaction tasks

        Vice President – the vice president supports business development efforts and manages deal execution. They take the lead on shaping messaging for pitchbooks and deal marketing efforts, and help handle communications with clients and prospective investors

        Managing Director – the managing director is responsible for business development and sourcing deals, and also helps guide deal execution. Most of an MD’s time is spent building relationships, meeting with potential clients, and staying abreast of industry and transaction trends

        How and why do firms come to specialize in certain sectors, such as aerospace, for example?

        Sector-specific firms are formed based on the same logic that all businesses are: Somebody recognized a market need and set out to fulfill it. Usually, these firms are founded by individuals that worked within an industry group at a larger investment bank for several years and saw an opportunity to provide better services that larger investment banks cannot offer. These firms differentiate themselves based on independence, senior-level attention and thought leadership, among other factors.

        What are the most commonly overlooked items by business owners when preparing to sell their companies?

        • Keeping good records. Due diligence is a key part of a transaction, and the ability to fulfill requests and address potential issues will make the process go smoothly and could even increase transaction value. First, financial records should be accurate and transparent. Identify and document any material one-time fluctuations—for example, nonrecurring expenses related to opening a new facility. Keep track of off-balance-sheet and contingent liabilities. It’s also a good idea to have your financials reviewed or audited by an accountant at least annually to verify their accuracy. Second, keep all records and paperwork organized and in a safe place. As part of diligence, buyers will often ask to review legal contracts, tax returns, patents and copyrights belonging to the business, and insurance policies, among other items.
        • Defining and being able to explain company strategy. The value of a business in a sale is based on the buyer’s expectations of future profitability, so it’s important to showcase the company’s potential. It’s helpful to have a roadmap of company strategy for the next few years. The plan should include realistic opportunities to grow the business and increase profitability. It must also consider current industry trends and competitive backdrop. Some of the opportunities within the roadmap may be immediately actionable; many will require additional capital and resources to implement. To increase value, a business can take steps to implement some of these strategies ahead of a sale. For instance, could the company decrease raw material costs by switching suppliers? If so, switch suppliers now—a forecast is more credible if there’s tangible evidence of results. For the initiatives that can’t be implemented now due to resource constraints—such as acquiring a competitor or building another factory—have a defensible estimate of how this would impact the financial statements and how much up-front capital is required.
        • Building a team of trusted advisors. Numerous professionals are involved in an M&A transaction, including investment bankers, lawyers and accountants. A business looking to sell should start assembling a team a couple of years in advance. Select an investment banker based on industry expertise, advisory experience, and personal chemistry. It’s essential that an advisor is trustworthy and committed to a company’s success. Even if a business is not yet ready to sell, a good investment banker will still help prepare for a successful exit by providing insights on important considerations such as valuation, transaction structure, timing, and go-to-market strategy.
        • It is also important to have an investment banker ready to engage in case the company receives an unsolicited acquisition offer. If this happens, it’s a bad idea to negotiate with the potential buyer yourself because you will almost certainly leave value on the table. If you’re serious about accepting a potential offer, your investment banker can evaluate the offer, help manage the diligence process including confidentiality concerns and, most importantly, create a competitive process to ensure that your business gets the best possible valuation. Another reason that it’s not too early to start building a relationship with a banker is that we are paid when we close transactions and not by the hour – our up-front advice is free of charge and our goals are completely aligned with yours.

        What one thing, above all, does an investment banker do that’s indispensable on every single M&A transaction?

        Everything we do on a transaction is carefully designed to optimize the outcome for that particular client. With sell-side M&A, that largely translates to obtaining the best sale price, but of course there are other considerations with selecting a buyer that we help our clients weigh as well.

        Read the article at PitchBook here.

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        M&A 101: What antitrust law means for mergers and acquisitions

        This article is one in a four part series on Mergers and Acquisitions from PitchBook.


        Paul Jin is a partner in Goodwin’s Antitrust + Competition practice. His antitrust expertise covers a broad spectrum of commercial transactions. His practice focuses on assessing transaction-related antitrust risk, negotiating terms of agreements, determining the applicability of merger clearance filing requirements in US and foreign jurisdictions, and advocating on behalf of clients before the FTC and DOJ in connection with informal inquiries, Second Requests, third-party subpoenas and conduct investigations.

        We caught up with Jin to learn more about the basics of antitrust law for the third installment of PitchBook’s M&A 101 series. The interview below is edited for length and clarity.

        PitchBook: We generally speak in generic terms like “antitrust” or “competition” laws in the US. But which statutes and institutions are actually involved in antitrust law?

        Jin: The three main federal antitrust laws are the Sherman Antitrust Act, the Clayton Antitrust Act of 1914 and the Federal Trade Commission Act of 1914. The Sherman Act was enacted in 1890 and still remains the main statute that governs anticompetitive practices. The Clayton Act was subsequently enacted to bolster the antitrust regime by reaching potentially anti-competitive practices in their “incipiency,” perhaps most notably mergers and acquisitions. The Federal Trade Commission Act created the Federal Trade Commission and prohibits “unfair methods of competition” and “unfair or deceptive acts or practices.” These statutes have been amended over the years—most notably by the Hart-Scott-Rodino (HSR) Antitrust Improvements Act of 1976, which instituted a pre-merger notification system, and by the Robinson-Patman Act, which regulates certain pricing practices—and have a robust history of judicial interpretation. Each state also has similar antitrust or unfair practices statutes, although most will mirror the federal laws.

        The FTC and the Antitrust Division of the Department of Justice (together referred to as the “Agencies”) are tasked with enforcing the US antitrust laws. This includes reviewing mergers and acquisitions, and the Agencies can bring suit in courts to enjoin illegal conduct, including suits to block transactions. The US statutes grant standing to private persons as well.

        What kinds of business practices can come under scrutiny when a particular M&A transaction is reviewed?

        The main antitrust issue during the review of an M&A transaction is whether the acquisition will substantially lessen competition. Since the antitrust laws include M&A activity in the scope of potentially anticompetitive conduct, a transaction can be banned just as, for example, two companies agreeing to fix prices would be prohibited. The HSR Act was designed to give the Agencies the ability to review certain mergers before they are completed, and it imposes procedural requirements that parties are required to follow before closing on those transactions. Importantly, the antitrust laws are not limited to pending mergers (even closed transactions can be deemed illegal and thus unwound), and mergers and acquisitions that are not subject to the HSR review process, or even ones that have been cleared during the process, can still be investigated or even declared illegal later.

        At the risk of oversimplification, the Agencies will analyze how competition in the marketplace will change as a result of a transaction. Will the combined entity have market power? Can it sustain price increases? Can it slow innovation? How will other competitors react? How will consumers be harmed?

        In addition to the substantive review of a transaction, the antitrust laws touch upon the submission of materials to the government, govern the timing of transactions and regulate the level of activity between parties during a transaction. This latter prong can be particularly problematic. Merging parties—especially if they are competitors—need to be careful about what information is shared during the diligence and integration planning phases of a transaction, as well as the amount of influence one company has on the other (for example, prohibitions the buyer may have on the seller’s ordinary course of business).

        While the antitrust laws certainly understand that increased coordination during M&A activity is necessary and beneficial, this doesn’t mean that parties can coordinate all their behavior under the guise of a pending merger. Perceived violations can result in long and costly investigations, consent decrees that stipulate future conduct, monetary fines and even criminal sanctions. For example, failing to submit a required HSR notification form can lead to fines; transactions under HSR review are subject to waiting periods during which the parties cannot close; and egregious coordination, such as agreeing on what prices to charge customers, during integration activities can lead to prison sentences.

        Note that during a review of a merger investigation, the Agencies can compel and will receive documents from the parties. Documents that bring to light non-merger related conduct that is prohibited under the antitrust laws can result in separate investigations and penalties.

        A number of deals lately have thrust horizontal as opposed to vertical mergers into the headlines. Why have the former historically been more difficult to secure approval for, and why have latter proven easier? Why have vertical mergers come under greater scrutiny in the past few years?

        In short, potential anticompetitive results are more obviously anticipated and detected in a horizontal merger between two competitors, where the “loss” of competition is direct, and pro-competitive efficiencies are more conceptualized and perhaps measurable in vertical transactions. Many of the theories of harm relating to vertical deals require a finding of market power, which is rare relative to situations where two competitors could combine to create a single entity with market power or eliminate a close competitor. Thus, vertical transactions have received less antitrust scrutiny over the years.

        When reviewing a transaction, the Agencies can seek to resolve competitive concerns through structural remedies (for example, requiring divestitures of product lines or business units) or behavioral remedies (such as requiring companies to continue to do business with certain customers). One reason that vertical transactions may face more roadblocks now is that the current administration, especially the DOJ, has signaled a skepticism of behavioral remedies. In the last several years, the DOJ used behavioral remedies to allow vertical transactions to close. However, last year the DOJ signaled that behavioral remedies are disfavored because they often seek to supplant dynamic market processes and are difficult to enforce.

        Now, any concerns that arise in a vertical transaction are more likely to be addressed with structural remedies. This results in the Agencies requiring stricter concessions in order to clear a transaction, which offers increasingly difficult decisions for merging parties, who now more often will face a decision to litigate against the government or abandon the transaction. The DOJ’s recent challenge of the AT&T-Time Warner transaction is evidence of the new approach; many antitrust experts believe the transaction would have cleared with minor behavioral remedies in the previous administration (similar to what happened in the Comcast/NBCU merger). If the Agencies maintain this trend, this is a significant change for companies considering vertical deals.

        Getting a bit more into the weeds here: How is market concentration calculated, and how heavily does something like an HHI measurement factor into the review of a deal?

        The determination of market concentration can be complicated. It’s not as simple as asking who else competes with a similar product, but a good starting place is to look at the parties’ revenues in overlapping product markets, and estimate the revenues for competitors as well as the overall market. One can already see how this can present an incomplete picture. What about alternative technologies? In-house capabilities? Potential entrants?

        Also, there is no magic number for when a combined entity’s shares become problematic. Like many things in antitrust, the analysis depends on many factors. Certain industries can remain competitive with fewer players that have high shares, while others may require more fragmentation. The Herfindahl-Hirschman Index (HHI), which offers a mathematical formula to assess concentration, is one commonly cited measurement and can offer a starting place, but it’s not an end-all, and the Agencies are sophisticated enough to know that. To be sure, high market shares or HHI figures will often portend a deeper investigation by the government, but there’s more to the picture. Merging parties should be counseled to formulate—and document—an accurate picture of competitive dynamics, as well as benefits to consumers and efficiencies that will arise from a transaction.

        What single factor more than any other will keep a transaction from securing antitrust clearance?

        Companies should seek to understand how their customers will view a potential transaction. Favorable customer views may help on the margins, but negative reactions will almost certainly raise concerns at the Agencies, and cause deeper investigations and increase the likelihood of a challenge. Merging parties will face an uphill battle if customers are largely complaining about the transaction. This applies to consummated deals as well. Last year, the DOJ brought suit against Parker Hannifin after it had acquired CLARCOR. The parties had notified the government, observed the statutory waiting period and closed after the Agencies expressed no concerns with the transaction. Reportedly, customers of the parties complained, which initiated the DOJ’s investigation.

        Due to the weight given to customers by the Agencies, companies should be aware that customers may use such leverage to gain concessions from the merging parties.

        Another oft-cited factor in merger challenges is the existence of “bad documents”—for example, documents that say the merger will take away the only competitor or result in significant price increases. Companies will do well to maintain good document creation policies, especially during the consideration of a transaction.

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        M&A 101: The role of due diligence in mergers and acquisitions

        This article is one in a four part series on Mergers and Acquisitions from PitchBook.


        Brett Dearing, Senior Director at BNY Mellon Wealth Management, is a Certified Exit Planning Advisor and a Certified Merger & Acquistion Advisor with over 27 years of experience. His areas of focus include platform preparation, contingency planning and succession planning. He specializes in M&A, recapitalization, stock purchases and asset sales.

        We caught up with Dearing to learn more about the basics of due diligence with respect to mergers and acquisitions for the fourth installment of PitchBook’s M&A 101 series. The interview below is edited for length and clarity.

        PitchBook: What is due diligence?

        Dearing: It is an evaluation process used by an interested buyer to better understand the selling business and the risks in potentially becoming an owner of that business, and to see if the information stated in a document referred to as a confidential information memorandum (CIM) checks out. There is a legal component that makes up about 10% to 20% of the process. The remaining 80% to 90% of this evaluation process focuses on the intangibles. The process is not only about checking financials and projections for the business, but also gaining a strong understanding of the business model; how the company conducts business, works with and services customers; vendor relationships; the talent of employees; and most importantly, how your business competes against other businesses in that industry.

        A lot of times business owners are reluctant to share negative information about their company. They want to put their best foot forward, but I always share early on in my engagements that everything will come out in the due diligence process, that it’s better to get in front of the potential issues and control the narrative. A good rule for business owners to remember is that you don’t want a potential buyer to find out about potential problems in your business for the first time in due diligence. They should be disclosed ahead of time with an executable plan that you, your management team and advisors created to fix any pending issues—whether the interested buyer continues and purchases the business or not.

        Why is due diligence important to the M&A process?

        A lot of people will answer the question with something like, “to get the seller the best deal,” or some will say, “to get the most money for the buyer.” To some degree, these answers are both correct. However, the reason due diligence is important to the M&A process from a buyer’s perspective is to better understand how the business, its owners and its management operate. The due diligence process helps understand synergies, potential scalability of the business with enhanced operations and more access to customers from the buyer’s company. Potential buyers will also look at ways to reduce the overall expenses of the business to increase profitability.

        In my experience, it is important to remember the seller should have a business preparedness assessment conducted before even engaging an investment banker. This assessment will identify potential value-detractors in your business, as well as assisting in the preparation of key documents, business plans, growth plans and overall preparation for the M&A process. PricewaterhouseCoopers conducted a study that showed only a 20% to 30% success rate for transition planning by business owners. On average it could take 12 to 16 months to prepare a proper transition plan by a certified exit planning advisor. The study went on to conclude that a lack of pretransition planning was a large contributor to eight out of 10 companies failing the M&A process.

        Who carries out due diligence?

        Usually it is the buyer and their third-party advisors that carry out the actual due diligence. The process of due diligence can last from 30 days to, in some complex cases, 90 days. The third-party advisors will spend time at the main headquarters of the business under review, going through prepared information. These third-party advisors hired by the potential buyer may include a CPA firm for accounting and tax review, industry consultants to review the company’s business model and future opportunities, attorneys for legal review of the due diligence process, environmental consultants and labor attorneys—just to name a few that will be hovering around the office and the prepared data room reviewing documents.

        When in the M&A process do buyers and sellers engage in due diligence?

        There are five steps in the M&A process:

        1. Exit Planning is the process where the business owner has decided to sell the business and is looking to get the business and the financial aspects of the transaction prepared to maximize enterprise value and after-tax proceeds while personally preparing the owner for the life transition
        2. Preparation is where the transaction team begins the process of getting information together, reviewing the strategic plan for the business, material contracts, preparing audited/reviewed financial and accounting reports and the CIM
        3. Formal Marketing is where your investment banker will send out teasers to potential buyers, negotiate confidential agreements, distribute the CIM to potential buyers, finalize the data room, complete a detailed management presentation, engage bidders and receive preliminary letters of interest (LOI)
        4. Due Diligence & Final Bids is where the investment banker and team will assess and prioritize nonbinding bids, invite a number of bidders (three to 10) for a management presentation, site visit and access to the data room, conduct management meetings, set a deadline for offers with committed financing and circulate draft contracts
        5. Negotiation & Closing is where you receive firm offers with marked-up contracts, select the best offer, negotiate the sale and purchase agreement and ancillary contracts, set up a last round of final due diligence, execute contract(s) and fulfill conditions leading up to closing (regulatory, accounting and legal). Up to this point, before getting to negotiations with an interested buyer, the owner could be six to eight months into the M&A process. On average it could take up to 12 months to complete and finalize the sale. There are usually two rounds of due diligence: phase one, which happens after the LOI is received and the potential buyer(s) are interested in moving forward. When you receive an LOI, there is usually a price associated with the interested buyer. As an example, let’s say the offer price is $120 million. This price, 90% of the time, will be the highest price you receive from the buyer. Within the due diligence process if the interested buyer finds issues with the business, which is defined as risk of ownership, they will look to discount the original price. The discount caused by the issues found in due diligence can impact up to 10% to 30% of the offer price, which in this case would be between $12 million and $36 million in discounts. The discounts would impact the final offer price range down to $108 million to $84 million, respectively, from the original offer of $120 million. It is easy to see how due diligence can become a major cause for a transaction falling apart.

        Where does due diligence take place?

        Due diligence is conducted in two places:

        • A data room
        • On-site with the business owner

        A data room is cloud-based centralized file sharing system set up by the seller or the buyer where data is stored for review. The data in the data room is usually a compilation of requested information by the buyer. Third-party advisors representing the buyer will use the data room to conduct due diligence. In the case where there are ultra-sensitive documents, they may be withheld until later in the process. The data room has a file system that may be organized by financials, business plan, legal documents, growth plan, management presentation, etc. In phase two due diligence, the final phase of due diligence, there is a need for third-party advisors to conduct due diligence on-site. This may include environmental, labor and business model/management due diligence. This on-site due diligence can take up to 3-6 weeks or longer.

        Examples of a few of the documents requested in the due diligence process include:

        1. The last three fiscal years and the current year to date:

        • Company financial statements
        • Breakdown of sales by product/service group (in both dollars and units)
        • Sales and gross margin for top 25 customers
        • Gross margin by major product/service group
        • Breakdown of the cost of goods sold (e.g. material, labor, overhead), depreciation included in COGS
        • Breakdown of general and administrative expenses
        • Breakdown of selling expenses
        • Product development expenses
        • Details of any extraordinary one-time or nonrecurring items in historical financial statements
        • Accounts receivable aging report, write-off & bad debt history
        • Inventory valuation and inventory write-down history
        • Accounts payable aging report

        2. Next year’s budget

        3. Current strategic plan and five-year forecast with detailed assumptions

        4. Summary of terms and covenant of existing indebtedness

        5. Commitments for pending and proposed major capital projects

        6. Description of major capital projects over the past three years including dollar amounts

        7. Capital budget for the next three years

        Like most coaches would say to their players, “The game is won in practice and in preparation for the game.” The due diligence process is set up for success through exit planning and having a real transition plan leading up to the M&A process. The M&A process is very challenging and one that most business owners are not prepared for. My parting advice: “Don’t leave money on the table.”

        When selling your business, there is usually a multiple range of net earnings before EBITDA. Solid preparation and transition planning can raise offers to the higher end of the multiple range—working out to be millions of dollars. In addition, exit planning could add an “additional turn,” or even higher multiple exceeding the top range of the multiple for the seller. Take advantage of having a well-thought-out transition plan. You only have one opportunity to maximize the enterprise value of your business before the M&A process.

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        What CFO.University Will Do For You!

        CFO.University Will:

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        CFO Success Series: Managing Key Resources

        To build our future we must invest in the present.

        Not long ago I had a conversation with colleagues about the value of an audit. It made me reflect on how the really good businesses I know surround themselves with the skills they need. They are rarely at a loss for getting great advice on a topic critical to their success. If they don’t require a key skill full time they tap into advisors they can count on to deliver what they need. These companies are experts at:

        • Identifying the key skills their business will need in the foreseeable future
        • Building relationships and a network that includes all these skills

        Back to the audit. As we compared notes it was clear, the best run companies on our list used their CPA’s as a business resource, not a financial cop. Conversely, poorly run businesses frequently viewed the “cost” of an audit or review as something excessive and non-value added. They relied on their tax accountant to deliver financial advice. The analogy…It’s unlikely your all-star car mechanic would be your first choice to fix a plumbing problem in your home.

        Shareholders, banks or partners may require an audit but using your CPA as a business expert beyond attesting to your financial statements is where their real value lies for your company.

        This concept goes beyond financial audits and CPAs. Bankers happen to know a lot about the economy and have fact-based ideas on where its headed. A banker in your business space can be very valuable to your planning process. Likewise, insurance professionals, are experts in risk management. An insurance broker familiar with your industry can add immediate value by identifying ways to mitigate key risks in your business you may not have considered. Go down the list of other services that are business critical to determine if you have the relationships built to quickly tap into these skills. Examples include; legal, training, recruiting, technology, mergers and acquisitions, etc.

        After identifying what critical professional resources are missing from your in house team, identify what outside agent has the right knowledge base and mindset to fill your resource need. Frequently what prevents us from taking this step is the fear of “being sold”. In the early stages of researching and developing these relationships this fear may prevent us from developing the right groundwork to build our resource pool.

        Like employees, our outside advisors need to be paid for the value they create; it only makes sense that we will provide them a return on their investment equal to some portion of the value they create. An attitude of building a lasting relationship with these experts is the only way to build the same type of trust in the relationship that you expect to have with an employee – after all, we want them looking out for the company’s interest in the same way our employees do.

        I am not suggesting you recruit a bunch of outside advisors. Take stock of where you are headed, understand the skill sets required to achieve these goals and develop your skills pipeline in a manner that allows you to tap into key resources when you need them.

        To build our future we must invest in the present.

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        The Link between Leadership and Sustainable Success

        Welcome to CFO.University’s audio version of Robert Baker’s CFO Ed Talk, The Link between Leadership and Sustainable Success. Robert invites you to learn how to build long-term sustainable success and a team that everyone will want to join.

        Enjoy. Learn. Engage.


        I’d like to invite you to join a hypothetical team. But I’ve got to warn you, we’re not doing so great. We work 10-12 hours a day, sometimes six or seven days a week. But we’re not hitting any of our goals. In fact, relationships are breaking down. There’s lots of blame going on all around and morale is at an all-time low.

        Is that a team that you want to join? Do you want to join the team that’s not complete, not empowered; a team without clear communication of strategy and/or results; a team lacking the celebration of success? No, I didn’t think so. I believe that all people want to win. But it’s not about beating the competition. It’s about coming together with a group of people, agreeing upon goals and then accomplishing them, succeeding. I believe that breeds more success. We can create sustainable, successful teams by creating an environment where teams can win.

        Building a Winning Team
        Building a Winning Team

        The first step in creating that environment is to build the team. When Herb Brooks was appointed the head coach of the U.S. Olympic hockey team in 1980, everyone thought he would go around the country selecting marquee players from each position, but he didn’t. He actually assembled his team from a group of relatively unknown college players, but these guys knew how to play together as a team. They had defense, scoringand goaltending. They had coaching and they had tenacity. They had the whole package.

        When assessing the completeness of your own team. There’s a tool you can use. It’s called the Belbin test. It requires each team member to answer a series of questions. Those questions reveal the type of role that person tends to play in a team setting. For example, there’s a Shaper. This is the person who tends to keep the team on track, marching towards their goal and not going off on a tangent. There’s a Plant. This is a person who is full of ideas and every once in a while, one of those ideas really sticks. There’s a

        Resource Investigator. Somebody who’s really good at going inside and outside the organization, pulling together resources needed to accomplish the task. And then, there’s the all-important Finisher, the critical element to any team. This person is really good at finishing up the fine details needed to make sure that action sticks.

        The Belbin Test
        The Belbin Test

        There are nine different roles prescribed by the Belbin test. That doesn’t mean you have to have nine people on your team. In fact, most people play two or even three different roles. If you don’t have all those roles represented on your team, then you need to think about how you’re going to close that gap. Are you going to bring more people on your team or is somebody on the team going to step up and fulfil that role? So equally important as understanding how complete your team is, the Belbin test also helps everyone on the team understand what their role is. That really changes the way you work together as a team.

        Having created the team, the next step is empowerment. It’s really important that every person on the team owns the successes and failures. Each person on the team should be encouraged, actually required, to speak up, speak their mind and do everything they can to create the highest quality product for the team. When your team emerges from behind closed doors, everyone will beunited and aligned around the strategy and what their role is in accomplishing that task. They own the success or failure of the team.

        Having empowered your team, it’s time to create the strategy. This is done with your team. It’s the team’s strategy to own, create and communicate.

        Strategy is one of the most overused words in the business language. We have a strategy for growing sales; we have a strategy for cutting costs; we’re going to cut out the competition and conquer this market. But you know, without a well thought out critical SWOT (Strengths, Weaknesses, Opportunities and Threats) Analysis no strategy is complete. A SWOT Analysis involves looking at your company; internally at its strengths and weaknesses and externally at its opportunities and threats.

        Build Strategy
        Build Strategy

        Your strengths might include access to low-cost labor or raw materials. Perhaps you have a technological innovation, a patent or trademark. Weaknesses might mean high cost. The high cost of materials, labor or perhaps it’s a lack of capacity. Opportunities frequently focus outside of your organization such as developing new products or markets. They involve opportunities for growth. There are several different ways to segment your market and identify opportunity for growth; for example, a geographic expansion, a new product line or maybe an innovation that one of your suppliers makes available to you. Threats, on the other hand, come from the competition. This is where your competitors are using their strengths to come after your weaknesses. What piece of your pie are they trying to take? By combining your strengths and your opportunities you can create offensive plays, strategies that are going to lead to expanding your market share and increasing profitability. By analysing your weaknesses and your threats you can create defensive plays to prevent to competitors from eating away at your share of the market and profits.

        Communicate Directions and Priorities
        Communicate Directions and Priorities

        Having completed that strategy, it’s time to communicate. If we look at the sport of rowing there’s a position known as the Coxswain. The Coxswain is a person that sits at the back of the boat. They alone are looking forward. They are the only person who has an eye on the goal of the team. The team depends upon the Coxswain to steer the boat so they travel the shortest distance in the least amount of time. The organization depends on the leader and the leadership team to identify where they are going. How do you take that strategy and turn it into a very clear vision of where you’re going and how you are going to get there? The other role of the Coxswain is to control the engine of the boat. The engine of the boat is represented by the other eight members of the team that are doing the rowing. The Coxswain does this by signalling a strokecount to the first person in the boat and each of the other team members follows that stroke. The Coxswain can turn up the stroke count. They will keep an eye on the competition, look at the environment, the stream, the current and determine what’s necessary for their team to win. In fact, that team depends on the Coxswain to let them know what it takes to win. Likewise, your organization and leadership team are looking towards you to help them understand just what’s necessary. Where are we behind? Where are we doing well? Where do we need to put forth more effort? I have found the best way to do that is with a simple color-coded scoreboard. Taking no more than 10 metrics that represent the way your strategy will be achieved and then providing regular feedback, at least on a monthly basis, of how you’re doing for those metrics. If you’re not hitting the metrics the color is red. If you’re close, but not quite there, it’s yellow. And if you’re achieving your objective, it’s green.

        Having communicated the results and provided feedback regularly throughout the year, there’s only one thing left to do and that is to celebrate success. It’s critical that for the closure of the project, that the team celebrates the success that’s been achieved. It’s equally important that you recognize the high performers. They have to be recognized across the organization for the accomplishments and their contributions to the goal. The cycle continues as we rebuild the team for the next iteration. You do that by building your bench with special attention to developing tomorrow’s leaders. Have tomorrow’s leaders use model to lead smaller teams in the organization. This exercise grows the person. When we grow the person, we grow the leader and that strengthens tomorrow’s leadership team.

        Create an Environment for Winning
        Create an Environment for Winning

        In summation, I believe we can build long-term sustainable success by creating an environment where teams can win. You might be thinking, well, I’m doing most of that. But if you’re not doing it all, then it’s not going to be sustainable. So, go home, look in the mirror and ask yourself are you doing everything you possibly can to create an environment where your teams can win? If not, you know what to do. Just do it.

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        Webinar: Perfecting the Close Part III - The Three Steps to Creating the Closing Checklist

        Don’t miss

        Perfecting the Close Part I - Introduction to the Formal Closing Checklist

        Perfecting the Close Part II - How to Overcome Barriers to Creating an Effective Closing Checklist

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        Webinar: Perfecting the Close Part I - Introduction to the Formal Closing Checklist

        Don’t miss:

        Perfecting the Close Part II - How to Overcome Barriers to Creating an Effective Closing Checklist

        Perfecting the Close Part III - The Three Steps to Creating the Closing Checklist

        ​Not a member-scholar yet? Join our financial community here!

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        Webinar: Perfecting the Close Part II - How to Overcome Barriers to Creating an Effective Closing Checklist

        Don’t miss:

        Perfecting the Close Part I - Introduction to the Formal Closing Checklist

        Perfecting the Close Part III - The Three Steps to Creating the Closing Checklist

        ​Not a member-scholar yet? Join our financial community here!

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        Put a Pivot in Your Step

        In times of uncertainty big opportunities are often missed, resulting in silent and unseen costs. Big payoff almost always means big investment, either of organization focus or money—or both. In uncertain times, the probability of payoff is harder to figure, and even well-managed companies experience this impact:

        1. The highest-return window is missed. Instead, either there is no action, or the action that is taken is watered down. That skimpy action will likely have even less payoff than expected, but it nevertheless diverts precious company focus away from the business’s current income and cash foundation.

        2. The most profitable option is skipped. This only makes sense when filtered through the fear of failure. Options that are both likely and very profitable are scarce as hens’ teeth, as my mother used to say (pure Oklahoma). Delaying one is often more risky than the risky action that prompted it.

        3. The most powerful customer move is delayed.A clear stroke for customer value is tough to find, and if it’s avoided, it leaves room for your competitor to figure it out and provide it to your customers. A lost customer is the most expensive customer there is-just think of the value of all future sales to that customer, their referrals, their purchase of related products, their feedback on where your firm can improve, and so forth.

        SPEED BUMP: Delay opens the door to competition or lost customers.

        What to do instead? Try the Pivot. Like the move in basketball, it means pinning one foot (the Pivot Foot) to the floor, and rotating on it to place the other foot (the Power Foot) in a new spot. It has started more hooks and layups than even Kevin Durant can count. Let’s break it down:

        The Pivot Foot:

        This is the group of current offerings that your customer values the most, which also provide the foundation of your business. Here’s what to do:

        1. Name it: Spell out the pivot concept, rename it the foundation concept, and define which parts of the business are included.

        2. Boost it: Measure it, talk about it in every meeting, reward people for it.

        3. Improve customer connection with it: Ask for a customer story every week from each department of your company about it. Share the stories with your team and your customers.

        The Power Foot:

        This is the growth part of the business. It’s the place where risks can lift you up. Here’s what to do:

        1. Pick one project: Focus on it until it stands on its own feet or shrivels.

        2. Name a growth team: Charge these folks with both plan and execution.

        3. Measure it: Growth, profit, and customer response are the basics.

        4. Report it: Except where security truly blocks it, tell the progress news to everyone in your company, and to the customers involved. The more people are “in on it,” the better.

        SPEED BUMP: Protect the Power Foot Team like a fragile plant.

        At one of the companies where I worked, new product development endangered growth because it took so long. We split off engineering and “test” functions from plant operations. Development engineers could make quick tests of new concepts and parts without tangling with ongoing operations. Time to market and revenue improved by one-third.

        ACCELERANT: What’s your Pivot Foot? (Note to diligent reader: Only when you’re clear about your Pivot Foot will you give your Power Foot the full commitment that it needs to be successful.)

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        Finance: The Foundation of All Economies

        Welcome to CFO.University’s transcript of Steve Rosvold’s CFO Ed Talk™, “Finance: The Foundation of All Economies”. In his CFO Ed Talk™, Steve addresses the critical role financial professionals will play in the lifestyle of generations to come.

        Enjoy. Learn. Engage.

        Don’t have time to read through the article? Watch or listen here!


        I have some great news. We are living longer. According to the World Economic Forum, my children have a 50% chance to live to 100. That’s 12 years and a 14% increase in a single generation.

        We must overcome two major challenges in order for our heirs to benefit from their extra longevity.

        Debt Addiction

        The first major challenge is solving our addiction to debt. I’ll give an example using the U.S. federal debt, but this is just one instance. Too much leverage is found in many other areas of our economy.

        In 2005, the per capita income of Americans equalled five months of our federal debt. In 2017, that number moved up to 13 months of income per American for our federal debt. If we roll that forward to 2030, that number will be 39 months of federal debt. Our debt is growing at a much faster pace than our income.

        Now if you have a weak stomach, you might want to close your eyes and plug your ears for this next statistic. By the time my children are ready for retirement their share of the U.S. federal debt will stand at $3.8 million or 28 years of their income. Those are overwhelming numbers and it’s not sustainable. So, we have to find a fix for it.

        Shift in Responsibility for Retirement

        Our second major challenge is training our citizens to manage their retirement programs. The responsibility for retirement has been shifting from government and employers to civil servants and employees over the last 40 years. In 1935, the Social Security Act established a fund to keep the elderly in the United States from being on welfare. This fund has largely been successful, but in the next 20 years, the social security trust fund is expected to be depleted. In 1978, a new type of corporate retirement plan was established in the U.S.. The 401K Plan allowed companies to replace their defined benefit plans with a defined contribution plan. This change forced more of the funding responsibility for retirement to employees. It also gave employees 100% of the investment risk in their retirement plans.

        The result of these two major changes in our retirement programs have shifted the burden of retirement planning to our civil servants and our employees. Financial professionals, with our experience and skill sets, are positioned to lead us in overcoming these challenges. Overcoming our addiction to debt and training our citizens to manage their retirement programs will allow our heirs the financial security to retire.

        What is an Economy?

        The definition of an economy is management of available resources. This covers many different types of organizations, including individual households, communities, states and national governments. Sound financial principles are instrumental in running our economies.

        Four Reasons our Economies are in Trouble Today

        First, our fiscal scorekeepers in our larger economies are politicians and politicians are disciples to their policies, not disciples to good financial practices.

        Second, many of our economies run a habitual deficit. The CIA World Fact book indicates that 83% of the nations in the world ran a deficit last year. Economies that habitually run a deficit either end up in bankruptcy or create economic turmoil for their participants.

        George Bailey helping the working class afford a home in
        George Bailey helping the working class afford a home in “It’s a Wonderful Life”

        Third, debt can be a good thing; but too much debt is always a bad thing. An example of good debt is highlighted in one of my favorite movies, It’s a Wonderful Life. George Bailey, a banker, lends mortgages to the working class of Bedford Falls. They replace their rent expense with equity in a home and they are one step closer to the American dream.

        However today, that dream is unravelling as auto loans, credit card debt, and student loans pile up to create a mound of debt that we can’t dig out of. Another example of well-intentioned debt; in 2009, the U.S. federal government went on a spending spree to yank us out the Great Recession. Unfortunately, that spending spree hasn’t stopped. Government debt isn’t like a mortgage where it’s supported by a house or an asset that will appreciate in value. It’s more like credit card debt, where 30 days after a purchase, the asset is consumed and what remains is only debt. Our addiction to debt has allowed us to invest in dreams we can’t pay for.

        Fourth, we have not trained our citizens to plan and manage for their retirement. We passed on that responsibility, but we haven’t trained them to accept it.

        These are all serious problems to overcome but we must overcome them soon or social, political and economic calamity will be the only answer. It’s not possible to predict the outcome if we let things get to that point. Fortunately, there is a solution and a key part of that solution is financial professionals using their skills and experience to help lead us out of this crisis.

        Four Reasons Financial Professionals are Key to Overcoming these Troubles

        First, scorekeeping; Independence, logic and well thought out decision making are all trademarks of our profession. Our discipline is based on facts, analysis, and collaboration. Those are characteristics that make for a great scorekeeper and our economies need great scorekeeping. We need to know where the economy came from, where it is at today and understand what course corrections must be made to secure the future for its participants.

        Second, financial professionals quickly learn the importance of balancing a budget. We spend a great deal of our time implementing strategies that prevent our economies from suffering. We understand that revenues must exceed expenses. It’s no coincidence that one of the main tools of our industry is called The Balance Sheet.

        Third, as financial professionals, we are trained to successfully finance activities in fast moving, highly complex environments without jeopardizing the future. Debit in moderation can be a catalyst to growth. Too much debt can sink or collapse an economy. The discipline of finance allows us to invest in dreams that we can pay for.

        Fourth, we have a great opportunity to do our own investing for our own retirement plans. Unfortunately, we haven’t trained our citizens to take on that responsibility. However, think of what financial professionals do every day in their jobs. They create models that help us plan for the future. They prepare budgets. They prepare forecasts. All these tools help us look into the future and plan. These are exactly the tools our households need to plan for their retirement. It’s a perfect fit - the financial professional helping citizens without finance training to plan for a successful retirement.

        So, let me say it again. I have great news. We are living longer. We have some challenges to overcome; Challenges that are best solved by the skills and experience of financial professionals.

        I’m asking you as an executive in our financial community to take on the responsibility of teaching the citizens of our economies some of the financial knowledge you have learned over the years:

        • Teach a friend how to prepare and manage a budget.
        • Help a young household learn how to prepare their personal financial forecast.
        • Educate your employees on how to maximize their 401K benefits and their retirement benefits in general.
        • Educate a politician on the perils of too much debt.
        • Evangelize about the benefits of using sound financial principles to improve our economies in the future.

        Sharing a needles eye portion of your financial knowledge with family, friends, colleagues and politicians will have huge benefits to our economies and the livelihood of our heirs.

        Visions with finance turn dreams into a long-lasting reality.

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        The Top Development Questions to Ask Employees

        Suzi Alligood, Vice President of People Development & Culture at Xenium HR passes on some great tips and pertinent questions that will help you and your employees stay on the same page regarding their professional development path; one of the keys to employee retention.


        In today’s employment climate, employee retention is crucial to a business’s success. In many industries, there are more jobs available than there are people to fill them, so when someone leaves a company, it often takes some time to find their replacement.

        That makes the statistics we see about job-seeking and retention pretty staggering. At any given moment:

        • 81% of employees are “passive job seekers” and would consider leaving their current role for the right offer (Hays)
        • 56% of workers are planning to look for a new job in the next six months (PayScale)
        • 51% of U.S. workers overall (60% of millennials) are considering new employment opportunities (Gallup)

        Lack of workplace professional development and career advancement opportunities continue to be top reasons why employees change jobs. One way you can build employee loyalty and engagement is through routine development conversations with each of your employees.

        It may seem counterintuitive, but the onus is actually on employers to start this conversation. Many employees won’t feel comfortable asking about these kinds of opportunities unprompted, as they won’t want to seem ungrateful or accidentally tip off their employers that they’re looking for more outside the company, too. And without open communication from management, employees will assume advancement opportunities don’t exist.

        Ideally, employees take ownership for their own success. But that doesn’t let managers and supervisors off the hook entirely. Taking initiative to identify your employees’ big-picture needs is better for your employees, as it helps them feel heard and valued, and in turn, it’s better for your employment brand.

        Supervisors tend to shy away from these conversations when promotions are not in the foreseeable future, but that’s not a good reason to avoid the discussion entirely. Whether or not you have promotions or development opportunities available anytime soon, you should be talking to your employees about their drives and desires for their careers. If you don’t, someone else will.

        Suzi recommends sparking the conversation with these questions:

        • Do you feel fully utilized in your current role? If so, can you identify the factors that make you feel fully utilized?
        • Please highlight your positive experiences at the company in the areas of learning, development, and growth. Are there ways we could increase that growth?
        • Can you help me understand your career progression expectations and where you would like to be in the company two years from now? Do you desire to move into a leadership role? If so, what are your expectations, ideal timeline, and concerns?

        Once you know what your employees want, you are in a better position to brainstorm development opportunities and set reasonable goals with them, not for them. Then, take some time to think about what you can do now to help prepare them for a future role. Even if the employee ends up working elsewhere, you will have done the right thing by the employee and your employment brand.

        Watch Episode 06 of Transform Your Workplace

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        Is Your Competitive Philosophy Building or Killing Your Culture?

        Welcome to CFO.University’s transcript of Erik Gillam’s CFO Ed Talk, “Is Your Competitive Philosophy Building or Killing Your Culture?”. In his CFO Ed Talk Erik shares how to build a team culture that is happier and less stressed, leading to increased productivity and profit.

        ​Enjoy. Learn. Engage.


        ​Think about the last time you were really stressed out or discontent. How did it make you feel? I know when I get that way, my palms get sweaty, my stomach goes in knots and I feel almost paralyzed. The last thing I’m thinking about is how productive I am at work or the next big thing that’s going to help change my company. So, I can give you statistics about how happier employees or less stressed out employees are going to make your company more profitable. But you probably already know that. That’s common sense. So, how do you develop an environment with your team that increases happiness and decreases stress and discontent? I was struggling with this question a couple years ago when I decided to do an activity. This activity involved me. Every night before bed, I would write in my journal. I’d write about what happened during the day, if I had any stress and if I did have stress, what caused the stress. Six months into the project, I decided to stop and look back through my journals. The main theme that I took from this activity was that I was really stressed out in situations where I had a perceived lack of control. Let me give you an example. It’s promotion time, so and so may get promoted and I might not get promoted. I don’t have any control over so and sos performance. I don’t have any control over the promotion cycle. All I have control of is my abilities. Nonetheless, it was stressing me out. I dug deeper and came up with two core catalysts for what caused these feelings - Competition and Subjective Self-View.

        ​Competition and Subjective Self-View

        Competition is baked into our DNA through millions of years of evolution. We’ve been competing for food, shelter and resources for generations. It’s even alive in the culture that we have today. We compete in athletics, academics, to get into the right school, to get the right job and to get the right spouse. Here’s an example of competition in a place where I didn’t even think about it happening. I’m driving on the freeway, during rush hour and I’m in the middle lane. All of a sudden the lane to the right of me starts moving faster. So, I switch lanes. That white car that was in front of me is now my competition. I don’t know why. I don’t know this person. But as my lane goes ahead, I feel better about myself. As my lane stops, the middle lane goes and he passes me, I feel terrible. What have I done? How did I make this choice? Why is that my default?

        ​Subjective Self-View - The way we look at everything in the world, including ourselves, goes through the lens of the things and the actions that we’ve had throughout our life. One thing that’s natural with everybody is making what we are best most important to us and what we are worse at the least important. I’m going to paraphrase the Bible a little bit, but I think it brings out my point. The Bible says, “Treat others the way you want to be treated”. Must I think so highly of myself that the best thing I can do for anybody is to treat them the way that I treat myself? I will go back to driving for my next example. You’re driving down the highway and you come up behind somebody who’s going five or 10 miles an hour slower than you are. What is this person doing on the road? How do they have a license? What are they thinking? On the other hand, if somebody flies by going 10 or 15 miles an hour faster than you are. This is a crazy person! They’re going to get somebody killed. I should call the cops. I hope they get pulled over. But you, every time you’re driving, you’re always going the right speed. Whether you’re late for a meeting and you’re trying to push it or you’re right on time and taking it easy. It’s all subjective. Competition together with this subjective view of oneself is a recipe for stress and discontent.

        ​Goals Change Your Focus

        ​What can we do? How can we solve this problem? You have to have specific goals. Goals move the focus from other people and how you compare to them and put the focus on something you have control over. You set your achievements. Goals can’t be just words. There are five specific aspects of a goal. I suspect everybody has heard the acronym SMART before. I can’t stress enough, how important it is.

        ​SMART - Specific, Measurable, Attainable, Reasonable, and Timely. It’s tough to get all five parts in one goal. I’ve had people come to me and say, “Erik, my goal for this year is to increase industry knowledge or increase knowledge of finance”. Well, what does that tell me? That’s pretty broad. Will you be able to sit down with me a year from now and tell me that you’ve met that goal? A SMART example of this goal could be; I want to increase my knowledge of interest rate swaps. To do that, I’m going to read three articles and give a presentation at the end of those six months. Is it specific? Yes, I want to increase my knowledge of interest rate swaps. Is it measurable? Yes, it’s three articles and one presentation. Is it attainable and reasonable? You should be able to get that done in that amount of time. Finally, is it timely? We’ll know at the end of that six months, if you have met your goal or not?

        ​Steve Jobs is an example of somebody who had very specific goals. Do you think when he was sitting down with his design team coming up with the idea for the iPhone, he said, Guys, I think we need to make something a little better than the competition or we need to make something a little different. No, he said, I need a phone that doesn’t have buttons. I want the whole face to be a touchscreen. I want a phone that’s going to change people’s lives. We could argue that some of Steve’s goals weren’t timely and he did put some stress on people. But, he was very effective and helped grow Apple to be the giant it is today.

        ​Let’s go back to the driving example. This time, I am going to put goals to it. Instead of just driving from point A to point B and trying to get there as fast as I can, I set a goal for myself. I gave myself a buffer. Normally it takes me 45 minutes to go from point A to point B in traffic. I gave myself an extra 10 minutes or 55 minutes. Now when I’m driving, it doesn’t matter if I stay in one lane or get in the other lane that’s going to save me one or two minutes. I know I have a 10-minute buffer. It takes the stress out of the situation.

        ​Goals help you not only in the workplace but in your personal/family life too where you can apply these same principles. Set goals for how much you want to save. What adventures you want to go on in the next 10 years. How you want to treat your spouse and how you want to raise your kids?

        ​At the end of the day. We all want to work with people that are healthy, happy and less stressed out. You have an opportunity to increase profit and productivity without spending one extra dollar by setting up a process where you implement goals. Take control of your goals.

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        Technology Investment Strategies for Business Success

        It has never been more important for businesses to make the right technology investment decisions. Businesses currently spend an estimated 2 to 5% of their revenue on technology purchases. Studies show there is a strong correlation between profitable growth and well-aligned technology especially when the investments are focused on differentiating the business in the marketplace. Unfortunately, technology spending can sometimes be derailed by competing agendas, poor communications, and long wish lists. How can these important business investments move beyond the technical necessities needed to just “keep the lights on” and tackle improvements that solve the bigger problems businesses face today?

        ​The Global CIO Survey reports that 57% of technology budgets are used to support fundamental business operations, while only 26% of the spending focuses on needed business changes. A mere 16% supports innovations that will power the business into a successful future. In a world where IT has become a critical component of business operations, technology is a key differentiator and an enabler of success. So how should a small business determine where to direct their scarce resources to get the greatest “bang for the buck”?

        ​A Portfolio Approach

        ​Successful businesses optimize value by adopting a portfolio approach to technology investments by using a strategy similar to a stock portfolio. Some high-risk investments may deliver outstanding but risky results, while other more conservative investments are likely to lag behind but give consistent results. Smart executives measure the performance of technology investments in terms of value, risk, and reward. Taking a venture capital mind-set on some of the investments will boost value and produce a bigger impact.

        ​Align with Your Strategy

        ​Focus investments on specific business goals such as revenue growth, for example, improving customer market share. Another goal may be to better serve existing customers to increase their spend. The former strategy lends itself to investment in better marketing and customer targeting technology while the latter requires customer relationship management and service support systems. Always verify that technology investments are closely aligned so they support the strategic goals.

        ​Prioritizing technology investments is a bit like making sausage…it is not a simple process. There can be conflicting opportunities and constraints to balance. If too much is allocated to maintenance of existing systems, new projects and innovations may languish. This can ultimately impact competitiveness and long-term revenue. A spending balance across innovation, growth, productivity and maintenance coupled with a mix of targeted investments based on business objectives, time constraints and risks will yield an excellent outcome.

        ​Smart leaders follow a multi-year strategic technology investment plan that allows for growth, change, and improvement. It is easier to identify technologies that help specific initiatives when there is an overarching vision to provide clarity.

        ​Some key questions to consider:

        • ​ Are there opportunities for growth or significant improvements in certain functional areas?
        • ​ How do the leaders in your industry use new technologies to create a competitive advantage?
        • ​ Does it make sense to invest time, money, and staff on a single large project vs. several small but less impactful changes?
        • ​ Are there any new business risks requiring technology investments that can’t be ignored?
        • ​ Which investments will either grow revenue, improve profits, or reduce risks the most?

        As technology becomes even more pervasive, long-term investments make the difference between being a thriving vs. static business. The key is to reach management consensus with a realistic view of the benefits, costs and impacts for each technology decision. Yet just writing a big check is not enough. Technology investments must also be strategic–and at the same time focused on the most important competitive initiatives–so they deliver the expected impact on the bottom line.

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        Do You Know What the Income Trap Is? You’d Better

        Welcome to CFO.University’s transcript version of Joe Connors’, CFO Ed Talk “Do You Know What the Income Trap Is? You’d Better”. Joe’s entertaining and wise message reminds us “It’s not what you make it’s what you keep” and how building net assets is frequently more important than growing revenue.

        Enjoy. Learn. Engage.


        The Income Trap

        How many of you believe if you could increase your income it would solve a lot of problems? My name is Joe Connors. I’m a middle-aged business banker and over the course of my career I’ve seen a number of business financials and personal financials. What I’m going to tell you is that focusing solely on income is a trap. I call it the Income Trap. I’m also going to tell you the same trap that applies to individuals also applies to businesses, no matter their size. And what I’m also going to do is show you a few examples of how focusing solely on your income could put your business at risk.

        ​You may recall the old adage; “It’s not what you make it’s what you keep”. That applies as much to businesses as it does to individuals. Do not become a victim of the Income Trap. So, I said I’ve looked at a number of financials over the course of my career. How do companies or individuals avoid this Income Trap? Well, to cover this we need to actually pivot away from the income statement and look at the balance sheet and when I look at a balance sheet I try to figure out why is company A more successful than Company B? Why was Company A able to endure a recession or a reduction in demand or loss of a significant customer whereas Company B couldn’t endure that and maybe Company B failed? Well, what I’ve found is when you look at the balance sheet you get an understanding of why they were able to survive challenging times.

        ​The Speedometer and the Fuel Gage

        ​So, when I think of a balance sheet I tend to think of a fuel gauge. The balance sheet as a fuel gauge; that balance sheet contains the reserves that a company relies on to propel itself forward. When you think of reserves there are typically two categories; financial reserves and liquidity reserves. When you look at a balance sheet there’s a very common ratio called the debt to equity ratio. That will give you a sense for the financial reserves that a business has; essentially, total liabilities or total debt over total equity. When you look at liquidity, there’s actually a liquidity ratio and you can calculate it different ways but essentially the numerator is cash, marketable securities and perhaps even receivables in some cases and the denominator is total current liabilities. The higher the number is the better the liquidity ratio. The leverage ratio, the first one we covered, the lower the number the better.

        Let’s go back to the income statement and the income trap. When I think of an income statement I think of a speedometer, it tells management how fast are revenues growing, how fast are expenses growing, how fast are earnings growing? And when management looks at that speedometer, it has a sense for how fast the company is moving. But the really successful companies pay as much attention to their balance sheet as they do their income statement. They do not fall into the Income Trap. So if you can think of the income statement as your speedometer, imagine you’re cruising on Interstate 40 in a red convertible Ferrari. You’re doing one hundred miles per hour. What an exhilarating ride! Now you’re in the middle of the desert, had you not checked your fuel gauge before you left you may run out of fuel in the middle of the desert and have no way out. Not paying attention to your fuel gauge is akin to not paying attention to your balance sheet. How many of you have run out of gas? How many of you have worried about running out of gas? I can tell you a couple of years ago, on a summer road trip, my wife and I had driven up to Calgary, Canada to attend the Calgary Stampede. We’re working our way south and west back to British Columbia and eventually back to home in Portland, Oregon about a sixteen-hundred-mile trip. As we’re cruising along Interstate 5 in Canada, Canada Highway 5, we noticed that our fuel gauge was almost on empty, and we’re kind of looking at each other and saying oh my gosh! We were on a downgrade so my wife puts the vehicle in neutral and we coast. Shortly thereafter we see a sign and that sign says the next town that we were going to hit was called Hope. We kind of looked at each other and said “My gosh, I hope we make it to Hope!” Well, we did make it to Hope, but I can tell you hope is not a strategy that I embrace, and hope is not a strategy I recommend for you. Examples – Getting Caught in the Trap and Avoiding the Trap

        ​Now I will come back to the Income Trap and talk about a couple of companies. Company 1, founded in 1985, is a high flying company. This company was focused on performance; the financial income statement performance. You can find quotes about this company where employees and associates have said, they felt that the only thing that mattered was profits. So this company did incredibly well. From 1999-2000, they grew their revenues from a little over forty billion to a little over one hundred billion, about one hundred fifty percent income growth over that two year period. When you looked at their balance sheet what you noticed was their leverage at the end of ‘99 was about two and a half to one. When you rolled it forward to the end of two thousand, it had nearly doubled to roughly four point seven to one. Actually, after the fact we know there were more liabilities and so the leverage would have been even higher. That company, in the third quarter of 2001 reported its first loss in four years. Two months later, in December, that company filed for bankruptcy. Company Number 1 was called Enron. Do you think Enron fell into the Income Trap? Now I’m going to talk about Company Number 2. Company Number 2 founded ten years later in1995, was a company that lost money for the first eight years of its existence. This company was growing revenues every year, it had losses, the losses were increasing but then they gradually began to diminish. That company in the fourth quarter of 2001 reported its first quarterly profit. That company did not fall into the Income Trap. In fact, they spent an awful lot of time understanding their balance sheet and their liquidity reserves. The trend that you see is that their liquidity or their liquidity ratio kept moving in the direction of one. They were generating as much cash as they needed to stay ahead of their current liabilities and meet their operating expenses. Company Number 2 is a company called Amazon. I don’t think I need to say any more about Amazon except that I would assert they did not fall into the Income Trap.

        ​We’ve talked about a couple of companies. Now I will present two individual examples:

        1. ​We have this couple, a professional couple. They’re both working, gainfully employed and they meet with a financial planner. At the start of the meeting, the financial planner shares with them that at their ages and their income this is how much they should have saved for retirement. When that number is flashed on the screen, that number is essentially two times or double what they themselves have saved. The financial planner pauses and then he looks across the table and he says, “Are you OK?” The husband turns to his left, looks at his wife and notices that she is crying. That couple had fallen into the Income Trap. That couple was me and my wife.
        2. ​We’ve got two hypothetical folks, Jim and Bill. Jim makes one hundred thousand dollars a year, Jim drives a Lexus, he leases a new Lexus every three year, he lives in a high rent district he travels a lot for business so when he’s home he tends to eat out a lot. So even at one hundred thousand dollars a year Jim is not able, on an annual basis, to save any money for retirement. Now we look at Bill. Bill makes thirty-five thousand dollars a year. Bill oftentimes makes his own meals, brings his lunch to work and actually drives a Toyota Corolla. That Toyota Corolla is paid for. Bill does not live in a high rent district. Bill actually has been able to save about five thousand dollars a year. So, with a simple exercise when you look at Jim and you look at Bill, Bill over the course of forty years will have saved essentially a million three in retirement funding (you can do the math with using an eight percent compounded annual growth rate). It’s going to be a pretty significant number by the time he’s ready to retire. I would say Bill has not fallen victim to the Income Trap. Jim, on the other hand, forty years from now, will have nothing in retirement and he will have been solely focused on the income statement.

        ​Falling into the Income Trap Increases the Cost of Capital

        We’ve talked about Enron, we’ve talked about Amazon, we’ve talked about me and my wife. We’ve talked about Jim and Bill. What I want to do is pivot to the final point I want to make, “There is something else”. To illustrate this I often look at the Cost of Capital Curve. The Cost of Capital Curve is essentially a model that shows how a company moves along this curve. As it moves down the curve, it attracts a lower cost of capital. As it moves up higher on the curve, it’s a higher cost of capital. So generally, if a company has been a good steward of its financial reserves and its liquidity reserves, it’s going to be more effective at attracting a lower cost of capital and you know they say it takes money to make money? I’m actually going to explain to you how it can take less money to make more money. MFG Company approached me and several banks a number of years ago and they wanted to borrow a million dollars for a piece of equipment. Ultimately when you looked at MFG, they didn’t score very well in terms of their leverage. Their leverage was way too high and so many of the banks who might have offered that company five percent interest rate on that money weren’t able to help them. What did MFG do? It went to its equipment vendor and used a form of financing that would be akin to leasing, but the cost of that financing was fifteen percent. So on a million dollars (The actual price was two million. But let’s keep the math simple) that would be about one hundred fifty thousand dollars a year. Had they not been a victim of the Income Trap and spent as much time on the balance sheet, they would have been successful attracting five percent capital. Now think about that, the difference, one hundred fifty thousand versus fifty thousand. Had they not succumb to the Income Trap, that additional hundred thousand comes back into the company and allows the company to continue to improve its ratios and be able to attract that lowest cost of capital, so I would argue that MFG became a victim of the Income Trap.

        Hope or Plan?

        ​So, we’ve been on a journey, you’re all on a road trip and we’ve covered a number of things. It’s not what you make it’s what you keep. Pay attention to your balance sheet. Do not become a victim of the income statement. Understand your ratios, your leverage ratio and your liquidity ratio. You will save money and safeguard your business. You know, the acronym for balance sheet is B.S. Your balance sheet is not a bunch of B.S. You should pay attention to it. As you journey through life toward your destination, you’ve got a couple of options, you can hope, or you can plan, you get to choose.

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        Stop Using Lean to Cut Costs

        Welcome to CFO.University’s transcript version of Andrea Jones’, CFO Ed Talk. Stop Using Lean to Cut Costs. Andrea advises CFO’s to start using Lean to increase revenue, and stop using Lean to cut costs. She provides a clear-cut model and real-life case studies to drive her points home.

        ​Enjoy. Learn. Engage.


        Imagine this scenario, your company didn’t make its earnings last quarter, and you as the CFO have the unenviable task of bringing those numbers to your leadership team. Everyone’s going to start talking and pretty soon someone will come up with the idea that you need to cut costs. Maybe you’ll even decide to use Lean to cut costs in your company. Well, you wouldn’t be alone. A recent headline from CNBC states, Coke goes Lean to cut 1200 jobs as part of an $800 million cost savings plan. Today, so many companies use lean to cut costs, that Lean has become a four-letter word in many organizations.

        ​Several years ago, a company that I worked for would constantly reissue Lean mandates to cut costs and cut jobs. Well, it doesn’t have to be this way. Interestingly, when Jim Womack popularized the term Lean in his 1991 book, The Machine that Changed the World, he was referring to how Toyota would produce products with little to no waste while adding value to the end customer, and revenue for the company.

        The DAER Model

        Now, if you’re as profitable as you would like to be, maybe you don’t need to read the rest of this talk. But for the rest of us, there’s a way that you can use Lean to not only cut costs but to increase revenue in your company. This is the DAER model. It stands for Define; define the problem or the issue in your organization that you’re looking to address. Collect some data around that issue to really figure out what’s happening. Then Align your team to that data, make sure that everyone understands the issue and further is aligned also in what they need to do about fixing it. Next, Execute to that plan. And finally, realize the Revenue that comes from your efforts in this area.

        ​Case Study – Debottlenecking the Production Process

        Consider the following case study. A manufacturing company had a stated six week delivery lead time. Well, they weren’t making that lead time and they were concerned. So, when I ask them, what is your actual average lead time? They really didn’t know. So first, we had to collect some data. After we collected this data, we found that their lead time was actually seven weeks, on average, not six. But the interesting thing about the data was that no matter what you say about Lean and touching the product, needing to change the form, fit or function, in order for each touch to be, quote, value-add, they were actually spending 75% of their time in production doing nothing. The product was just sitting there waiting, nothing was actually happening. So, it really didn’t matter what they were doing when they touched it, as you can see, in the green bars on the chart to the right. The red bars signify the 75% of the time that the product was sitting around doing nothing. Well, once we had collected and showed this data to the team, everyone jumped on board and was very aligned to the problem. Then we had to come up with what we were going to do about that. We decided to use a Pull System. A Pull System takes the theoretical constraint of a system, in this case, when the machine would actually produce the product, which is the large green bar toward the end of the chart, and pulls everything in toward that step. So, we didn’t have to do anything ahead of time. We didn’t have to worry about all the other steps. But we would pull things over towards that step. Everybody was aligned to this and we moved ahead towards execution. The way we executed was by adding a buffer, a Kanban in Lean terms, in front of that machine. So, while the machine was running, there would be four pieces of production staged in front of it. Soon as it was done, it would move off, pull the next one on, and everything would move up a spot. An open spot was the indication for the upstream steps to get ready for that piece of equipment. The program was designed to stage the materials and put everything in front of that equipment.​

        All they did was change their philosophy by pulling things onto the equipment rather than pushing them over in random order, but you can see the staggering results. The chart to the left shows in red, the 35 business days or seven weeks of time that it took them to produce the product before the Pull System was in place. After the Pull System (Kanban) was put in place production time declined to 11 business days, represented by the green bar. So, they removed over three weeks (69%) out of this whole process. And what does that do for their revenue? Well, from a financial perspective, their cash flow is improved because they’re able to invoice sooner. Their inventory turns are up. Their throughput time is down so their throughput itself is up. Machine utilization is up. Equipment capacity is up because again, they took weeks out of the production cycle. On average, they were able to do more in any given year without adding any additional overhead costs.

        ​But the best thing that happened for this company was that now they were able to go to their customers and say, “Hey, would it be a competitive advantage to you if we can deliver in about two weeks rather than the six or more that we were delivering in before?” They were able to increase their sales and therefore their revenue even more.

        ​Now, you might be saying, Well, that’s all great. I’ve heard about Lean manufacturing, it works well in a manufacturing environment. But I’m not in a manufacturing environment. So how can this lean thing work for me?

        ​Case Study – Properly Allocating Resources

        ​Well, consider the case study from a web platform company. This platform company was onboarding about 50 customers a month to its web platform and it moved to 350 in one month when it added a sales channel partner. So, you can imagine that this onboarding process, which was about five steps, was very manual when people were onboarding 50 clients a month and when moving to 350 in one month everybody was super frustrated. They couldn’t get through the process. Work was starting to stack up and no customers were actually on their web platform to even earn revenue in the first place. So, there was a big problem. We really needed to figure out where in that five-step process were the big opportunities. So again, we started to collect some data. In this case, we collected the backlog. So how many customers were waiting at each step? Well, interestingly, in both step 2 and step 4, there were training steps. Now you can see from the chart to the right that step four had a gigantic backlog. But what was the difference? In step two, there was a five to one training ratio. Five customers to one trainer. In step four, that ratio was one to one. Now, it doesn’t take a rocket scientist to know that if you go from a five-lane highway, down to a one lane highway, things are going to get backed up. And that’s exactly what had happened to them. In fact, they had 630 customers waiting at step four, just to get through that process. I calculated that it would take them about six years to get through at the rate at which customers were coming in. Six years is an awfully long time to wait to earn revenue on your web platform business.

        ​So, now that the problem is well defined, you would think that people would jump right on board and be aligned to what to do next. This is an interesting situation though because the manager who had set up that step 4 to be the one to one trainer was actually not bought in. That manager really believed it needed to be one to one training there. So, they didn’t do anything about that right away. Instead, they added some online software to schedule people. So, if someone quit or canceled at the last minute, they could backfill easily. They added training slots for step four. They made sure all of their trainers were cross-trained. That helped some, but it still didn’t address the main bottleneck. They didn’t level load every step in their process. After this went on for a few more months and the problem was just exacerbated. They realized and all became aligned that the problem was in step four and they needed to address it. After that, execution became very straightforward. All they had to do was increase the ratio at step four so that the entire system was matched and level loaded. They were able to get customers on board within a few months and start earning revenue from their online web platform company.

        Don’t’ Embrace a Stone Age Excuse

        Now, maybe you’re thinking to yourself, hey, that’s great. It would be wonderful to have the time, to really define a problem, to come up with all this data, analyze it and work to get the team on board. Sounds like a terrific idea. But I am just so busy. I’m so busy doing my daily work. I don’t have time to do anything else. Anything else is overwhelming. Too busy to think about this? Well, as you can see from this cartoon, being busy is a pretty convenient excuse that’s been around for a while. So, I dare you. Use the DAER model to consider how you can use Lean to increase revenue in your company. Define the problem. Figure out what’s really happening and use data to really see that and get everyone aligned to the problem and to the data. Align all of your team to what really needs to happen. If you take the time to finish the define and align steps well, the execution becomes relatively straightforward. And don’t forget, realize the revenue that comes from your efforts. Now, if you’re always using Lean to cut costs, well, you’re probably not going to be too popular with your employees. But if you can message Lean in the way in which it was intended, to add value to your customers and revenue to your company. Well, you tell me CFOs, What could be more important than that?

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        Without Change, the M&A Boom Will Stunt Economic Growth

        Welcome to CFO.University’s transcript of Grant Jones’ CFO EdTalk Without Change, the M&A Boom Will Stunt Economic Growth. Grant highlights studies that show M&A is a statistical failure. But he gives us hope with three ideas on how to improve the rationale for doing acquisitions, as well as improved success rates.

        ​Enjoy. Learn. Engage.


        ​I liken mergers and acquisitions to terminal illnesses. We all either know somebody or have ourselves been impacted by a terminal illness and our outlook has been quite negative. I blame this negative outlook on the famous quote by Albert Einstein that goes “We keep doing the same thing over and over again, expecting different results”. This is also known as the definition of insanity. To give some scope to the problem, we’re actually coming out of record M&A activity. From 2010 through 2017 we’ve had 67,094 reported transactions. This led to $6.55 trillion exchanging hands. Well, it’s all the big deals that get the big headlines. According to PitchBook, roughly 70% of all deals done around the globe are less than $100 million in transaction value. This means the overwhelming majority of transactions are actually your local, family-owned or privately held businesses.

        There were some substantial economic benefits. First and foremost, this created substantial liquidity for the exiting owners to move on with life, or simply move on to retirement. Coupled with this was the acceleration of the entrepreneurial cycle. These exiting owners went off and created new ideas or new businesses. There was also a huge lift to the financial and banking sector. As we came out of the Great Recession, the banking sector was crippled. To do $6.55 trillion in acquisitions means we had to go out and borrow substantial amounts of money. This was a great lifeline for the banking sectors as we came out of the recession.

        ​If you were to go Google M&A success rates, you would get a different story. M&A is a complete statistical failure. Regardless of your source, Forbes, McKinsey, Harvard Business Review, they would all argue that M&A fails over 50% of the time. Now, failure is somewhat in the eye of the beholder. But, across the board, all these would define success or failure as not accomplishing the goal that they set out with when they moved forward with an acquisition. Now, if we were to do some basic math, if we spent $6.55 trillion on acquisitions, that means we wasted $3 to $4 trillion on acquisitions. It could at least be argued that there was a huge opportunity cost for what could have been. Now since 2010, we’ve had some real doozies. In 2011, Google acquired Motorola for $12.5 billion. Two years later they sold it off for $2.81 billion, almost a $10 billion economic waste.

        Then again, in 2014, Microsoft acquired Nokia for $7.9 billion. Just one year later, they wrote off almost the entire amount. Apparently, it was a tough time to be buying cell phone companies. However, most experts would say the worst deal in history was in 2011 when Hewlett Packard acquired a company called Autonomy for $11.7 billion. One year later, they wrote off $8.8 billion to eventually sell off the pieces in 2016 for $170 million dollars. This was roughly an $11.5 billion economic waste. Now, some would argue that there’s residual value to these acquisitions. And I would agree. However these write-offs aren’t without consequences. No question, there was substantial job loss as well as loss of shareholder value. But, so what? Why does this matter? Forbes estimates that between 2015- 2025 there will be $10 trillion of business value transition. This means in 10 years, $10 trillion of business value will find new ownership. If these success rates hold true, we have the potential for $5 trillion of more economic waste. Now, if you were to go back to that original Google search and ask, why does M&A fail? You’re going to get all the same sources to tell you all the same reasons. I’m going to summarize these into two categories.

        Why M&A Fails

        ​The first one being poor integration. This includes topics like a cultural mismatch, missing key leadership roles or not keeping talent. This also includes lack of a solid due diligence process; where the skeletons reveal themselves after the acquisition or even the ego of the acquirer getting in the way, “ It’s going to be our way or the highway”.

        ​Then there’s acquisition rationale. This is not having a strong selection process or what’s deemed poor strategic fit. Often times, this means there was an overestimate of synergies, frequently a financial model including cost cutting that can’t be realized. And then there’s this grand revenue scheme where one plus one’s going equal five and they end up falling short. You could also simply have poor deal terms or just overpaid which leads to poor decision as desperation rules the day? While I would argue integration is important, if you didn’t have a strong rationale for why you did the acquisition in the first place, it’s going to fail.

        How to Improve M&A Success Rates

        ​So, here are three ideas that will help improve our value creation rationale and improve our success rate.

        1. The first one I title “Keeping up with the Joneses is not a sound strategy”. Much like in the analogy, when you see all your neighbors buying new toys, companies are going out and saying, well, we must grow through acquisition too or we risk falling behind. This is a terrible strategy for growth. Additionally, there are substantial economic pressures to grow through acquisition. We’ve been in the slow growth economy for a period of time now, and it’s quite frankly, not suitable for shareholders. So key executives look around and say, “Well, if we can’t grow organically fast enough, then we must grow through acquisition”; regardless if it’s our core competency to do so. Many companies don’t have the competency to run a selection process, negotiate a good deal, and then find the synergies to be successful.

        2. Secondly, on a twist of a famous JFK quote, “Ask not what the acquisition can do for you, but what you can do for the acquisition”. Too often companies go into their strategic planning meetings, and they sit around, and their conversations go something like this. You know, we really should grow our geographic reach. “Do we know anybody in that territory we can go buy?” or “You know we really want to expand our product line”. Who do we know that we can go acquire to help us grow? This me, me, me, attitude actually jeopardizes the opportunity to be successful. The companies that are most successful with acquisitions actually focus on “What is the acquiring company doing well?” and “How can we help them do even better?”. The buying group that I think does this the best, is your large buyout private equity firms. They don’t come in with any preconceived, egotistical growth strategy. They’re simply looking for attractive companies to buy that then they can leverage their expertise, experience, and influence to help them become even more successful by focusing the on company they acquire. This allows them to then reach their goals of returning their profit to their investors.

        3. Lastly, it’s not about the numbers it’s about the people. As I mentioned, I believe companies spend too much time on their financial models. Figuring out how they can they cut costs, or have these grand revenue schemes instead of focusing on the people before the acquisition. I think companies should be spending way more time on the Org Charts, the people and the customers that made the company valuable in the first place.

        ​Many case studies would say that the acquisition done by Procter and Gamble of Gillette was a great success. This was attributed to their thorough investigation of the people. Many thought that Procter and Gamble being the bigger company that their executive team would stay in place, but actually this was not the case. They took their time and took the best talent from both Procter and Gamble and Gillette and made a best in class leadership team. They also created a culture that had collaboration and best practice sharing. So it really created a best in breed team for the company to grow going forward.

        ​So, if you don’t have these three foundational value creation rationale; you could have the best integration team in the world and it’s just not going to matter. To me, integration is simply a detailed project plan that outlines how you’re going to achieve your goal, why you did it, what you did and who you’re doing it with?

        ​As business leaders M&A is all around us in one fashion or another. I’m really curious to see what the studies are going to be like in 2020, 2025 and then again in 2030. Did we learn from our mistakes and improve on all these case studies of historical poor performance? $10 trillion is on the move. I really do hope we’ve learned our lesson. Otherwise companies might as well go to Vegas and put the growth strategy on black.

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        What Every CFO Needs to Know About Tax

        Welcome to CFO.University’s transcript of Craig Vagt’s CFO Ed Talk What Every CFO Needs to Know About Tax. Craig wants your tax function to be a success and shares the concepts you will need to make that happen.

        ​Enjoy. Learn. Engage.


        ​At some point, you as the CFO are going to realize that you have responsibility over the tax function. This may come as a surprise, hopefully not, but it may. This will be the case whether you have an internal tax director or whether you rely on an outside advisor for your tax services. Your role will probably be a little more complicated if you’re relying on outside advisor. But in any case, you’ll have that responsibility. So knowing that you have that responsibility, you need to assess where your tax knowledge is; What do you know about taxes? What should you know about taxes? Do you think there’s a gap? How do you fill that gap? Well we’re going to talk about a few things here that will help you get through that process.

        ​The first is you need to identify what issues you’ve got to deal with. What are the total tax issues that the company has to face? Probably be best to make a list. What’s the first thing that comes to mind? Income Taxes, put that on the list. What do you know about income taxes? Where do you have to file? You’ll file federal return, you’ll file state returns, maybe more than one, you’ll file local jurisdiction returns, City, County. If you’re involved in international operations, you’ll have to file foreign tax return. Keep all those in mind, create a list, know where you’re going to file, know the due dates, know the estimated tax dates if you’re going to have to pay taxes in any of those jurisdictions. That’s all very important.

        ​When you come to the States, you’re going to ask to have to ask yourself, well if we have operations in more than one state, say we’ve got a manufacturing facility in California and a warehouse in Arizona, the entity made $1 million. How do we split that income between the two states? Those are rules called allocation and apportionment rules. You don’t need to know the rules for each state, because they can differ. They can differ to the point where one state may allow a consolidated filing if you have more than one entity and another state may forbid consolidated filing. So the differences could be quite large. Maybe some states rely on payroll, sales, property, ratios of those in and out of the state. But you need to identify those, keep those in mind, not the details; you just need to know that those exist. What do you know about the tax return itself? Page through it. Take a look at the last page where it reconciles book income to tax income. That will be a big help. So that’s income taxes.

        ​How about property taxes? What do you know about property taxes? Who in your organization actually files property taxes? What information do they rely on? Do they rely on the general ledger? Does the general ledger have information about where property is located? What happens if you have property that moves from jurisdiction to jurisdiction? Your construction company and your equipment moves from jurisdiction to jurisdiction? Is there a way to track that? You need to make sure you understand that. Maybe you use the depreciation schedule as the base for your property taxes? Has anyone ever looked at the depreciation schedule to make sure there aren’t assets on it that you don’t own anymore? We find that’s frequently a problem. People are good at adding assets, but not so good at taking them off.

        ​How about excise taxes? Not all companies file excise tax returns, but many do. So you need to put that on your list if you have that in your purview. If you’re involved in international operations, duties would fall on that list. So you need to put that down.

        ​How about payroll taxes? Payroll tax is kind of an interesting idea because frequently it’s handled in the HR department, right? That makes sense, the HR department knows who’s on the payroll, they know what the rates are, and they know what benefits people get, so that makes a lot of sense. But let me pause at a hypothetical for you. What happens if you have an installation in Montana, you’re not located in Montana, this is the first time you’ve ever gone to Montana, you send somebody to Montana to assist with the installation. Somebody in the HR department, one of your smart people in the HR department says, wait a second, we’ve got people in Montana, maybe we should be filing a tax return in Montana. They look at the rules and based on your facts, yep, you’ve got to file. What do you do?

        ​Well, this is a two-part question. The first part is, What are the rules? and this person is determined that you have to file, that’s important. The second question is, Will you file? Now I’m a tax advisor and I don’t advise people not to follow the law. But I’m well aware that pragmatically, companies will say, we have never been in the state before, we’re going to be there for one day, we’re never going back. We don’t want to enmesh ourselves in filing a return in a state where we’re going to have to wait for two or three years to extract ourselves all the time paying somebody to file those returns.

        ​Who should make that decision? Should it be the HR director, they have visibility to the HR issues. They have no visibility to the income tax issues or the sales tax issues. So that decision should be made by the CFO.

        ​Sales Tax Sales tax is the wild west of taxes. And what I mean by this is you would hope, you would hope that with sales taxes being so ubiquitous in the United States that the rules would be somewhat consistent. ; Absolutely not the case. Every state has a different rule. In the time I’ve been preparing for this presentation, a couple weeks, I believe there are two states that have changed their rules. Let me give you an example of what I’m talking about. You live in Wisconsin, you’re going to buy a book, if you go downtown and buy the book you will pay sales tax. The bookseller will collect the tax, remit it to the state, states fine, everything is copacetic. But you go online to buy the book, you buy it from somebody in New Mexico, do they collect sales tax? Well, they may, they may not. What you’ve stumbled on is a concept called Nexus.

        ​Nexus is the term tax people use to describe the connection between a taxing jurisdiction and a taxpayer such that the taxing jurisdiction can compel the taxpayer to either file a return, pay tax or in the example I’ve just given collect sales tax. Well it would be nice if those rules were all consistent; and ironically, we’ve had this issue for a long time and the Supreme Court ruled on this and said, well, to compel an out of state seller to collect sales tax, the out of state seller has to have a physical presence in the state. Well, that’s pretty clear. You got a body there you’ve got some equipment, a warehouse. States don’t follow that rule. Massachusetts has expanded the rule. Massachusetts says, well, if somebody in Massachusetts goes online and buys something from somebody in New Hampshire, and the seller in New Hampshire puts a cookie on the buyer’s computer, that cookie is physical presence, is that physical presence? I don’t know, they think it is. Somebody will have to determine that in the courts. And that’s where the case is right now.

        ​A couple states, Alabama and South Dakota, have said, we don’t frankly care what the Supreme Court said, we don’t think you have to have a physical presence. When somebody pointed out the conflict to the tax director at Alabama, he said, so sue us and that’s what’s happened. There are cases all over the country that relate to the sales tax Nexus issue. The point is not to know all these rules, that’s clearly not going to be the case. Your tax advisor is going to know that. What you have to know is that there are rules and they can change. So if you have no operations in Kansas, and send somebody into Kansas, you need to know what the consequences might be.

        ​So now you’ve identified all these tax issues what are you going to do? Well you’re going to identify a tax director. Let me give you a several ideas. The first thing is to find a candidate who is technically competent. That pretty much goes without saying, right? Why would I even mention that? For two reasons:

        1. ​ You need to find somebody who’s technically competent in your industry. Taxes are very industry specific and you need somebody who understands those rules for your industry.
        2. ​ It’s highly unlikely you’re going to find one person that knows all those rules in all those states for all those taxes.

        ​So, what you’re going to have to find is somebody who has access to the expertise that they don’t have personally. Large firms do that internally in different departments. Smaller firms can do that through alliances. So, you need to find somebody who has the technical expertise that’s important to you with solid relationships they can fill voids with.

        ​Second of all, you need to find somebody who is proactive. It’s hard to determine but you need to put that into your list of criteria.

        ​And finally, you need to find somebody you can talk to. Someone you can communicate with. Who when they answer your question, you not only understand the answer, you understand why they’ve given you that answer. There’s a big difference between just finding a rule and understanding why the rule applies.

        ​So, you’ve identified the taxes that you’re responsible for. You understand the concept of apportionment and how income goes between states. You understand Nexus. You’ve identified the qualifications required of your tax director - a person who’s technically competent, proactive with good communication skills - and engage them

        ​Having done all that, you need to open that communication line. The easiest way to do that, put them on speed dial.

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        System Implementations Can Be Successful

        Welcome to CFO.University’s Transcript of Andrew Lee’s CFO Ed Talk, System Implementations Can Be Successful. Some of America’s best run companies fail when implementing an ERP system. Andrew describes how three simple concepts; lead, limit and organize can make your system implementation a success.

        ​Enjoy. Learn. Engage.


        ​To this day, eight years later, I remember pulling into my driveway on a Friday evening a little later than normal, turning the car off and laying my head down on the steering wheel. Three days earlier we had launched our new ERP system and it was not going well.

        ​So, I used the rest of the weekend to reprioritize the project plan and work on a couple open issues. By the end of the weekend I’d convinced myself maybe things weren’t so bad. That maybe as the project owner I had taken on a little more stress than the rest of the company.

        ​Monday morning, I came into the office; the first person I see is sitting at her desk crying. She didn’t know how to use the system; the system was not working; she couldn’t do her job. According to the research firm, Gartner, seventy-four percent of ERP system implementations are considered failures.

        ​According to that same firm, ninety percent of future implementations through 2018 will fail. Why? What are we doing wrong? Google ERP implementations and you’ll find stories about some of America’s best run companies and their implementation failures. CFO’s get fired for these things. Shouldn’t we figure it out?

        ​Since that time, I had the opportunity to do another implementation. It wasn’t perfect but the results were like night and day. Within three months, our efficiency was better than before we launched. Within one month, our accuracy was better. Our team had the tools they needed to stay in better contact with customers, sell more, run a more robust website and a more efficient operation. Most importantly the team loves it.

        So, what changed? What did I learn the second time around? What I want to share with you today are some simple but powerful concepts based on the following; lead, limit, organize. Do this and you’ll run an effective implementation and avoid getting fired.

        Lead = Prepare, Involve, Super Users, Visibility.

        ​First is to prepare. Prepare the team. Change scares people. Most people don’t like it. What’s even worse is the unknown and you have both of these factors during an implementation so it’s no wonder that people have emotional breakdowns. Talk to them, help them see what’s coming and share the project plan with everyone.

        ​Your team needs to see the light at the end of the tunnel. They need to be excited about the project. If you can do this well, their jobs are going to be easier. They’ll be able to sell more and make fewer mistakes with less manual entry. You will want them to see that because; that’s the light at the end of the tunnel. You also want them to be prepared for problems.

        Productivity Increase expected at launch
        Productivity Increase expected at launch

        ​People are likely very excited about launching the new system. The promise of better, quicker more insightful tools can cloud the present. They often look past the time and effort still left to reach those goals They may be expecting productivity is going to immediately increase at launch.

        Productivity actually declines for a time at launch
        Productivity actually declines for a time at launch

        ​What actually happens, unfortunately, is that when you launch productivity goes down before going up above pre-launch levels. It is really important that the team is prepared for and aware that there will be problems so when those problems come up they don’t think the world is ending and that it’s a complete failure.

        Productivity will recover and exceed past levels.
        Productivity will recover and exceed past levels.

        Also show them that you will get back to where you were and in the longer-term, things will be way better than they ever were before. So, show them these graphs repeatedly throughout the process.

        ​Next is to involve. It’s the people in your organization that are actually doing the implementation, not you. You just need to lead them. So, the best way to involve people is by involving them from the very beginning. Have them help you make and be a part of the purchasing decision. Have them help you weigh the pros and the cons.

        ​People don’t need to get their own way all the time they just need to know that their voice is being heard. Involve them and you’ll have their buy-in from the start.

        ​Next are super users. Super users are a great resource for you. You want as many of them as you can get. Ideally one per department would be great. Doesn’t matter what their rank or their title is, you just want people that are excited about the project and maybe have a little bit of skill in this area. They’re a great resource because you can push open items to them. More importantly, they’ll be able to help get the rest of the organization excited and bought into this project. So, we talk about needing to get buy-in from the top, what we really need is to get buy-in from the bottom and then all the way up.

        ​Fourth is visibility. Your team needs to see progress. This is going to be a really long and grueling project and remember your team is doing this in addition to their day jobs. So, it can be really difficult on morale when you start to run into problems. Two things that can help are; number one, make sure that all of the open issues are visible and number two, show this graph.

        ​The blue bars are the current outstanding open issues by date and the green bar is the cumulative number of issues that have been resolved. It’s really important to see that because even though there’s some really important challenges that need to get figured out, you can also show the team we are figuring things out. You are actually making a lot of really good progress. So we reviewed a chart like this for the company as a whole and then one for each department.

        Summarizing the first concept, Lead; Prepare your team for change and fall in productivity before real improvement takes place, Involve the people who do the work, develop Super Users from experts who are excited about the project potential and make sure progress is visible to the project team.

        Limit the project using phases.

        ​What if I told you there’s one mistake you can make that will make you three times more likely to go over-budget and beyond due date. This mistake is tangible. It’s black or white unlike that leadership stuff I just talked about.

        Customization, modifications and scripting. Avoid them like the plague. Now let me clarify, the reason our team loves our system so much is because we’ve customized it to fit our business needs. We have almost a thousand active scripts running on any given day and we’ve taken several outside modules and implemented them because we like their functionality better than the native functionality. So, understand when I say I’m a big fan of customization; it’s really easy to see what looks like a gap in functionality and want to put a workaround in place for it. You may be right but remember that when you do this you’re taking a system that’s been tested by hundreds of thousands, possibly millions of users and actually creating a brand-new system; a system that you then have to test. And remember that you’re also adding a variable that’s probably going to affect other transactions that you never planned on.

        ​So, don’t think of the launch as the finish line. Think of the launch as step one. Step one, get the system in place. You’ll have plenty of challenges as it is during the first few weeks. Then after you’ve been operating in that system for a little while you’ll have a much better understanding of what modifications really are necessary and how to prioritize those different modifications.

        ​Just make sure that when you do that you make that list visible to everyone with due dates and phases so that people can see that those issues are going to be addressed. So, launch now customize later.

        ​Summarizing the second concept, Limit; Don’t think of the launch as the finish line, think of the launch as step one. Step one, get the system in place. place. Once you’ve been operating in that system for a little while you’ll have a much better understanding of what modifications really are necessary.

        Organize = Project Management Software, Accountability Structure

        ​Organize the implementation. An ERP system is probably the greatest test in project management. If you can do this; you can manage just about any project. But it is going to be challenging. You have to bring your A-game and it has to be really well organized. So, I recommend using a project management software. You can use Trello or Microsoft project. You can even use excel.

        ​The point is, it does need to be really well-organized and using a software can help. Now, a project is just made up of a whole bunch of different tasks or open issues or components; whatever you want to call them. I’ll call them open issues. Each open issue, when you set it up needs to have four basic things.

        ​The first is what is the action or the open issue, the second, is commonly missed but really important, “What is the definition of done?” So, what are all the individual things that need to get completed in order for you to consider it done. Something like documenting the process may seem really mundane; especially, when somebody has 10 other things to do. They’re probably going to miss that one, unless from the outset unless you’ve defined it as something that needs to be finished to meet your definition of done. Third is owner. Have one clear owner, not two or three. One person that’s responsible for getting this issue taken care of. Fourth, what is the completion date? Agree on the completion date with the owner. It’s got to be realistic of course and fit in with the project timeline. These four things are pretty basic. You’re probably aware of them already but you’d be surprised how often they’re not followed. That probably has a lot to do with all of the implementation failures that are out there. What we’re really talking about here is creating an accountability structure.

        ​Without any one of these four things it’s really difficult to hold anyone accountable. So, that takes us to our final point which is holding the team accountable. When there’s an issue, there will definitely be times when an open issue goes beyond its due date. What do you do when that happens?

        ​The first time the conversation should be really just about asking questions. What got in your way and what are you going to do differently next time? Also go ahead and reset the completion date. Once it’s in the past it tends to lose a little bit of meaning so go ahead and reset it for the future and get some new urgency behind it.

        ​The second time an open issue goes beyond its due date; the conversation should probably have a little more intensity. But also remember, that this is a really complex project and there could be factors at play that are outside the control of the owner.

        ​So, when you have that conversation, be willing to jump in and help. Figure out what the problems and barriers are and see what you can do to take away those barriers.

        ​Summarizing the third concept, Organize. Use software to help. Create an accountability structure. Hold the team accountable. And don’t just call the team to task but be willing to jump in and help.


        ​These simple but powerful concepts will assist you in running an effective implementation…. and avoid getting fired.

        ​Lead, limit, organize. Lead by preparing the team, involving them and giving them visibility into what’s coming. Limit the project by using phases and organize the project by using a project-management software and creating an accountability structure. Hold the team accountable and most importantly be ready to help.

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        A CFO’s Guide to Measurably Reducing Healthcare Costs Right Now

        Thanks to John Sbrocco for sharing the chapter he wrote for Breaking Through the State Quo, How Innovative Companies are Changing the Benefits Game to Help Their Employees and boost Their Bottom Line with our Member-Scholars.

        Stop Gambling

        Atlantic City is a wondrous place; I remember visiting years ago, when the casinos were filled, and the players were waiting in line for a table. Today, most casinos are closed, and those remaining are empty with $5 tables on weekends. As I sit down at the roulette table and watch the ball run around the track, you can see the eyes on players filled with nothing but hope.

        This look of hope is what I see from too many employers come renewal time. Unfortunately, most employers’ hope lands on green double zero as they watch the insurance carrier win their ante for the next twelve months. If the employer strategy is to annually interview consultants in a grand search for the lowest cost fully insured carrier, how can the future be bright? If an employer does not address the major issues as to why healthcare costs are spiraling out of control, they are simply gambling with the future of their companies.

        Managing Risk

        Employers manage risk for every aspect of their business. Whether it be vetting the new drivers for their fleet or a work place safety program to avoid accidents on the job, they must take into consideration these risks that could hurt their bottom line and even put them out of business if they are not strategically managed and accounted for. This is called supply-chain management. It is very clear why the C-suite is in control of these decisions and strategies in place year after year. However, when it comes to the management of the benefits package, I don’t see the C-suite involved. My question is how many other multimillion dollar departments in your company do you let HR manage? Is your HR/Benefits manager the right person to manage the 2nd largest item on your P&L? After all, this individual is typically adverse to change and disruption to employees.

        It continues to surprise me that almost all employers that I meet with do not have ANY risk management strategies in place for their health plan that is doubling in cost every nine years, and reducing the value of the company. So why is it that so many employers don’t have strategies in place to reduce this rising cost? It seems to me that the status quo mindset has led them to believe there is nothing they can do about it since they have been failing for so long at curbing this financial burden. If you are reading this book, there is good news. Its contents should help you break loose from the grips the status quo has on your organization.

        Employers and their employees have become accustomed to believe the story the “BUCAs” (Blue Cross/United/Cigna/Aetna) have been beating into their head for decades. “You have to be enrolled in our networks because we negotiate big discounts on your behalf, and you would go bankrupt without us.”

        What if I told you that their discounts are typically over 50% and that can sound appealing. However, it’s based off an imaginary number no one pays. A 50% discount on a $5,000 cell phone still nets out to you paying $2,500 for a cell phone. So not only are they over-charging you for health care services, but they are charging you a fee in your premiums to access these overpriced contracted providers. You see, this is not the insurance carrier’s money they are playing with; it is the member’s money they use to pay providers, and they get to keep a percentage of what is paid. The more they pay out, the more the carriers and providers make.

        That doesn’t even factor in the hidden revenues streams in the system. Sound like collusion? That’s exactly what it is. I have seen my secretary negotiate better discounts on surgeries than PPO networks with no pushback from the provider after saying we don’t participate in your network and will pay cash. Add that up and what you pay for is a network that over pays its providers and facilities on average 300- 400% of what Medicare pays, and in some cases, as high as 1700%!

        Now please, tell me the reason you need them? Is this starting to get you mad? I sure hope so, because you have been taken advantage of for years. If you are too busy for this to be of concern to you, then just close the book now. The solutions I will be talking about requires you to change your “there is nothing I can do” mindset. I want you to get ready for the inside secrets on how to take control of your health plan and beat the insurance carriers at their own game. I am talking about strategies to cut healthcare costs today, not by managing mem-ber’s health, but by strategically slashing the unit cost of care.

        Overpaying for Services

        How can we expect to reduce the cost of our insurance premiums if we aren’t addressing the main factor driving the increases? 90% of the premiums you pay are directly or indirectly related to the claims.

        So, ask yourself what you are currently doing today to control the claims spend inside your health insurance plan. If one of your answers includes the big discounts provided by PPO networks, you can just start the chapter over. How can a PPO network, that overpays its providers and makes more money as claims spend increases, reduce the cost of your healthcare spend? These PPO networks have contracts on services like MRI’s that pay in the range of $400-$6,700 for the same MRI, depending on what facility you go to. So, if they wanted to pay out less, wouldn’t they list the prices and direct you to the lower cost facility? This example is how you should be managing your healthcare spend if you want to control the cost of your claims. Unfortunately, employers have been led to believe the insurance carriers are doing this for them. Take a minute to think and realize how silly that is…this is the health insurance equivalents of letting the fox guard your hen house.

        Are you looking to cut claims spend by 15-25%? Our most innovative employers are providing employees medical services at 1/3 of the cost for most procedures and of higher quality. If an employee buys healthcare services at a lower cost without sacrificing quality, an employer can start to bend the curve on rising health insurance costs. Is it really that hard to have this type of strategy in place for healthcare services? Take a look at how many Amazon boxes are sitting outside your neighbor’s door on a weekly basis. You see the forward-thinking employers are providing employees with free care for major services when they make smart healthcare decisions.

        Providing an employee a knee surgery for $20,000 from the best surgeon in the region compared to a surgeon recommended by your primary care doctor who did three knee surgeries last year at $60,000 a pop, will certainly start to bend the health insurance curve. Sometimes, you will find doctors performing surgeries at three different facilities; however, they vary in price by five times the amount. Is it starting to make sense as to why your health insurance costs continue to spiral out of control? You have been providing employees with an unlimited credit card to use for healthcare expenses. Is it their fault that their spending habits are out of control?

        Now that you know the C-suite should be more involved with the healthcare program than a few hours annually, let’s look at some numbers for motivation. Stop accepting the BIG house ABC brokers’ less bad renewal increases that are below industry average. Those “Legacy Best Practices” have not helped you beat the system; it’s helped keep their pockets lined with the products they represent. Now I know it’s easier for your organization to be wrong with the group, then right by yourself. I can only help if you are willing to step outside the box the status quo has most employers trapped in.

        Is the Cartel Controlling your Prescription Cost?

        In the 70’s & 80’s, Pablo Escobar was the most powerful drug lord and the leader of the Medellin Cartel. He was earning as much as 420 million a week! His trade flourished so much that he was smuggling nearly 15 tons of cocaine every day. Some would ask how one person could become this powerful and so rich without being stopped. It was quite simple: eliminate competition, get the support of the people, and become a politician. If you didn’t go along with it, then he would kill you.

        Fast forward 30 years, and take a look at the BIG 3 Pharmacy Benefit Managers/Cartels: These companies made 280 billion dollars last year by passing drugs from the manufacturer to the plan members. Their business model has been very similar to the Medellin Cartel. They started by getting the support of the people to help lower the costs of drugs by buying in bulk. Unfortunately, they now have grown to the size that they can control the manufacturer by manipulating their formulary lists since it covers so many members. They also built a lobbying group that is the largest in the country (bigger than the next 3 combined) to protect them from competition outside of the US, which creates a monopoly and keeps prices sky high! The lobbying group was able to put a law in place with politicians that make it illegal for Medicare to negotiate drug prices with the manufacturer. How is it that the largest payer of healthcare is not allowed to negotiate prices on bulk buying? We can buy fish from Japan and lettuce from Mexico, but not our medication from Canada?

        We have a system that’s incentivized upon rebate value. If you eliminate the competition and hold 80% of the market, you can control the manufacturers by requiring them to provide monster rebates back to the Cartel for filling their medication. If the drug manufacturer does not provide the rebates the Cartel wants, they can simply drop them from their list of covered meds and potentially kill the patients taking that medication.

        Who is paying for these rebates? The members of course. Harvoni, the newest Hep-C drug spreading like Castro’s distribution of cocaine in the 70’s, costs about $94,500 per treatment in the U.S. Somehow, the exact same drug costs a measly $900 in India. Who is picking up the difference…the Cartel.

        I recently reviewed a drug filled for toenail fungus remover that provided a $700 rebate back to the Cartel for one fill! Now, if the member paid cash for the prescription, they would have paid $500 vs. $1,200. The Cartel has the incentive of a $700 rebate to make sure that prescription gets filled. You see they earned the trust of the people and now the members aren’t educated enough to realize who is the one ripping them off.

        When the Cartel is removed from the system, we can provide employers solutions that cost the plan typically 30 cents on the dollar for high dollar meds. A recent employer spending $700,000 a year on prescription cost cut their spend to $300,000! What could your company do with $400,000 more in EBITDA?

        How Do You Fix It?

        Unfortunately, most employers have accepted the status quo and believe if their renewal comes in below trend, they are getting a bargain. They are now budgeting for 8-10% increases annually!!! To me, that kind of mindset will blow up your company’s profits and empty your employees’ pockets in no time.

        Today, the average employee is spending 20% of their income on healthcare costs. So, what can be done to break this trend? If you are not using risk mitigation strategies to manage the internal spend of your healthcare costs, you need to wake up. There are solutions that will lower employers PEPY (per employee per year) spend down anywhere from $2,000-$5,000 annually. For a 1,000-life employer that comes out to $40,000-$100,000 per week! It’s time to get passionate and start winning!

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        How Can You Win A Rigged Game?

        Three Steps to Helping Employers Successfully Reduce Healthcare Costs.

        Imagine one of your sales reps takes a client out for a steak dinner and submits the receipt for reimbursement. Later you learn that your finance team didn’t even look at the receipt and auto-adjudicated the reimbursement to the sales rep. Then you take a closer look at the receipt and you see a charge from the chef, a charge from the expeditor who glanced at the plates as they went out the door, a charge from the waitress, and a facility fee from the restaurant. Then you learn that this particular restaurant charges 500% more than other restaurants charge for the same dish because they aren’t known for steak, so their chefs just aren’t very efficient in preparing it. How angry would you be? You would probably contact the restaurant and demand an explanation and you may even demand your money back.

        Now, we all know this type of egregious billing practice doesn’t exist within the restaurant industry. However, it does in another industry. It’s in the healthcare industry where egregious billing practices wreak havoc on health plans across America every day, with providers and hospitals playing the role of the restaurant cooking up prices that no mathematician can explain, and the insurance company serving as your finance team paying the bill with your money without taking a glance at the medical receipt. Healthcare costs continue slicing into every organization’s revenue stream and there seems to be no end in sight.

        Today, employers are stuck playing a game where the odds are stacked against them. In fact, the game is rigged. The healthcare system isn’t broken as many would like to suggest. The opaque and confusing system is operating exactly the way it was designed. At the end of the day, healthcare is a product and a product requires revenue. Unfortunately, employer-sponsored health plans, including yours, are caught in the middle and are victims of the revenue goals of the healthcare system. So, how can your organization win? Can you win? The good news is you can, but there are three steps your organization must take to come out victorious.

        Step 1: Quit Accepting Predictably Bad Outcomes

        Step one to winning the healthcare game requires you to stop accepting predictably bad outcomes. To give your organization the best chance at winning, a change in mindset must occur. Employers have to quit budgeting for “less bad” rate increases. The health plan must become an investment that benefits the organization and produces healthier outcomes for the employees. However, to do this, the behavior around health insurance decision making has to change. We must stop celebrating the status quo. What does status quo decision-making look like? Well, consider this. Upon receiving the news that your insurance company is requesting, yet, another double-digit increase to your insurance premiums, here’s the typical conversation that will take place between you and your insurance broker:

        Broker: “How much of an increase are you willing to accept?”

        You: “Our finance team has budgeted for an 8% increase.”

        So, what does your insurance broker do? She goes back to the insurance company and negotiates the increase down to 7% and everyone is happy. Sound familiar? Folks, this is a predictably bad outcome. You are still losing. Yet, somehow, the acceptance of predictably bad outcomes has become a “best practice” for many Human Resource departments. Why? Accepting predictably bad outcomes comes with little work and little disruption, but here’s the problem with this strategy. Accepting predictably bad outcomes is the equivalent of placing a band aid over a gaping wound. The band aid is only going to protect you for so long because the gaping wound, the rising cost of your health plan, is going to continue bleeding, and before long, it’ll become an infection spreading across your organization eating away at both profits and wage increases.

        The time has come for you to start challenging your insurance broker to create predictably good outcomes. However, “shopping” health insurance companies annually is not a part of a winning formula. By asking your insurance broker to continuously evaluate and shop insurance companies, you are managing the wrong supply chain. Switching one insurance company out for another is like re-arranging the deck chairs on the Titanic. Your health plan is still headed for the iceberg. To rid yourself of this infection known as predictably bad outcomes, you have to start focusing your energy and efforts on the providers and hospitals your employees are accessing each and every day. This is the supply chain you need to be managing.

        Step 2: Turn Your Health Plan Inside-Out

        The current health plan design inside most organizations is flawed. Year after year, employers continue to build health plans backwards. First, the insurance company is chosen. Next, the insurance company’s network of providers and hospitals is evaluated to make sure it adequately covers all plan members. Finally, work is done to create a set of deductibles, co-pays, and out-of-pocket limits, giving your organization the makings of a health plan. Yet, as insurance costs continue to rise, you begin shifting the burden. You increase deductibles, raise out-of-pocket limits, and ask your employees to pay more—all in an effort to mitigate the impact of rising costs, and by doing so, you’re ignoring the biggest problem inside your health plan. The problem is not your plan design. The problem is not the insurance company you’ve selected. The biggest problem inside your health plan is the experience your plan members are having inside the healthcare system. I don’t care if your plan offers a $500 deductible or $5,000 deductible, this experience today is unacceptable and it’s the decisions your plan members are making inside the healthcare system that are driving your health insurance costs. Should you be concerned about this? Yes. When you review your organization’s P&L, health insurance will be the second- or third-highest cost on the P&L (need support for this statement) and there is not another cost rising faster than health insurance, nor is there a bigger source of revenue-leak inside your organization.

        Step two to winning the healthcare game requires you to build your health plan inside-out. It starts by focusing on the healthcare supply chain and your plan member’s interaction with the healthcare system. So how can you do it? Managing this healthcare supply chain comes down to a simple formula. Whether your health plan is fully-insured or self-funded, the majority of your costs are tied (directly or indirectly) to the claims activity inside your health plan.

        Calculating the total claim activity is established through the following formula: total units of care x the cost per unit of care. Stated in a different way: the total number of claims multiplied by the cost of each claim. Now, you’re never going to eliminate all the units of care inside your health plan, nor should you want to. When your plan members need to access the healthcare system, they should. However, you can help your employees reduce the unit cost of what they’re paying for the healthcare services they’re buying without sacrificing quality. Focus your efforts here. Giving your plan members access to the right tools and solutions to reduce the cost of the healthcare services they’re buying is imperative to winning the healthcare game.

        You must give them access to tools to purchase MRIs and CT scans at a lower cost. You must give them access to tools to purchase medications at a lower cost. You must give them access to solutions that can provide vital second-opinions to determine if their healthcare services are even necessary. In a system where misdiagnosis and inappropriate treatment plans have become main stream, you cannot leave your plan members navigating the system alone. Giving them access to the right tools and solutions will create reduced insurance costs, better outcomes, and happy plan members.

        I love these recommendations – again can we provide more how to do it, a form to fill out with your contact points on it they get stuck?

        Step 3: Give Your Plan Members a “Caddie

        Step three is probably the most important piece to winning the healthcare game. Today there’s an abundance of tools and solutions that create predictably good outcomes for employer-sponsored health plans. Many of these solutions are helping plan members change the way they purchase the healthcare services they need – saving a ton of frustration and money. Utilizing these services would seem like a slam dunk, right? However, the tools and solutions necessary to building a successful health plan inside-out often go under-utilized. Why is that?

        As technology continues to paint the healthcare landscape, employees have access to more navigation tools than ever before. Want access to a doctor over the phone? There is a solution for that. Want access to price and quality data for an upcoming surgical procedure? This is a solution for that. Want access to large, pharmacy discounts? There is a solution for that. Today, plan members can make effective and accurate healthcare decisions with a couple of clicks on their smartphone so why are we still struggling with utilization?

        Here’s the problem: Your employees don’t want to know to how to navigate the healthcare system. When healthcare “happens” to them, they are not going to stop to think about which tool or solution they should be using, in that moment, to make the right decision. It is here where most effective cost-containment solutions quickly become ineffective. Utilization suffers when employees are required to engage the solution on their own. Now, give employees multiple solutions to address the various channels of the healthcare system and confusion reigns.

        You have to get back to the basics. You have to make it easy for your employees to make accurate and effective decisions throughout the healthcare journey. Cost-containment tools and solutions work. They give your organization the opportunity to significantly reduce insurance costs while creating better outcomes for your plan members, something no insurance company or network can provide. What your health plan needs is a “caddie.” Much like a caddie in golf helps the golfer determine the appropriate club to use given the specific shot, a healthcare “caddie” will help your plan members utilize the right tool and solution based on the specific healthcare need. Give your employees access to advocates who can help them use the game-changing solutions you have built into your health plan. Give your employees the convenience of having to call one number or use one app. Give your employees the confidence knowing that making the right decision is easy.


        You see, winning the healthcare game is not that hard. When you stop accepting predictably bad outcomes and start focusing on the employee’s healthcare experience, you will turn your health plan into a revenue-generator protecting your #1 asset like you never have before. You will realize that it is no longer about the insurance carrier or the network access it provides. Focusing on the healthcare experience creates predictably positive outcomes for your employees and your company checkbook. However, engaging your cost-containment solutions must be easy and convenient. A health plan “doorman” becomes the glue that wraps the perfect health plan together. One number. One Card. One app. It really can be that simple.

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        Most Leadership Training Doesn’t Work. Why Not?

        Forbes Coaches Council member Aaron Levy has proposed that leadership training fails because of the structured way it is presented. Most leadership training programs are designed to present new skills in an easy-to-deliver, event-based format. The big problem with this approach is that it doesn’t deliver a change in behavior. According to Levy:

        ​“Habit formation doesn’t just happen. Our brains aren’t wired to adopt a new habit that quickly. No matter how good and engaging the presentation is, habit formation takes time. It occurs when a new action, like the leadership skill of listening with intention and attention, is practiced over and over.

        ​Each time you practice listening in this new way, neurons in your brain are firing and creating a new neural pathway. The more you practice, the stronger the neural pathway becomes and the easier it is for you to listen.”

        ​To truly develop leaders, to give them the tools and skills they need to progress from individual contributors to powerful leaders, Levy proposes a 3-phase process that works.

        ​Phase 1: Learn

        ​Workshops should deliver new skills, explain why they are valuable and how they can be applied to the workplace. But the majority of programs spend most of their time on this phase, even though it simply sets the stage for the more-important application phase. Levy suggests spending only 15% of any workshop on this knowledge-building phase.

        ​Phase 2: Apply

        ​Leaders should begin applying new habits right away, both during training and in real-world application after the workshop session ends. Spending 80-90% of the time applying the new skill and reflecting on how it can be improved activates and strengthens the neural pathways.

        ​Homework assignments, where leaders apply their new skills outside the safety of the workshop setting, brings a new dimension to the learning. Real growth occurs when new skills are applied outside a comfort zone, in an unstructured setting.

        ​Phase 3: Reflect

        ​Debriefing after the application phase, or coaching to reflect on what worked and what could be improved, keeps leaders accountable for completing the homework assignments and helps them assess their performance for further improvement. In habit formation, the reflection process is still triggering the newly created neural pathway. This essential phase allows leaders to visualize or reflect on a single behavior hundreds of times, turning it from a skill into a habit. Habit adoption is a learning process, requiring time and commitment to be successful.

        The Learn-Apply-Reflect Model

        ​Habit change requires commitment from the organization. By practicing new skills and putting them into action, leaders can apply them to real-world situations, reflect on their success, and build new leadership habits faster than any other approach.

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        Some Say LOI’s Aren’t Worth the Paper They’re Printed On. We Disagree.

        Thanks to Chinook Capital Advisors and CoFounder, John O’Dore for allowing CFO.University use of this article.

        Signing a Letter of Intent (LOI) is a major milestone in any business sale transaction. It’s important to understand which elements of a well-constructed LOI are necessary and why, which are binding and non-binding, and which deal points should be negotiated in the LOI phase versus being deferred.

        An LOI is more formal and detailed than an Indication of Interest (IOI). The LOI should include all relevant business terms that are part of the deal with enough details to prevent any misunderstandings later in the process. The buyer usually presents the LOI to the seller and it is very important that an experienced M&A attorney review a buyer’s LOI since the LOI is the framework that the attorneys will later use to develop the binding Purchase and Sale Agreement (PSA).

        So why not just go straight to the PSA and skip the LOI? Because the LOI has sufficient detail for the parties to decide if there’s a deal to be had, and it also allows the seller to compare offers from multiple buyers before moving on to due diligence and the PSA with just one buyer.

        A few trends have developed over the past decade or so on the level of detail included in LOI’s as well as the amount of time spent negotiating the terms included. Today, it is not uncommon for an LOI to go through multiple drafts and include more specific legal and financial provisions, especially those related to seller representations, warranties, and indemnification provisions.

        Although an LOI is generally non-binding, there are a few terms that the parties will want to be binding.

        Typical binding provisions include:

        • Exclusivity (no shop provision)
        • Confidentiality
        • Access for due diligence
        • Break-up fees
        • Allocation of expenses

        Typical non-binding provisions include:

        • Deal structure (stock vs asset sale)
        • Price and terms (type and timing of consideration)
        • Plans for key employees post transaction
        • Seller’s role post-closing

        A well-crafted LOI should be something that both parties’ attorney can easily understand and incorporate into the PSA without too much negotiation. Be cautious if a buyer says, “let’s leave that for now and we’ll refine it in the purchase agreement.” Either they are sloppy, or they just want to get past the LOI stage so they’ll be the only buyer left in the process and have more leverage to negotiate important issues down the road. Negotiating terms in the LOI is often the only time the seller has leverage on key deal points.

        If the buyer or their attorney are not accustomed to doing deals, then they may not be aware of all the elements of an effective LOI.

        At a minimum insist that the LOI address the following:

        • Purchase price and how and when it will be paid and the source of financing
        • Stock sale vs asset sale
        • Allocation of purchase price for asset sales (depreciation recapture can have a huge impact on the taxes you owe)
        • Terms of seller notes or earnout (if any)
        • Real estate lease details if seller is leasing facilities to the buyer
        • Transition expectations for previous owners – how long, what are their roles, compensation? Working capital (how much is included and how is it defined?); Will receivables be guaranteed? What assets and liabilities are included and excluded?
        • Is there excess cash, who gets it and how is it defined?
        • Specifics of any non-compete agreements
        • Any contingencies – employee interviews, financing, assignment of contracts, Phase 2 environmental assessment, etc.
        • Holdbacks or any non-standard representations, warranties or indemnifications
        • Due diligence timing and requirements
        • Will a quality of earnings report or other level of financial review be required and who will pay for it?
        • When will certain sensitive information such as detailed customer lists be shared? Waiting until after the purchase agreement is signed or even after money is in escrow prior to close might make sense
        • Expected closing date
        • An exclusivity period is common, but make sure it has a time limit (say 90 days) where you can go talk to other buyers if things aren’t working out; remember, a seller’s failure to meet deadlines should end the exclusivity granted to them in the LOI
        • Timing on announcements to employees, suppliers, and customers

        This is not a complete list, but covers many of the common terms that should be addressed. The less that both buyer and seller assume the better.

        We advise that you consult your M&A advisor, attorney and tax advisor before signing an LOI. By being organized, having experienced advisors, and knowing which aspects of an LOI to focus on, you will be able to:

        • Maximize value
        • Improve your probability of closing the transaction on your terms
        • Reduce the time from signing the LOI to having money in your bank account

        LOI’s are certainly worth more than the value of the paper they are printed on, and the color of that paper is green!

        You can find out more about CCA at or get in touch with John.

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        Why Failure Isn’t About Losing

        The word “failure” has a stigma attached to it I believe should be challenged.

        Failure is a noun defined by the Merriam-Webster dictionary as:

        1. omission of occurrence or performance
        2. lack of success
        3. a falling short
        4. one that has failed

        The term failure as used in business, sports and relationships is almost always associated with a bad happening. When was the last time you heard something failed and you screamed “Hooray!”? As the definition points out “failure” is normally a term used to describe an event, occurrence or some outcome not being achieved. Unfortunately, the word failure often gets attached to people who are related to some failed event, occurrence or outcome, i.e. definition four above, “one that has failed”.

        If we set a goal and don’t achieve it, we failed at achieving our goal. But I don’t believe that makes us a failure. Think about this. If nobody was courageous enough to set meaningful goals and possibly fail, what would we have? Mostly nothing. Imagine a world with mostly nothing.

        Ellen DeGeneres is credited with saying, “When you take risks (set meaningful or difficult goals) you learn that there will be times when you succeed and there will be times when you fail, and both are equally important.” How do we bridge the gap between setting meaningful goals and failing to meet those goals? Below I use two sports analogies as examples, but the same principle applies to business and relationships.

        When I was 10 years old I dreamed I’d grow up to be a right-handed hitting Rod Carew. Carew was a great left-handed hitter for the Minnesota Twins, a Major League Baseball team. My dream lasted until I was 12 when I realized hockey was really fun and running a football with other kids trying to tackle me was a major adrenaline rush. Did I fail at my goal to be the next Rod Carew? I sure never saw it that way. I found other interests I really loved. By 10th grade I swapped baseball for track and went on to play football and run track in college. Admittedly, I didn’t make as much money as the next right-handed Rod Carew but I wouldn’t trade my teammates and experience in college for the Minnesota Twins or the Major Leagues.

        When your team sets a goal to be the state champions, it sets all kinds of great life-long lessons in motion. Teamwork, physical conditioning, learning a playbook, developing and executing a plan, performing under pressure, love for your teammates and staff; all providing lessons to be applied to the rest of your life. If you lose in the championship game are you a failure? You may not have achieved your goal but the really important lessons learned were the result of working to achieve your goal, not reaching the goal itself.

        The term “pivot” provides a way to incorporate learning from a failure into constructive growth. Pivot refers to a shift in strategy that keeps one foot firmly in place while setting a new direction by applying insights from past success and failure.

        I believe goals (defining risks you are going to take) are extremely important to provide direction and give context to any endeavor we consider important. I also accept that adjusting our goals, setting new goals, and most importantly, learning from the journey toward achieving our goals, is what creates success in life.

        Let me submit this for your consideration; the only personal failures in my life will be the significant regrets I have control over that I don’t rectify before I die. Does that fit into your concept of personal failure?

        I plan to write Merriam-Webster with the following suggestion: “Please revise your 4th definition of failure to ‘one who hasn’t tried’.”

        I believe that is the only characteristic of failure we can hold a person accountable for.

        Set meaningful goals - then learn from and enjoy the journey.

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        Should We Expect More From the Close?

        ​Three Outdated Beliefs about Balance Sheet Account Reconciliations, a Key component of the Financial Close, that May be Driving Low Management Expectations on Quality, Productivity and Cost.

        ​In an effort to be leaner and more efficient, it is hard to believe that we may be unintentionally allowing low expectations to flourish. Interestingly, while senior management’s process improvement agenda targets areas like budgeting and business intelligence within finance and accounting, the monthly account reconciliation process – a recurring and manually intensive key compliance activity for developed businesses – has been largely overlooked. Gartner research has found that “many firms’ reconciliation processes are mainly manual (with no enterprise technology solution)” and cited several critical challenges that come with manual reconciliation management. And is there a link between automation and the bottom line? Very likely. In a 2017 survey1 of finance executives of more than 200 public and private U.S. companies, 40% of respondents felt that the cost of compliance has increased over time and only 1% of respondents felt those costs decreasing over time.

        While other areas within Finance are scrutinized for targeted improvement, why is it that the often laborious balance sheet reconciliation process remains untouched in many organizations? Perhaps this phenomenon stems from traditional management expectations around general ledger account reconciliations and their long-accepted limitations. In this paper, we will explore these common perceptions and beliefs.

        ​Belief #1: The objective of the month-­‐end reconciliation process is to ensure that all reconciliations are completed.

        Reliance on Completion Statistics Alone May Satisfy Internal Requirements but Can Provide Management with a False Sense of Security

        ​The objective of the month-­‐end reconciliation process is to correct errors in the balance sheet and anticipate potential adjustments, which may not necessarily correlate with the completion of all reconciliations. Because internal controls typically prescribe only timely completion of balance sheet reconciliations, organizations with hundreds, or even thousands, of balance sheet accounts and a tight timeframe to perform their reconciliations expend much of their resources during the monthly close on meeting the timeliness component. As a result, identification of write-­‐offs and analysis of open items – the ultimate goal of performing reconciliations – do not enjoy adequate attention. Combined with the challenge that executive level insight, such as companywide balance sheet exposure and exception aging, is time-­‐consuming to produce without a dedicated reconciliation management solution, finance functions are often ill-­‐equipped to generate insight beyond the completion status.

        ​Disproportionate Emphasis on Timely Completion May Compromise Reconciliation Quality

        ​The quality of individual reconciliations is most often compromised when the staff prepares a roll forward in place of a true reconciliation, where general ledger balance is compared against an independent source. Transaction roll forwards are not effective reconciliations because they simply replicate the general ledger activity and cannot surface reconciling items. Unfortunately, roll forwards are an expedient choice when, in addition to day-­‐to-­‐day operational activities, accountants must reconcile by hand hundreds or thousands of balance sheet accounts each month.

        Belief #2: Spreadsheet, offline documents and email are dependable and cost effective tools for reconciling accounts and managing workflow.

        ​Spreadsheets Have Inherent Risks That Are Not Well-­‐Controlled

        ​The spreadsheet is steadily gaining notoriety as one of the riskiest end-­‐user applications used by today’s business professionals. The enormous flexibility that allows for nearly any type of computation and manipulation places overwhelming ownership on the spreadsheet creator to build in system controls during spreadsheet design to prevent and detect user errors. But more likely than not, many financial spreadsheets in use today do not have adequate system controls since they are almost always created by individuals who lack formal instruction in systems design. U.S. regulators seem to agree. In 2009, the Public Company Accounting Oversight Board (PCAOB) urged external auditors to focus more of their testing on financially significant manual spreadsheets in its Report on the First-­‐Year Implementation of Auditing Standard No. 5. And although finance departments today still employ Microsoft Excel® for key activities like account reconciliations, budgeting and long term planning, controls over spreadsheets remain weak. (address how to put these controls in place as an interim step to moving to a more appropriate system) A recent spreadsheet usage survey conducted by the University of Loyola Marymount showed that 88% of U.S. public companies surveyed still do not have a computing policy specific to spreadsheets.

        Reliance on Disparate, Undedicated Systems Drains Productivity and Wastes Resources

        ​Relying on email and offline document storage to manage preparer, reviewer and approver activity presents several issues. Policy and procedural information such as account materiality, key attributes and preparer instructions are often kept separately in a hardcopy binder or a company shared drive. Because off-­‐line documentation cannot “follow” each balance sheet account and be available at the time of reconciliation preparation, their impact on controlling reconciliation consistency, however well-­‐intentioned, is limited.

        ​Email and personal hard drives exacerbate version control and force managers to search for files and manage workflow, when their time would be better applied reviewing reconciliations and performing aging analysis. With scattered review notes and multiple drafts at various stages of finalization located in email inboxes or various hard drives, efficient coordination between reviewer and approver is difficult. Very often one or more of the following occurs, draining resources and adding little value to the process:

        ​ • Updates are made in different drafts, prompting the reviewer or preparer to retrace his or her steps

        ​ • Offline discussions and meetings occur to clarify statuses and issues

        ​ • The completed final reconciliation is not retained in the company shared drive but rather buried in personal email inboxes

        ​Belief #3: Limited reporting on account reconciliations is Acceptable.

        ​Management’s Control over the Account Reconciliation Process Remains Largely Peripheral

        ​Beyond rudimentary measurements that are gathered periodically by hand (e.g., Account Population, Not Started/In Progress/Completed statuses), management typically receives little or no real-­‐time information for decision-­‐making during the reconciliation process. In addition, critical insights such as balance sheet risk exposure by financial statement line item, impact of write-­‐off adjustments and worker productivity assessments are nearly impossible to generate real-­‐time in a manual environment. Absent better tools and more precise data, oversight activities must rely on basic, after-­‐the-­‐fact data and spot checking of individual accounts. While these metrics glimpse at the reconciliation process at a point in time, they are poor substitutes for direct and immediate insight that management can use to make real-­‐time assessments and decisions on the balance sheet.

        ​It’s Time to Expect More

        ​According to the Association of Certified Fraud Examiner’s 2014 Report to the Nation, the account reconciliation ranks as a top five occupational fraud detection tool. Being one of management’s best defenses against financial statement misstatement and fraud, ensuring reconciliation accuracy and integrity is vital to maintaining confidence in the financial statements. Traditionally, this process is costly to the Accounting function in the form of man hours, poor controls and missed insight. Reliance on manual effort and disparate systems not only produces a host of administrative “busy work,” but also creates hidden costs in the forms of errors and rework. In addition, lack of meaningful metrics reduces the executive team’s ability to optimize the value of the monthly reconciliation activity, gauge work productivity and drive efficiency into the overall month end close.

        ​At the same time, this is an area with significant process improvement potential that finance executives can seize. Account reconciliation and close automation removes the challenges associated with traditional reconciliation management so that the finance team can remove administrative distractions and focus more on value added work that matters.

        ​Are you best in class in these important closing functions?

        • ​Schedule, track and sign-­‐off on recurring closing activities each month.
        • ​ Centrally archive critical journal entries and close documentation.
        • ​ Standardize the month end reconciliation process for consistency and repeatability so you have full confidence in the balance sheet.
        • ​ Reconcile accounts with speed and accuracy so work gets done faster.
        • ​ Do away with spreadsheets and administrative activities so accountants accomplish more while doing less.
        • ​ Work remotely yet maintain total transparency and accountability.
        • ​ Maintain high quality standards on work done during the close.
        • ​ Speedy management review and certification.

        ​ Footnotes

        1This references the Robert Half Management Resources and Financial Executives Research Foundation study: 2017 Benchmarking in Accounting and Finance Function

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        A Guide to Financial Process Redesign

        In the article, Process Mapping - A Great Technique to Streamline Admin Operations, we praise the benefits of Process Mapping as a tool to streamline financial operations. We compared processes to engines; if they are cared for properly they operate at a high level but if they aren’t, performance degrades and eventually, they quit working.

        A Process Redesign exercise can tune up - even overhaul - old processes that have accumulated grease, grime and serious leaks in the form of bad habits, extra steps and worn out practices.

        Staff members develop habits and create processes that over time cause delays and increase costs. Sometimes these unnecessary steps are an unforeseen result of company policy. They may be a holdover from a previous ownership. They could be the result of an imperfect amalgamation of companies, where managers adhere to old procedures while imposing new ones. All these process kinks accumulate over time, creating inefficiencies that add nothing to customer value.

        If the examples above sound familiar to you, a Process Redesign project may yield big benefits. The first step is to name your key processes. That may sound elementary but it’s a fundamental step that prevents confusion down the road and allows the team to spot missing pieces easily. It also helps to see the whole canvas of work, making it easier to visualize the impact of eliminating, combining or changing steps. The next step is deciding which processes to redesign first. Consider starting with a smaller, high impact process to get some traction and experience. Then move on to tackle the larger more complex activities.

        CFO.University has developed a Process Redesign Workbook that will guide you through your redesign project. It includes step by step instructions, worksheets that standardize the approach, a summary to compare processes and an example to refer to if you get stuck.

        Process Objective and Work Initiators

        Once you have selected a process to redesign, all stakeholders must agree on the main goal of the process. (i.e. make our customers aware they owe us money, comply with our banks requirements, close our books by “x” date, pay our vendors according to terms, etc.). It’s important the main objective is agreed upon before continuing.

        Once the process objective is agreed upon, begin the groundwork required to complete the Process Documentation Worksheet, a key tool used in the Process Redesign Workbook:

        1. Identify the Process Owner. This is the person held accountable for the success of the process.
        2. Identify the Work Group included in the process.
        3. Determine the Work Initiators. Work Initiators start the process. (i.e. Bill of Lading received from the shipping department, a statement received from the credit card company, a construction completed form received from operations, etc.). They also drive the volume or units of activity related to the process.

        Process Interview and Narrative

        The interview step is the most revealing aspect of the redesign process. The goal is to expose all the steps; including how mistakes are corrected and informal side systems (these are typically created when employees seek to avoid repeating past mistakes or they are more comfortable with a past practice than the most recent one adopted by the company). The interview should capture the process as it works today.

        The written narrative that comes out of the interview defines the current state of the process. The key topic areas to capture in the interview (see the Process Documentation Worksheet in the Process Redesign Workbook) are:

        • Period being covered
        • Number of Work Initiators in that period
        • Description of each step in the process
        • The time required to complete each step in the process
        • If the volume of a particular step is not driven by the Work Initiator, capture the relative volume number for that step. Volume is an important data point used to calculate the total labor cost to perform the process
        • The estimated average cost per hour of the team performing the steps in the process.

        Once the narrative is drafted, review it with the team for additions and corrections.

        Visual Flow Chart (Process Map)

        We also suggest creating a flow chart or map of the process. The imagery of the flow chart makes it easy to see where bottlenecks, duplication and time create inefficient steps. The visual depiction of a process also helps the company balance a need for controls with the requirement for speed and efficiency. An example flow chart is included in the Process Redesign Workbook.

        Here is a good example at what the interview and process map can uncover. At a company we recently prepared a process map for, an employee retained a hard copy of all documents she received, including electronic files. We learned this employee had been disciplined in the past for not being able to quickly come up with a response to a question regarding a document that had come across her desk. To avoid this in the future, she made hard copies of all documents that crossed her desk or were emailed to her. Imagine the waste of time and resources this took. The simple solution was to agree on a request response time that gave her time to research a question while still meeting the time needs of the requestor.

        Summary Data

        After the data is entered into the Process Document Worksheet it is automatically summarized on the Summary Data Tab of the Process Redesign Workbook. Key information is also converted to an annual basis.

        The Summary Data tab provides comparisons on these components of any process:

        • Hours invested in the process
        • The number of Work Initiation Requests
        • An estimate of cost of labor invested in the process
        • Cost per Work Initiation Request
        • The impact your Process Redesign will have in terms of the above components.

        How to Redesign the Process

        To put you in the right frame of mind, here is an example of a common process improvement area. An employee keeps a spreadsheet in Excel because they don’t trust the company’s own enterprise resource planning system (ERP). If a company’s processes don’t give employees what they think they need, they develop separate, off-line, files. Eventually maintaining both the “sanctioned” processes within the ERP system and the “off-line” processes in Excel creates a burden that crumbles under its own weight. This behavior not only gobbles up the extra time it takes to manage two separate systems, the systems themselves need to be reconciled… which can more than double the extra work.

        In the quest to improve the process, start with steps that simplify and eliminate waste. Process waste is defined as errors, anything done twice, dual record-keeping and unnecessary time between activities. In one company, administrative controls significantly increased time lags, errors and costs. A trusted advisor and process mapping expert captured key functions, including contract control and contract execution, in a process flow diagram. By applying best practices to the key processes, the company reduced that time by over 50 percent, cut errors by 27 percent and sliced costs by more than 40 percent. The company grew more quickly and became more profitable.

        An Outside Perspective May Help

        A company can do process mapping internally. But employees are often too closely involved to spot the improvement opportunities. Many times they are the architects of the current processes. Having a fresh set of eyes and a process mapping expert provides an independent view and deeper experience.
        Have new employees, employees not involved in the process or outside third parties conduct the interviews and prepare the Process Redesign Workbook. Also, include them in or have them lead the redesign process.

        Use the tuned-up engine from your Process Redesign efforts to help transform the way you do business. You will save time and money, reduce lead times and create better, decision worthy information. The follow-on impact will improve the bottom line and better prepare your business for growth.

        Use the Process Redesign Workbook Demo!

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        Happily Ever After - Achieving a Fairy Tale Month-End Close

        Core Guiding Principles for the Month-End Close

        What Should the Close Process Be Like?

        A strong month-end close differs for each accounting team. However, the following central themes are shared among teams that close the books confidently and consistently, month after month:

        Accuracy. There are rarely material errors once the books are finalized.

        Predictability. The universe of month-end activities around the close is well-understood. When one activity is delayed, the implications downstream are clear.

        Anticipatory. Issues and exceptions are flagged proactively so that they do not become “fire drills” and delay the close.

        Flexibility. Cross-training and ruthless standardization makes it easy to back each other up and reallocate workload during the close.

        Signs of a Weak Month-End Close Process

        Even absent a material error event, there are still tell-tale signs of a weak close process that include:

        Unpredictability. This month’s close is different from the month before, and it’s hard to tell what next month’s close will be like.

        Time Lag. Most companies rely on the month end close to ensure their management reports are effective tools for decision making. The value of these reports decay as time passes. The longer it takes to close, the less valuable the information is for making good decisions.

        Poor Auditability. There is not enough validation, support, and audit trail. T’s aren’t crossed, and I’s aren’t dotted every time. This creates holes in your audit, forcing you to rely on the mercy of the auditor to pass. Not a good position to be in.

        Fragility. The infrastructure is still too reliant upon the heroics of the people. When everyone is not performing at maximum efficiency, the process breaks down.

        Poor High-Level Insight. Weak and incomplete close processes almost always lack high-level reporting. Why? Because in order to execute reporting, you need data that can be produced consistently and accurately—both of which are usually missing in a less mature process.

        Reign in the Chart of Accounts

        One of the biggest factors that impacts the work during the close is the chart of accounts. For any close process improvement work, the ideal starting point is to work on an effective account structure. The more active accounts there are, the more work there is to be done.

        More accounts means…

        • More opportunities to record transactions to the incorrect account

        • More reconciliations

        • More management review needed at month-end, such as variance analysis

        And that’s why we start with the chart of accounts, so that we can properly manage all the work it creates downstream. We want to arrive at a set of accounts that strikes the balance between giving management adequate insight to run the business and making sure the workload makes sense for the accounting department at period-end. This exercise is best done in a setting where accounting, finance and treasury (AFT) leadership is present and can guide the business in adjusting the chart of accounts.

        Here are the most common reasons for the chart of accounts becoming outdated:

        • Changes in product or service offerings

        • Mergers and acquisitions

        • Systems change

        • Poor control over account creation

        Risk Rank, Use Materiality & Other Thresholds

        This exercise aims to apply boundaries to our month-end focus. This is important because, at every step of the way, we need to decide what’s more critical to the business and hence deserves more resources. What this also means is that certain areas will be deemed less important to the business and hence resources will be taken away.

        No one likes to hear that. We all would prefer 100% coverage over everything. In the quest to get to everything all the time our coverage becomes very superficial. Everything has been touched. But because there is a great big rush to get through the work, there is little comfort that the work is performed correctly and thoroughly.

        Here are the three most common ways to set boundaries for our accounts:

        • Risk Rank

        • Utilize Materiality

        • Set Thresholds

        Risk Ranking

        There are many ways to logically risk rank the criticality of accounts. The most common methods are:

        Inherent Nature of the Account. Some accounts are naturally more risky no matter what’s happening in the account. For example, new accounts, liquid accounts, volatile accounts, marked to market investment accounts, miscellaneous or suspense accounts are inherently more risky.

        Balance Size. Accounts with larger balances are not always, but are sometimes, more critical. These don’t have to necessarily be the largest accounts on the balance sheet dollar-wise. They could just be relatively larger, compared to the asset class or the P&L.

        Past Events. If there was ever a material event—like a big adjustment—that has happened relating to an account, then we will want to watch it closely, because now this account has priors.

        High-risk accounts are those where we pay special attention. Medium-and low-risk accounts on the other hand, do not require as much review during month-end.

        Materiality and Other Thresholds

        We then move onto materiality and thresholds. All successful projects thrive on setting and respecting clear boundaries and limits. The close process is no different. We need to clearly understand where the acceptable thresholds are for every type of activity so we can distinguish between what deserves our attention and what doesn’t. Common types of materiality and other thresholds include:

        • Account balance materiality for reconciliation

        • Percent tolerance for variance analysis

        • Journal Entry amount threshold that requires second level sign-off

        We cannot account for every situation where we will or will not tolerate an exception or an estimate, but the important part here is that we start drawing our boundaries so that the scope of the work during the close each month is finite. We make these decisions as a team. Management, as well as your auditors, needs to be aware and buy into both the concept as well as the methodology and outcome.

        Auditor support and input is critical in deriving estimates and thresholds to determine priority of actions taken during the close. Always inform your auditors and seek feedback on the chosen methodology.

        Establish Goals and Milestones

        There is no one-size-fits-all when it comes to goals and milestones. Even within the same industry or the same size business, there are always nuances that make one accounting group able to do things another cannot.

        Available technology, staff skill set, and complexity of regulatory requirements are all determining factors in this. If you’re looking or thinking about a close process improvement initiative, chances are your ideal close process looks nothing like what is happening today, and there’ll be a lot of changes in store. Change takes times, and it may not work right away. The team may have to tweak the process and try again, so the path to improvement is not linear and can even be discouraging. The key here is to tie the outcome of the project to employee objectives and performance reviews, gain quick wins to build momentum, and then attempt the more hairy goals.

        Below are some of the most commonly used goals and milestones:

        • Subsystem close day

        • Reconciliation completion date

        • Accuracy of preliminary financials

        • Variance analysis completion date

        • Number of non-standard journals

        • Percentage of work done before Day+0

        • Number of man hours dedicated to key activities

        • Amount of work kicked back that requires rework

        • Number of late submissions

        • Frequency and nature of unexpected incidents

        Protect Your Time by Saying “No”

        The best way to close faster and with more focus is by doing only what’s necessary to get the books closed, until the financials are finalized. That means:

        • Non-close related activities within accounting should be kept to a minimum during the close

        • Close related activities themselves should be evaluated to see how many can be completed, or partially completed, before Day +0 arrives

        • During the month, the accounting team can review accounts and transactions for errors so that they are not surfaced during the close to catch the team by surprise

        • Special projects halt and take a back burner during the close

        • Other departments, vendors, and partners should be discouraged from consuming accounting resources during the close

        Sometimes it takes saying “No” to get what you want.

        Improve the Technology Infrastructure

        People, process, and technology work in an interconnected way. An organization’s existing technology is the foundation of our infrastructure. The people within the organization then use a combination of manual activities and your enabling tech to weave it into processes.

        Once the process is built, it will further elevate the people in it because it allows them to achieve consistent results with less effort and frees up time to focus on higher value work. And if you want to exponentially increase the capacity of your people and process, you must introduce more automation to replace manual work.

        Your key processes are like steps on a ladder. You build, nurture, and refine them so that the people can move higher and higher up on the value chain.

        Be Audit Ready

        When it comes to audit, it’s not just about showing auditors that your numbers are correct. You must have the burden of proof to show that the close and financial reporting process is sound, sustainable, and well controlled. This is achieved by:

        Being organized around the Prepared By Client (PBC) process. First impressions matter, and this is your first point of contact. Whether you’re being asked to load into the auditor’s application, or do it through spreadsheets, be as organized and prompt as possible. Track everything that is delivered and ask for positive confirmation.

        Executing key controls consistently. Management’s execution and monitoring of key controls is something auditors examine as part of determining the health of your organization’s financial reporting process. It’s critical that in this area, key controls are executed with precision and documented thoroughly each time.

        Demonstrating clear understanding of the process. Don’t skimp on policy and procedures documentation. Cross-train employees and ensure that each team member masters and understands the importance of each month-end activity so that the tasks are executed with intention and purpose.

        Achieving Happily Ever After…

        By adopting the core principles that top “closers” exhibit, your organization can achieve a Happily Ever After close that pays dividends to the accounting team.

        A strong close process allows for a more balanced workforce and fewer after hours work each month. Routine and administrative work is kept to a minimum, so that the staff can focus on special projects and higher-level work.

        For management, a disciplined close process enables more accurate forecasts and faster analytics, which invariably result in a more nimble organization that stays a few steps ahead of the market. Auditing becomes less of a burden while audit results improve simultaneously.

        All of this is within reach. It requires leadership, patience, a willingness to try (and sometimes fail), and some good tips along the way to guide the team into a better close.

        Visit to access more helpful materials.

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        The Upside of Agitators

        The myth is that folks who disagree are hard to be around and don’t care about personal relationships. What if the truth were that folks who ask good questions deliver these benefits to their organization?

        ​ 1. Improve meeting quality

        ​ 2. Improve plans

        ​ 3. Improve execution

        ​ 4. Move toward reality

        ​ 5. Move to action sooner

        ​What if you could help deliver these, and be admired and respected to boot?

        SPEED BUMP: Folks who ask the real questions are invaluable.

        ​These insights are validated in research reported by Charlan Nemeth, UC Berkeley psychology professor, in her book In Defense of Troublemakers. Groupthink is real, is frequently damaging, and blocks rapid access to truth, she says. Her studies are based upon juries. Here’s a power quote from a review in the Wall Street Journal: “Juries that included dissenters ‘considered more facts and more ways of viewing those facts.’ Consensus… ‘narrows, while dissent opens, the mind.’”* Worse, our desire to agree with others (groupthink) pulls us away from different and sometimes better solutions. And brainstorming, according to Nemeth, with its lack of critical evaluation, encourages the collection of bad ideas (as you likely expected).

        ​What can we do with this?

        ​Learn to ask questions and encourage others to do the same. Nemeth says that hard questions speed things up instead of slowing them down. Here are some starter questions to get even the most compliant person to step into the ring:

        ​ 1. Why should we do that now?

        ​ 2. What is the benefit of that?

        ​ 3. What is the evidence for that?

        SPEED BUMP: Build your questioning muscle by asking questions.

        ​The foundation of questions is real curiosity, and a willingness to use your private thoughts to formulate a question about something that just doesn’t seem “right.” It may be a hunch, and it may be wrong, but the question it prompts may spur the meeting toward the right end.

        ​One way to kick-start a group is for the leader to ask questions like the above, and to ask each group member to ask one question sometime during every meeting.

        ​And…let the speaker answer the question. Don’t intervene or “help.” Show your folks that you have the confidence in them that you say you do.

        ACCELERANT: Which group will you galvanize with questions this week?

        ​A note on SPEED BUMPS: Use them to click quickly with an idea that can immediately be implemented in your life as a business leader. Think: “How can I use this today? or “Who can use this?”

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        What Does it Mean to Be a Member-Scholar?

        It means you:

        Are Driven to be the best Financial Executive you can be…

        Believe that time invested in learning is a great way to hone skills and grow your career…

        Have a Care and Share philosophy about learning and teaching…

        Know that building a large network of dedicated financial professionals and advisors to the CFO creates a resource base of significant value…

        Recognize the disciplines of Accounting, Finance and Treasury combined with great Leadership skills are fundamental to improving not only the companies we work at but the communities/economies we serve…

        Join us today!

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        Financial Planning and Analysis (FP&A) Leaders are Failing to Deliver Higher Strategic Value

        ​Recently, Prophix Software released its findings from the survey, Defining the Evolution of FP&A: Benchmarks, Challenges & Opportunities. The survey which was carried out in 2017 received feedback from over 300 FP&A leaders from all companies of all sizes across the globe.

        The survey was conducted to establish the maturity of analytics solutions across the globe, the effectiveness and efficiency of FP&A leaders’ planning processes, how companies are leveraging technology to improve FP&A processes, and to gauge internal perceptions relative to the value of FP&A.

        Although certain parts of the results are encouraging, FP&A teams significantly need to improve on their role of delivering higher strategic value to their companies.

        In today’s fast-moving markets, characterized by intense competitive pressures, shorter product life spans, complex business environment, increased volatility, and heightened uncertainty, it is imperative that a company’s FP&A people, processes, and systems are highly mature, effective, efficient, and leverage the necessary enabling technologies.

        While going through the survey findings, a couple of statistics captured my attention.

        • 55% of the survey respondents reported being in a basic or developing state of the FP&A analytical maturity.

        Comment: This basic level of analytical maturity brings to light the fact that a culture of continuous innovation and improvement is not the norm in finance at most companies. As the custodians of data within the organization, Finance is in position to lead analytical development, but at many companies this is not the case.

        Surprisingly, 50% of respondents are mindful of technology but seldom upgrade. This statistic alone is concerning. Why are FP&A leaders reluctant to change? Are they happy with the status quo? Are they lacking the resources necessary to transform? Is it ignorance in its purest form? Answering these questions for your company is a great first step in moving beyond basic FP&A analytical maturity.

        This transition also requires a cultural shift that can only occur when the value of analytics are understood and taught throughout the organization.

        Attending industry conferences, seminars or webinars and reading thought leadership resources as well as listening to their podcasts can help FP&A leaders keep abreast of trends and benchmark their company’s performance against peers.

        • Only 12% of the survey respondents have access to the right data, at the right time, to inform strategic decisions at their companies.

        Comment: Having access to the right data, at the right time is key to making good strategic decisions and driving business performance. Unfortunately, 88% of respondents do not have this access. This means the majority of critical decisions in companies across the globe are based on gut-feel and not evidence-based.

        In today’s Big Data age, it’s startling to know that companies are not leveraging advanced analytical tools to aggregate and analyze data from disparate sources and generate key nuggets on customer experiences, competitor behaviour, trends, emerging risks and opportunities.

        Moving forward, FP&A leaders need to make use of data management framework that facilitates the creation of a central data repository and ensures everyone in the company has access to relevant data whenever they need it.

        This can only happen if the company makes the key decision to advance its analytical maturity model. Highly manual processes make it difficult to update FP&A models in real time, thereby inhibiting quick decision-making processes.

        With the recent advancements in technology and declining costs to implement new software, the investment required to enhance FP&A processes have been significantly reduced. This reduction in cost makes the return on developing new analytical capabilities higher than at any time in history.

        • Only 10% of companies reported that they find it somewhat easy to perform scenario analysis.

        Comment: In today’s volatility, uncertainty, complexity, and ambiguity (VUCA) business environment, companies must be proactive, develop superior forward-looking capabilities and be ready to deal with any disruptive forces threatening their survival.

        They must become more flexible, adaptable and be increasingly aware of the impact on business performance of changes in the environment. This will help them take corrective actions more quickly and efficiently.

        Unfortunately, 90% of the surveyed companies are finding it difficult to perform scenario analysis. As already reported, over half of them are still reliant on basic and highly manual processes which in turn makes it difficult to consider all possible scenarios in their FP&A models.

        For the 10% who are finding it somewhat easy to perform scenario analysis, what are they doing right? They have managed to figure out that FP&A is a collaborative process extending beyond the walls of Finance. Also, rather than use fixed time-specific budgets, they are using driver-based rolling forecasts to see beyond 12 months. Where does your company fall in collaborative planning and rolling forecasts? Make it your charge to develop these important capabilities.

        Engage the wider business community, learn about the external and internal factors influencing strategy execution, how they are all interrelated and gain a deeper understanding of the key drivers of business performance. Leverage new technologies, calculate probabilities and update your FP&A models in real time. Set these as objectives and work your plan to get there.

        • 55% of respondents conveyed that their companies don’t think that FP&A delivers high strategic value.

        Comment: According to the survey findings, 51% of the time spent on FP&A is allocated to data collection or validation. Thus, instead of spending more time on generating insights and influencing business decisions, FP&A teams are busy reporting on the past and justifying reported results.

        This is understandable given the high levels of technological immaturity in many companies. By leveraging advanced analytical tools, FP&A will be able to reduce time spent on data collection, reconciliation and cleansing and free up resources that can be used to deliver higher strategic value.

        FP&A teams should regularly liaise with business teams and establish their reporting and information requirements. This will help ensure that resources and time are not being wasted on non-value adding activities.

        Take a candid review of your current FP&A people, processes and systems; against the backdrop of the points above. Identify your deficiencies, discuss them with your team to develop implement an improvement plan to deliver higher strategic value to your company


        1. Is your FP&A function in a basic or developing state of analytical maturity?

        If No, skip to the last question

        2. What action will you commit to taking to improve your understanding of the analytics needs of your company?

        3. Select a potential project to improve your data analytics and develop a financial model to understand and explain the ROI to your team. (the right analytics at the right time to make a better strategic decision)

        4. Determine the % of time of your FP&A function is spent on data collection or validation?

        5. If that % is too high, what is your next step?

        6. How will you use this learning in your business?

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        Innovation Can’t Thrive Without These Fundamentals in Place

        Sound business systems precede innovation.

        Before innovation can be a catalyst to business growth strong business practices must exist.

        Innovation, the process by which an idea or invention is translated into a good or service, is a critical component of growth in many businesses. It occurs when the value of the product or service increases while the cost to deliver the product or service decreases; or when the new value/cost ratio¹ is significantly higher than the old ratio. The value of innovation is illustrated with the following diagram:

        The diagram starts with the old state, Old Value – Old Cost = Old Benefit (A). True innovation tackles both the value of the product or service and the cost to deliver it; creating a step function improvement in the new state, New Value – New Cost = New Benefit (B). The Innovation Value = New Benefit (B) – Old Benefit (A)

        Innovation relies on creativity, exploration and freedom. Frequently these characteristics are regarded as the opposite of discipline, control and structured process. However, without strong business practices that recognize and nurture advancement in good business systems, innovative practices are unlikely to make it to commercialization.How can a company know if its business systems are ready for innovative growth plans?

        “Innovation readiness” can be measured by assessing six key areas in a business. These areas indicate how prepared the business is to evaluate and absorb new activities.

        The building blocks for growth-oriented business are:

        1. Transactional Processing: This area is the foundation of any business. It is a mundane skill but especially important in preventing delays and errors as new activities are launched. Transactional processing that is timely, error free and cost effective will free up resources to focus on innovation.The fundamentals of transaction processing include; purchasing, payments, inventory, order processing, invoicing and collections. These processes should be efficient, scalable and flexible enough to handle new business.

        2. Information Reporting: Understanding financial positions and other key business metrics allows companies to:

        • recognize innovation successes and failures quickly;
        • improve the innovation cycle time;
        • implement successful innovations faster;
        • be confident and agile regarding innovation decisions

        Developing and communicating key performance measures, such as return on investment or minimum margin requirements will help guide the innovation process toward products or projects that drive sustainable growth. Albrecht Enders, a principal at endersgroup, a local innovation consulting company, uses the value/cost ratio in the early phase of projects to measure the potential of an innovation. Without solid financial systems in place to provide key metrics like the value/cost ratio Enders says companies can waste valuable resources on projects that have poor return potential.

        3. Governance: Clear boundaries around authorities and responsibilities add to the innovation foundation by focusing resources, preventing duplication and eliminating gaps that exist in the governance framework. Too often these “controls” are viewed as inhibiting innovation when good governance actually streamlines the process of resource allocation, eliminates uncertainty around approvals and hastens the decision to move forward with or terminate work on an innovation.

        4. Planning and Forecasting: Having strong tools and skill sets in planning is critical to “feeding innovation”. Leveraging the cross functional groups required to develop, launch and support new products requires a well thought out roadmap and navigation system. The process of looking ahead, or forecasting, to help create the future is a necessary step in the evolution of innovation.Good forecasting models that incorporate an innovation strategy provide context to the R&D and other upfront investments required for successful innovation. When these expenditures are viewed as unrecoverable costs and not as investments in the future, spending on innovation is reduced. This action can lead a business to “death by a thousand cuts”.

        5. Financing: Successful innovations often require capital to move into the commercial stage of development. Financing can come in many forms and from many sources. Funds can be internally generated, originated from bank loans or, for higher risk projects, equity issuance. Depending upon the project, vendor or customer financing may also be available. The key here is to have a funding origination plan that fits each innovation being developed.

        6. Growth Capabilities: Scalable systems and processes combined with access to human resources capable of commercializing an innovation is the last building block of the innovation foundation. For example, Enders noted that distribution systems and order processing are critical to launching new products successfully. Without scalability or available people new growth derived from innovation can overwhelm a well functioning operation and sabotage the success of the product.

        Conducting an assessment of these areas, either internally or by an independent firm, will help identify where a company’s innovation foundation needs strengthening. Often a small but targeted investment can significantly strengthen a foundational area and put a company in a much better position to capture the benefits of its innovation strategy. An added benefit to these investments is the overall operation will improve in performance whether or not an innovation is adopted.

        Learn more about innovating with endersgroup.

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        How to master second-curve thinking and career success

        Will fast-changing economic cycles impact your future working career? You bet!

        ​Predictions tell us that the nature of work will be forever changing, and more people will have portfolio careers in their working lives. But, learning new skills to deal with rapid change cycles, transforming your mindset and embracing life-long learning journey will get you there. This article explores these critical aspects.

        This blog is serious and wide-reaching. So, I’m delighted to have joined forces and co-write this blog with my friend and strategic business partner Randy Wall, President of the Engineering Leadership Institute.

        ​The age of unreason

        ​During the Dotcom era of the 90’s decade, we witnessed the unprecedented change due to the emergence of dazzling new scalable computing power and technology. Today, technology is continuing to revolutionise our lives and dramatically reshape our work cultures and perspectives of work. During this era, business guru and writer Charles Handy, in his book, The Age of Unreason foresaw how these changes would profoundly affect our lives as we move further into the 21stcentury. He envisioned that work and life would mean continually reinventing ourselves and to be re-grounded in a new sense of success focussed on life-long learning, connection, community and purposeful direction.

        ​Back then, Handy predicted the demise of full-time employment and the rise of the personal portfolio economy (ie multiple jobs and or career activities) that we are witnessing today, 25 years later. Individuals will aspire beyond working for organisations and instead become the masters and experts of their own brand and careers. Again, this is playing out too where people have several jobs, roles or career paths. He also predicted that businesses would have to respond to ever-increasing waves of change cycles. Besides, he said, companies will become ever more reliant on hiring independent expert know-how to deploy transformational change.

        ​Now, in 2018, looking back, Handy’s vision is shaping today’s reality.

        Change and the Sigmoid Curve

        ​When we stand back and analyse change, it follows a predictable pattern that can help us to make sense of change, and where we are going. Here’s a ‘handy’ model:

        ​Handy suggested that all change initiatives can be represented by the above S-shaped curve which has intrigued humanity since time began. This curve-logic sums up all human activity, work projects, new products, implementations of strategy, the rise and fall of companies, governments, empires and all life itself. It all starts slowly as a new endeavour, then builds up experience, it ascends to a crescendo of success, then after a while, it wanes and eventually gets spent.

        ​We know that way-back in history past change cycles came around in hundreds of years. During the industrialisation era of the 20thcentury, change cycles meant jobs-for-life were no more and change began happening in decadal cycles. At the start of the new millennium change cycles compressed further to every 3-5 years. But, today, technology is forcing adaptive change at multiple levels in annual or even faster cycles. For example, Hi-Tech products such as smartphones become outdated by faster, better, more efficient, smarter hardware every year – and last year’s model - ‘so last year!’ Ever advancing Artificial Intelligence (AI) means associated software updates are rolled out to those products even quicker.

        ​On top of all this, AI and supercomputers will mean many of today’s jobs will cease to exist tomorrow but, we can’t even begin to guess what those new jobs will be in tomorrow’s world. Current predictions inform us that automation and AI will mean many manual-based jobs will probably disappear. But, the truth is ‘resistance is futile’- playing the Luddite never worked before and is certainly not the answer now. Technology advancement and AI is an inevitability. Instead, we need to embrace future curves, ride the waves of change and learn to adapt and change our mindsets and skillsets along the way!

        ​The paradox of our times

        Handy said that ‘The paradox of our times is that by the time you know where you ought to go [and what you need to change], it’s too late to get there. More dramatically, if you keep going the way you are, you will miss the road to the future.’Bummer isn’t it?

        ​The paradox, perhaps of our times, is that we have to deal with even more paradoxes! For example, as technology inexorably advances on its own non-linear change curve it will create more unemployment and unrest. But, at the same time, it creates gaps in higher skillsets, as well as demand advances in our consciousness too (we will expand on this point shortly).

        ​So, we will have to learn more complex ways of interacting and working together and not only with each other but, ironically with AI too – another paradox!

        ​So, we are indeed living in an age of unreason and uncertainty. But, how do we make sense of all this change for ourselves?

        ​Perhaps more importantly, how do we find belonging, purpose and identity to live in a truly mobile and globally connected community?

        ​Read on dear reader, read on:

        ​Ta-Da! Enter second-curve thinking

        ​Thankfully, there is a get-out-of-jail-card beyond the above curve – the secret is to create a new second curve before the first one peters out.

        ​Therefore, it requires a more disciplined approach and learning to become aware of the signs and to feel the vibes, and the winds of change earlier while the first curve is still in full flow, before the first curve dips down (see the infographic below). This is where resources and energy are optimised and available to get the new second curve going and through its initial stages of experimentation. Handy calls this second-curve thinking.

        So, the above Sigmoid curve depicts anticipating a future change at point A, or at the cross-hatched area, before point B.

        ​It all seems logical enough but, counter-intuitively we instinctively find it hard to act on second-curve thinking, because we’re still on a roll on the first curve. The challenge is to start reinventing ourselves when things are going just fine, so we anticipate and overtake the ‘decline-phase’ of the first curve.

        ​Wait it out – point B thinking!

        ​By default, human nature tends to react to change only when it’s staring us in the face and we run out of choices or options – that’s at point B. But, at this point, the resources and energy have dwindled and it is much harder to kick-start a new initiative here. Like redundancy and finding a new job, for example, a small business that’s run out of steam, not being selected for a Job that we need or, even producing a product or service that is no longer relevant etc.

        ​At such times, it’s only when we stand back and reflect on the circumstances leading up to finding ourselves at point B, we start to piece together where we missed the signs and took a wrong turn – hindsight is a wonderful thing!

        ​Therefore, second-curve thinking requires us to adapt to a smarter more disciplined thinking approach to predict and work on change around point A instead.

        ​The reinvention game

        ​In today’s economy, second- curve thinking is very relevant indeed. I began this article describing the rapid changes we are all subjected to in the ever-advancing technological era. While some careers may remain more stable than others (teaching and caring professions for instance), many of us will be forced to rapidly and continuously change the strategic direction in our businesses and working lives to respond to these advancements. More pertinent perhaps, second-curve thinking will be about reinventing yourself along the way. It is not merely about organisational change anymore. It will become much more personal.

        ​Mentioned earlier was the notion of a portfolio economy and as such advancing technology change will mean that many of us will have to manage the twists and turns in our portfolio careers in the working world too. Inevitably, that, in turn, will involve mapping our personal strategies and career branding through many change curves during our working careers.

        ​Furthermore, it will become more common for us to face the prospect of being regularly re-grounded during our working lives. And for many millions of people earning a living will mean seeing things differently with new eyes. Part-and-parcel of a portfolio career means our work will become highly personal and have to align more and more with who we truly are (our authentic self). We will need to develop a new sense of connection, community and purposeful direction to our work. To boot, reinvention change curves will be perpetual and ever-changing.

        ​Reinvention examples

        ​I (Andrew), for example, have experienced three significant career-change reinventions over my working life so far since the 1990’s. I started my career as a Chartered Engineer (as did my friend and US business strategic partner Randy). I then retrained into IT as I foresaw the upcoming technology revolution. Today, we both run our own leadership development company’s, developing soft skills, emotional intelligence for high-performance teams to drive tomorrow’s workforces. Randy, similarly reinvented his career too by studying a Masters in Social Science, and we both continue to ride new second curves of change and reinvent the approach to our work. While that kind of radical career change might not be the same for you, it will become a more common story moving forward into the future for many more people.

        ​Note, the differentiation between career change and approaches to work. Reinventing our careers might, for some, very well occur a handful of times during our working lives. But, reinventing our approach to our work in response to the ever more rapid technological change cycles, will undoubtedly occur much more regularly for the majority of working people – perhaps even every two years in the next decade or so. Such adaptation will become a standard part of working life. In organisations, restructures, takeovers and mergers will continue apace, resulting in ever faster job and title changes.

        ​Interestingly for businesses, average retention of staff at the end of the 90’s was roughly six-seven years. Today, staff turnover is about two-three years or less. For organisations, reinvention means new leaders, not the incumbent ones rise up to take the helm of new changes in strategic direction and often they create the energy of a new second curve.

        ​Success focussed skills and life-long learning

        ​Randy and I predict that as part of managing our portfolio careers and reinventing ourselves, we will not only need expertise and know-how but, success focussed skills as well. For example, the ability to work with others in high-performance teams will be crucial.

        ​We believe that success focussed skills and life-long humanistic learning will become part-and-parcel throughout our careers - such as soft-skills and emotional intelligence. Humanistic skills are vital for teamwork - aiding us to operate cohesively and collaboratively. Interestingly, technology marches relentlessly ahead, then the demand for humanistic skills increases too.

        ​Also, organisations will need to invest in creating high-performance cultures too - this is crucial. Recently Randy, ELI and I collaborated on presenting a number of seminars (How Soft Skills Drive High Performance) in the US on this very topic. We believe that this matter is gaining a lot of traction in the business world today.

        ​Another equally important aspect of success and life-long learning is developing your mindset. This is about working on yourself and your attitudes, behaviours and beliefs to overcome your limitations and your past conditioning - this is your fixed mindset (see infographic below). By default, a fixed mindset stops you from facing change.

        ​Change is also perceived to be harder the older we get as our mindset becomes more rigid and fixed. In Japan, they have a saying for older people that refuse change – they call them wet leaves that just stick around. But in the portfolio economy, it will be change that sticks around and so our minds will have to remain agile instead of atrophying.

        ​In contrast, as you can see from the above infographic, developing a growth mindset creates personal internal resources and resilience that helps you to remain positive, optimistic, to better deal with the unknown and handle uncertainty. It also helps you to align yourself with your purpose and who you truly are as well as your inherent strengths.

        ​In short, we all need to learn to become ‘less sticky’ with familiarity and embrace second-curve thinking as a way of life instead.


        ​The Sigmoid curve and second-curve thinking is the key to stay relevant and competitive for both individuals and organisations.

        ​In the technology lead economy of 21stcentury, automation will change the notion of your work and more people will have portfolio careers.

        ​Advancing technology will create more rapid change cycles and you will have to reinvent the notion of your own career several times.

        ​As our economy advances you will need the balance of both expert know how and humanistic skills to remain agile, resilient, purposeful and profitable too.

        ​As you adapt to continually changing cycles, your consciousness levels will expand too, and you will start to notice that your work directly contributes to making a tangible difference and a better world for everyone.

        ​Transforming from a fixed to a growth mindset, building a strong set of success-focussed humanistic skills and adopting lifelong learning will give you the tools to master second-curve thinking and your career success.

        Read this and more from Andrew Jenkins.

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        CFOs – What Language Do You Teach In?

        I had an interesting discussion with Andrew Codd recently. Andrew, in addition to having deep expertise in FP&A and data analysis, runs The Strength in the Numbers Show, a weekly podcast focused on the development of finance professionals.

        During our discussion we touched on a key skill that helps financial professionals grow into business leaders. Being multi-lingual in the languages of business.

        The foundational language of business is based on accounting and finance principles. It is the universal language that connects all companies, industries and even economies. A strong grasp of this language is critical to building a successful career in accounting, finance or treasury (AFT). “Seeing” the economic essence of a company by glancing at the financial statements is gift finance professionals don’t give ourselves enough credit for. So first, don’t underestimate the value your training and hard work as a professional brings to your company. Have an opinion based on facts and let it be heard.

        Taking those steps will provide you with the reputation as an expert in your field. To become a leader at your company or in your industry it’s important to become a teacher. To be an effective teacher your teaching should be done in the native language of your students - the commercial language of your company and industry.

        Here is an example. When I started my AFT career, I worked for a grain trading company. I didn’t hear the word income statement or balance sheet uttered by a commercial manager during my first two years on the job. The concepts important to the success of the business had to do with terms like “long and short”, “basis”, “elevations”, “basic hedge”, “position”, “spreads”, “bullish/bearish”… I could go on. Even terms I thought I knew, like “margin”, meant something different than I had learned in school. (It was used to describe the cash we had to put up with the futures exchange to own futures contracts.) Oh, the team was very focused on earnings. They just called it the “P&L” (not profit and loss and, certainly not, the income statement).

        Learning the commercial language of our company was important. Around it we could construct the communication tools that fit the P&L model our managers used in making their decisions. They did not look at our income statement. We developed a method using positions and inventory values that presented the P&L in their language. Our job was to translate the financial results into results our whole team understood and could use. The bottom line was the same but how we got there was totally different than how I learned to build an income statement in Accounting 101.

        Our exposure to so many parts of the business puts us in position to be great resources (teachers) to our colleagues. Take the challenge, learn the commercial language of your business and teach in it.

        There is an emerging language in business (many would say it’s already emerged) that revolves around technology. The days of an IT manager and their team managing the server in a data room and personal computers at our desk is long gone. In today’s world information moves at lightning speed. The CFO and their team have a choice. They can embrace this change and lead the digital transformation at their company or be overwhelmed by it and lose their relevance. In the past 500 years a key role for AFT leaders has been to convert data, into information, into action. A key resource enabling us to perfect that role was a deep and broad understanding of accounting and finance. Much of the insight we delivered came from deep analysis of the internal workings of our organizations through the lens of the financial statements. Not long ago, benchmarking added an outside twist to the teaching we could deliver and more recently, the development of financial tools lead to the creation of financial models that improved our foresight and increased the accuracy of our predictions.

        Today’s technology gives us the resources that dramatically increase the data available to help us manage our businesses more efficiently.

        Data is an asset to be converted into information that helps drive insight and better decisions. This has been the key to successful organizations for thousands of years. It’s only recently that the amount of data available to us has grown at a pace that is difficult to keep up with. The irony is, the data has always existed. We had no means to practically analyze much of it; so we never tried. Technology has given us the means to procure, warehouse and analyze data previously un-minable.

        The basic three-step approach hasn’t changed:

        1. Identify the data the company must capture and analyze

        2. Determine how the data can be converted into information

        3. Develop methodologies to incorporate the information into the decision-making process.

        … but it has become more complex in today’s world of Big Data. This complexity will create huge value for businesses that learn how to manage it. Answer this question, “If our company doesn’t adapt to this new complexity will we quit growing or disappear?”

        Technology is no longer cloaked in mystery or its power possessed by a few. The technology challenges we face today include:

        • clearing the clutter to understand what technology can benefit our business most

        • making the business case for our technological architecture

        • implementing the architecture

        And when implementation is complete, sometimes before, we face the same challenges with new technology and start process all over.

        This brings us back to the emerging business language of technology. A broad understanding of technology available or on the horizon that could benefit (enhance profitability) or harm (increase competitive pressure) your business is critical to your success as the champion of delivering decision making information to your organization. Learn the language, leverage new technologies and reap the benefits.

        Listen to the podcast.

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        How to Make a Difference With the 3 Languages of Finance

        The foundational language of business is based on accounting and finance principles. It is the universal language that connects all companies, industries and even economies. A strong grasp of this language is critical to building a successful career in accounting, finance or treasury (AFT). “Seeing” the economic essence of a company by glancing at the financial statements is gift finance professionals don’t give ourselves enough credit for. So first, don’t underestimate the value your training and hard work as a professional brings to your company. Have an opinion based on facts and let it be heard.

        For insightful notes on the podcast visit The Strength in the Numbers.

        ​Not a member-scholar yet? Join our financial community here!

        Identify your path to CFO success by taking our CFO Readiness Assessmentᵀᴹ.

        For the most up to date and relevant accounting, finance, treasury and leadership headlines all in one place subscribe to The Balanced Digest.

        Follow us on Linkedin, Facebook, Twitter.

        Get Ready for Artificial Intelligence

        Billions are being invested into Artificial Intelligence (AI) applications, research, etc. Find out why companies are spending so much and start your AI journey by completing the Assignments built into Dave’s presentation.

        Check out Get Ready for Artificial Intelligence now.

        ​Not a member-scholar yet? Join our financial community here!

        Identify your path to CFO success by taking our CFO Readiness Assessmentᵀᴹ.

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        For Chief Financial Officers: A Practical Approach to Using Artificial Intelligence - Part IV

        Part IV Getting After It: Take the Next Step and Make Your Investment in AI

        If you haven’t had a chance to read Part I – Leveraging AI in the CFO Suite, Part II - The Benefits of AI and What You Will Need to Make It a Success and Part III Where to Invest in AI, How to Measure the Financial Impact and Select Projects yet, please do so before continuing on.

        There are four major investments you’ll need to make to use AI successfully in your business.

        1. Develop an AI Strategy: This investment is about learning how to apply AI to your activities and selecting your best course of action. Consider using outside experts to help augment your thinking in this area if you are just starting your AI journey.

        • The first step of strategy development includes learning about AI, determining how it will be applied to the CFO responsibility areas, assessing the value of AI application for those areas.
        • The second step is to gauge the data needs (availability, accuracy, volume) and the cost of “creating” data that can generate the output required. “Quality, effectiveness, efficiency and insight are the four key pillars that really make this valuable stuff…” according to Nick Frost, KPMG Audit Technical Lead Partner.¹ Watch for these characteristics in your data. If they aren’t present, be wary of how you use your final product.
        • Using the value noted in a. above and the cost determined in b. an AI Strategy targeting the areas where AI will have the most impact can be constructed.
        • Skill/System assessment and timeline. Determine where growth in skills and systems are needed. The scope of these needs will also help create the resources required and a timeline. From a risk perspective, consider starting small (high expected return, low initial investment) and allow for greater investment as success is realized.
        • Include a change management plan to assist employees and other stakeholders in understanding the strategy and the impact it will have on them.

        2. AI Software Selection: The investment in software will include the cost of the software and the expenses of the internal and external team members working on the process.

        • Use your Strategic Plan to target AI vendors that serve the areas highest on your list.
        1. On premise or cloud solution
        2. Data storage costs
        3. Integration with current systems.
        • If AI is new to you stay small and focused on high return, bite-sized efforts you can learn from.

        • Use your network to validate claims made from vendors in terms of system results, implementation timeline and cost.
        • This investment will include the direct payments for the software and internal costs for the selection team to do their work.
        • Our “AI Capital Investment Analysis” tool will help you summarize and communicate your planned investment in AI.

        3. Implementation to Operation: It is important to focus the cultural change required during this stage to create an environment that craves the new learning AI brings to the table. The combination of our team’s desire to use AI wisely and a sound AI system add up to success. If either is missing, there is a good chance your implementation will fail.

        Here are the implementation steps:

        • Research and mitigate the risks related to the implementation and data management.
        • Train and hire the skills to manage the system and leverage the new capabilities created by the AI.
        • Identify and manage the risks that are likely to occur because of the implementation.
        • Procure and implement the technology that fits your strategy.
        • Monitor and adjust the AI inputs and outputs to create optimum value for the AI stakeholders.

        4. Ongoing AI growth: Your AI strategy document is the road map that will be used to plan AI follow up. It is a living document that requires updating.

        • Manage the ongoing operating costs of the AI system
        • Implement AI applications per the Strategic Plan
        • Change the priorities in the Strategic Plan as necessary
        • Consider new applications (see 1 above)
        • Assess current operating AI systems for optimization annually.

        Artificial Intelligence holds great promise for financial professionals. It’s a key ingredient to enhancing the business partnering momentum established in the new millennium. Creating our AI Strategy, securing the skills to choose, implementing and operating AI systems, and growing these capabilities are new challenges demanding the attention of the CFO. Developing more efficient and “smart” transaction systems while improving decision support activities are huge value drivers for businesses today. Our ability to harness the power of AI to these means will be a significant measure of our success.

        We’d love to hear about your AI experience (email us at!

        ¹Eleanor O’Neill, “How is the accountancy and finance world using artificial intelligence?” CA Today, July 31, 2016

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        For Chief Financial Officers: A Practical Approach to Using Artificial Intelligence - Part III

        Part III Where to Invest in AI, How to Measure the Financial Impact and Select Projects

        If you haven’t had a chance to read Part I – Leveraging AI in the CFO Suite and Part II - The Benefits of AI and What You Will Need to Make It a Success yet, please do so before continuing on.

        Where the CFO can invest in AI to create a positive impact.

        Now that we know what AI is and its benefits for finance, how can a CFO develop a plan around how to apply it in their business? To borrow a phrase from Stephen Covey, Begin with the end in mind. Visualize where you want to be and work backwards, considering what is preventing you from realizing your future today. This step will help prevent you from building AI around current systems and processes that are encumbering your digital transformation.

        The next step in identifying where to invest in AI is to summarize the outputs your team creates for the company’s stakeholders. Define output as anything your team delivers to a stakeholder that they use. Examples of outputs include; invoices to customers, financial reports to management, pay checks/stubs to employees, borrowing base to the bank, work papers to the auditor, KPIs to the Board of Directors, credit information requests from vendors, accounts receivable aging report to the credit department, new project investment analysis for the CEO, productivity reports for the COO, etc.

        ​To be highly effective the implementation of AI is a multi-discipline exercise that will require resources from many parts of the business. A good example of this can be illustrated when using AI to assist in auto invoicing and payment applications. The sales department, manufacturing and shipping departments will provide data that allows these two functions to operate autonomously. The data from these departments will be incorporated into algorithms that function to determine how much, when and to whom to send an invoice; and, how to apply payments when the bank reports them as received.

        ​ Below are some important criteria to think about when selecting where to apply AI:

        1. Stakeholder focused; Serve your most important constituents first - Customers, Vendors, Employees (including management) and Directors

        2. Determine where AI has the largest potential impact

        • ​ Where improvements speed, accuracy and/or volume have significant impact
        • ​ Revenue generation
        • ​ Cost savings

        3. Understand the complexity of AI application.

        • ​ Data requirements
        • ​ System requirements
        • ​ Process requirements

        Measuring the (financial) benefits of an investment in AI for a business

        ​Just like any other business case development, it is important to measure the benefits of investing in AI technology. These benefits are either tangible or intangible. Tangible benefits are those that can easily be quantified, you can put a value against. On the other hand, intangible benefits are difficult to quantify, but expected to occur as a result of the investment.

        ​So, is one set of benefits better than the other? Our answer is no. Both tangible and intangible benefits are important. But only tangible benefits can be used to calculate the financial return of AI investment. This can be looked at from the perspective of additional savings or income generated as a result of AI.

        ​However, the challenge for many CFOs when it comes to implementing new technological solutions for their companies is clearly defining how success will be measured and quantifying the ROI.

        ​Since the adoption of AI technologies is not yet widespread but still in the pilot phase we suggest CFOs take a simplified approach to calculating the value of AI projects and follow these steps:

        1. Identify a specific problem. Although AI is promising to be a huge game changer for your business, AI is not the answer to all your business problems. Don’t fall into the trap of investing in AI for the sake of investing, or worse, succumb to “herd mentality”. To successfully benefit from AI, first identify a specific problem that may be solved though AI. The AI Identification Worksheet discussed earlier can help you here.

        ​2. Define the outcomes. What will success look like in your company? What is the result you are targeting, and can this be defined in monetary or percentage values?

        ​3. Measure the results. After clearly defining the outcomes, the next step is estimating the performance of AI against your baseline measurements or outcomes. The spread between your expected performance and the baseline provides with the expected benefits of the proposed AI solution. Put in place a system to measure the actual results

        4. Identify and calculate the costs (investment) incurred in delivering the results. Here you need to consider things like initial investment costs, ongoing support costs and the impact on cash flow.

        ​5. Calculate the return on investment (ROI). This final step involves calculating the ratio of money gained (or lost) relative to the amount of money invested (the total cost). If the projected ROI meets your hurdle rate, you’ll move ahead with the project. Set up to schedule to review the actual performance vs. the expected results to develop the feedback loop to improve your investment model.

        Below is an example of calculating the ROI using the steps above:

        1. Identifying a specific problem: ABC Company P2P process is highly manual and incurs annual labor costs of $300,000. During a cost and profitability analysis exercise, Brenda, the company’s CFO established that due to high error rates and rework as a result of these manual processes, the company is incurring additional overhead costs of $100,000 per annum. She remembered that from one of the CFO conferences she attended, the speaker spoke about AI and the technologies potential to drive process efficiencies. She proposes to the Board that the company invests in AI, specifically for improving P2P and test the concept.

        ​2. Defining the outcomes: After a series of meetings with various functional leaders, stakeholders and consideration of various factors, Brenda presents to the board her findings. By piloting AI for the P2P function, the company stands to achieve annual labor cost reduction of 10% and overhead reduction of 15%. The Board approves the project, expecting savings of $45,000 excluding the potential benefits from higher accuracy and improved vendor relations.

        After conducting a thorough market analysis of the suitable AI solutions available, with the support of the Board, Brenda engaged the services of FinancePro, a cloud-based software provider specializing in AI software for the CFO office.

        ​3. Measuring the results: After conducting a thorough market analysis of the suitable AI solutions available, with the support of the Board, Brenda engaged the services of FinancePro, a cloud-based software provider specializing in AI software for the CFO office. It is now 12 months since the pilot project went live and the Board wants to know if the company managed to achieve the 10% labor cost and 15% overhead cost reduction targets. Brenda compares last years’ costs against current years’ costs and her targets of 10% and 15% cost reductions have been met. In year 2, the company estimated benefits of $60,000.

        4. Identify and calculate the costs (investment) incurred in delivering the results: Although the cost reduction targets have been met, Brenda believes that these figures evaluated in isolation are not helpful for evaluating the overall investment. She therefore decides to identify and calculate the total cost ABC Company incurred in meeting these targets. She takes into account all initial costs such as license fees of the new AI software, implementation costs and employee training costs for the full amount of $30,000. She also calculates ongoing costs such as maintenance and support, communications and data storage costs which amounted to $20,000.

        ​5. Calculate the return on investment (ROI): This is calculated as follows

        ​ • She uses a cash on cash analysis to determine the 2-year ROI:

        ​In this example, ROI is calculated by taking the total financial benefits ($105,000) subtracting the total financial costs ($70,000), dividing by the total financial costs then multiplying by 100 to arrive at the ROI (50%). This calculation is over a 2-year period but can be applied on an annual basis as well. We have developed a simple model to help you summarize and compare your AI projects. Use it to:

        1. ​ Analyze and select AI projects,
        2. ​ Get your executive team familiar with the financial benefits of AI and,
        3. ​ As a performance measurement and improvement tool once an AI project has started.

        Click here to get your AI ROI Calculation model.

        Next Up: Part IV Getting After It: Take the Next Step and Make Your Investment in AI

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        For Chief Financial Officers: A Practical Approach to Using Artificial Intelligence - Part II

        Part II The Benefits of AI and What You Will Need to Make It a Success

        If you haven’t had a chance to read Part I – Leveraging AI in the CFO Suite yet, please do so before continuing on.

        Potential Benefits of AI for Finance

        The potential applications of AI are varied and being considered in virtually all sectors and industries. Today, companies are using AI algorithms to predict start up success, block spam messages and comments on social media, and boost webpage ranking. Lawyers are leveraging the same AI software to speed up legal research, and Financial Advisors have recently been piloting AI to monitor huge data sets and provide data-driven decisions. This handful of uses points to an exciting AI-driven future.

        The Finance function is no exception. According to one of the CEO survey findings on the performance of their CFOs published by KPMG, although CEOs are increasingly expecting their CFOs to play an important strategic business partnering role, the gap between CEOs expectations and the actual performance of CFOs is still huge.

        CEOs believe, instead of helping them understand and address the business challenges they are facing, CFOs are spending significant time on financial reporting as well as compliance and regulatory issues. In the eyes of the CEOs these activities are more rear-view focused and do little to help them prepare for an uncertain and volatile future.

        AI has the potential of helping CFOs close this gap. AI technology can help CFOs automate end-to-end financial processes, make them much more efficient than previously, and spend reduced amounts of time and resources on repetitive and laborious tasks. This in turn helps them spend more time on strategic issues partnering with the business.

        Examples where Finance can benefit from AI include:

        1. Invoice Processing: Employees spend a significant amount of time on Procure to Pay (P2P). Manually entering invoice data resulting in high and costly error rates. Using an AI powered system, CFOs can significantly simplify and automate these manual processes. Because of the many data points on an invoice, an AI system can “learn” the relationship between the individual elements of an invoice. In the future, based on previous experience and data, the system autonomously processes the invoices and allocates them to the appropriate general ledger accounts. If there are any misallocations which are corrected by an expert, the system learns and improves from such interventions.

        2. Bank Reconciliations: The reconciliation of account data and receipts as well as the allocation of banking information can be carried out faster and reliably using AI. The software retrieves both sources of data directly. Independently-learning algorithms match the document information with the transactions in the company’s bank accounts. This renders the bank reconciliation process much more reliable, transparent, and most importantly it can be carried out in real-time. This in turn helps CFOs to evaluate in real time the liquidity position of the business.

        3. Budgeting and Forecasting: By using AI, CFOs will be able to improve the accuracy of their company’s forecasts, speed up and automate closing the books with lower compliance and auditing costs. Traditionally, CFOs have relied on financial data housed in ERP systems to drive budgeting and planning processes. This reliance on internal data alone to drive key performance decisions excluded important external data. Thanks to today’s advancements in computing processing powers and speed, CFOs are now able to make use of data sources once deemed inaccessible. AI algorithms are able to aggregate data from multiple data sources, analyze this data very quickly (in real time), identify patterns, calculate the probability and impact on business performance and feed that information into the forecasting model.

        New skills, expertise and knowledge required to deliver and operate AI systems

        As with any other new technology or system, delivering and operating AI systems requires new skills, expertise and knowledge. New technologies are enabling CFOs to do more with less and create added values for the organizations. Finance and Technology used to be miles apart. Not anymore, the two are now joined at the hip. The CFO has to be tech-savvy and possess a stronger understanding of the new technologies in the market, how easily they can be integrated into the company’s overall IT infrastructure, and their potential to drive business performance.

        In addition to having knowledge of the technology landscape, these skills are also a prerequisite:

        1. Quantitative: To successfully support effective decision making, CFOs have to make sure that the advice given to business partners is evidence-based and not mere guess work. Having strong analytical capabilities is therefore critical. As data volumes and types continue to grow at exponential rates, making sense of it means the traditional skill set of the Office of Finance has to change. New data analysis capabilities are required; developers, data scientists, data engineers, data architects, data visualization experts, behavioral scientists and cyber security experts working together with traditionally trained Finance professionals.

        2. Deep Process Knowledge: Tasks where the desired outcome can easily be described and there is limited need for human judgement are generally easier to automate. Not all Finance processes are candidates for automation. Some processes are higher-value adding requiring judgement or creativity, and are therefore not easily automated. The CFO must be able to differentiate between transaction processing and value-add processes and select the suitable ones for applying AI technology.

        3. People Management: Leadership, communication and change management abilities are all essential. Whenever there is talk of AI, the conversation ends up being a debate of

        Machines versus Humans. There is a common belief that AI has evolved to replace workers. We believe this theory is far-fetched. Implementing AI is also about people and not software alone. Automation is a huge opportunity but it’s also about “augmented intelligence”. In other words, combining human intelligence with technology-enabled insights to make smarter choices in the face of uncertainty and complexity. The CFO must be able to address any employee fears that might arise, clearly communicate the rationale for adopting AI, and motivate and inspire their team to embrace the change. People are often the differentiator between success and failure. If they don’t buy into the vision of what the company is trying to achieve, the initiative is bound to fail. Also, emotions rise high during such initiatives because of conflicting priorities and as such, it is important for the CFO to manage and resolve such conflicts.

        A recent article published by McKinsey in the Harvard Business Review¹ highlights another skill that is important as organizations start working with these new technologies – Data Translator. According to the authors of the article, translators are neither data architects nor data engineers. They’re not even necessarily dedicated analytics professionals, and they don’t possess deep technical expertise in programming or modeling.

        Translators draw on their domain knowledge to help business leaders identify and prioritize their business problems, based on which will create the highest value when solved. They then tap into their working knowledge of AI and analytics to convey these business goals to the data professionals who will create the models and solutions. Finally, translators ensure that the solution produces insights that the business can interpret and execute on, and, ultimately, communicates the benefits of these insights to business users to drive adoption.

        Thus, as the role of CFOs increasingly evolves into that of a strategic advisor or internal consultant, it is imperative that CFOs develop and improve on these data translation skills. In today’s data-driven era, where data science skills are in high demand, not all of us are cut to be data scientists.

        ¹Nicolaus Henke, Jordan Levine and Paul McInerney, “You Don’t Have to Be a Data Scientist to Fill This Must-Have Analytics Role?” Harvard Business Review, February 5, 2018

        Next Up: Part III Where to Invest in AI, How to Measure the Financial Impact and Select Projects

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        For Chief Financial Officers: A Practical Approach to Using Artificial Intelligence - Part I

        Part I Leveraging AI in the CFO Suite


        In their role as curator of critical information for their company, Chief Financial Officers must create processes and develop systems that filter out noise and focus only on the most important, actionable information. The plethora of data being created is growing at astronomical rates making this role much more crucial and much more difficult. In this article we’ll explore how CFOs can take a practical approach to integrating artificial intelligence (AI) into their operations.

        First let’s define AI in a manner that applies to its use in finance.

        AI is information derived from algorithms applied to data set(s) normally accomplished with little or no human intervention.

        • Algorithm: a set of steps that are followed to solve a mathematical problem or to complete a computer process
        • Information: knowledge you get about something: facts or details about a subject

        In his book, The Design of Business, Roger Martin describes the stages of learning that go from mystery to heuristic to algorithmic. The financial processes at many companies are heuristic, made up of general guidelines but containing many steps, developed by trial and error, and known only to the process owner. These processes lock corporate technology in the minds of one or a few individuals; creating technology risk and a training burden when staffing transitions occur. Developing an AI system and framework to effectively select processes that should incorporate more AI is rapidly becoming a core skill required for CFO success.

        Until recently, many financial applications of AI have helped uncover altogether new techniques or capabilities. For example, program trading in the financial markets came about because AI could “crunch” numbers (the price of a basket of individual stocks) fast enough to allow traders to arbitrage an index against a portfolio of individual stocks.

        In addition to the speed factor, AI now is being used to replace repetitive, linear tasks and increase our information output capacity. Both uses have wide implications for the CFO, including;

        • Choosing a system architecture that will capture AI most effectively for your organization
        • Managing your talent in a manner that is socially responsible
        • Developing and acquiring talent that captures the benefits of our AI system investment
        • Mastering the ability to manage the Decision Pyramid

        How to Leverage AI in Finance

        To date, most of the investments in AI for business have to do with specific industries; stock trading, portfolio management, banking and insurance underwriting. Customer development and customer service have also benefited from large investments in AI. The CFO responsibility areas, although ripe with automation, have not adopted AI to the extent these other industries or functions have. The opportunity is vast, but we need a methodology to identify where to start and continue our AI investment.

        The main benefits to AI are derived from three aspects; speed, accuracy and volume. Logically, we should apply AI to areas where the total value (increased revenue and reduced cost) of the following three variables is greatest:

        • Speed: The incremental value of time as applied to a process or delivering information
        • Accuracy: The incremental cost of error or lack of precision in a process or information
        • Volume: The incremental cost of each unit of volume in a process or in reports and analysis.

        Identifying the value of these different variables is the key to selecting an appropriate AI strategy and developing a work plan to implement it.

        There are two main ways AI can enhance the CFO responsibility areas.

        1. As a Process Improvement Mechanism. In this case AI will be applied to the transactional work to complete it more quickly, more accurately and/or more of it.
        2. As a Decision Support Mechanism. Here AI is applied to the data used to create the information in a report or analysis to improve the decision support. This support is enhanced through quicker, more accurate and/or more information.

        Illustrations of these two types of AI applications can be visualized using two examples:

        1. Procure to Pay (P2P): Using AI on the P2P process may yield big improvements in process effectiveness which will lead to lower costs and a reduction in errors.
        2. Budgeting and Forecasting: Using AI in the Forecasting process expands the scope of data that can be incorporated into the model, including the shift from exclusively using internal data to expanding the model to include external data. This use of AI will improve decision making by reducing the noise in our outputs due to using more robust input data.

        We have a developed a worksheet to assist in targeting where AI will bring you the most value. The worksheet is patterned after the Four Pillars of CFO Success and includes the major CFO technical competencies (i.e. CFO competencies ripe for AI application). Some critical thinking about each competency will allow you to develop a comparative scoring schedule to assist you in building an AI strategy.

        Click to get your AI Identification Worksheet

        Next Up: Part II The Benefits of AI and What You Will Need to Make It a Success

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        What the heck is adjusted EBITDA and why is it so darn important?

        Successful business owners preparing for a sale are quickly introduced to words they may not be familiar with: “EBITDA” and “Adjusted EBITDA.” Suddenly, why are these the only numbers that seem to matter?

        ​EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is a basis for determining the value of privately held companies. Its purpose is to serve as a blunt tool to approximate pre-tax cashflow from operations. With EBITDA, a company’s value can be estimated based on transactions that have taken place between other companies of similar size and characteristics. For example, many lower middle-market privately held companies typically sell between 4 to 6 times adjusted EBITDA, depending on the industry and other factors. Specifically, EBTIDA is used to analyze the profitability of a company regardless of capital structure or the tax strategies employed.

        ​However, for EBITDA comparisons to be useful and accurate, adjustments must be made to an EBITDA calculation. These adjustments are necessary to turn the EBITDA into a more accurate number (adjusted EBITDA) that represents the earnings capacity of a business.

        ​Business owners contemplating the sale of their business should have an idea of what their adjusted EBITDA is and how certain inputs affect this value. Typical recasting adjustments made to arrive at an adjusted EBITDA include the following:

        ​Basic Adjustments

        ​ · Interest on debt (line of credit or long-term debt)

        ​ · Income taxes (Not gross receipts taxes – sorry WA residents)

        ​ · Depreciation

        ​ · Amortization

        Adjustment to market rates

        ​ · Owner salaries and bonuses; what would market salary be to replace the owners?

        ​ · Rent (if real estate is owned by the business owner)

        ​Discretionary expenses / Owner perks

        ​These must have nothing to do with the business, and should be material:

        ​ · Owner health or life insurance

        ​ · Owner retirement contributions

        ​ · Personal vehicle expenses

        ​ · Charitable contributions

        ​ · Personal trips or entertainment expenses

        ​ · Salary payments to family members who are not involved in the business

        ​ · Etc.

        ​Bonuses, retirement plans and other benefits for employees are NOT discretionary. If employees receive these on a regular basis, then it’s something they consider as part of their compensation, and taking those away will be viewed as a pay cut.

        Non-recurring expenses

        ​Operating expenses that are one-time or unusual and generally not expected to recur in the future, such as:

        ​ · Legal, accounting, or other professional fees for lawsuits, audits, special projects or similar events

        ​ · Moving expenses if the company relocated or expanded (estimates are OK since these may be hard to track)

        ​ · Major upgrades to computer systems or similar that could have been capitalized

        ​It can be frustrating for a business owner to have everyone focused on this obscure number when there are so many other aspects of the business. As stated, EBITDA and adjusted EBITDA are blunt instruments that don’t consider many important financial drivers such as working capital, cash vs accrual accounting, and balance sheet considerations as well as other non-financial value drivers including culture, owner dependencies, customer concentrations, industry trends, product life cycles, etc. Adjusted EBITDA is an important number, but not the only number that matters.

        ​Our point is, you do need to wrap your head around adjusted EBITDA. An accurate adjusted EBTIDA is a metric that valuation specialists use as an indicator of future performance and as part of a formula to determine overall company value. Your accountant or your M&A advisor will be great resources to help you calculate and analyze these numbers. EBITDA and adjusted EBITDA calculations are usually needed for each of the past 3-5 years and the current year to be able to see the profitability trend.

        ​Next time someone asks you what you think your business is worth you can tell them, “Six times weighted-average adjusted EBITDA, of course”.

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        7 Tech Terms CFOs Should Know

        It’s 9 am and you’re running late for a meeting with your IT manager. You know she’s going to be throwing around “techie” terms that make no sense and you haven’t even had time for coffee yet! While we can’t get you the coffee, we can give you a crib sheet of technical terms and what they mean in plain English.

        VPN – Also known as a Virtual Private Network, this allows users to securely connect over the Internet by using software to create an encrypted private network. Instead of having to worry about the security of a coffee shop connection, you can connect to your VPN and be just as secure as if you were in your own office.

        API – This stands for Application Programming Interface, which allows different pieces of software to work together so they appear to be a single software. APIs allow different software components to work seamlessly together at lower cost.

        ERP Software – Enterprise Resource Planning software allows a company to manage the many parts of running a business, from human resources to accounting, all in one place. Companies purchase the modules that are relevant to their needs, and the ERP software does the rest by managing the collected data in an easy-to-use fashion.

        Technology Stack – This is another way to describe the portfolio of components that make up an office network. Successful businesses of all kinds work toward a Standard Technology Stack to maximize integration and support so they receive a good return on their investment. See our previous blog.

        Client Side – This term refers to the software and hardware that delivers what the employees interact with rather than what happens behind the scenes at the server. People interacting with the right devices and well developed software result in good Client Side productivity.

        Ransomware – Just as it sounds, ransomware is a form of malicious software that gets into a network and will hold either the data, individual computers or the entire network hostage until a sum of money is paid. See our previous blog. To prevent this from happening keep improving security and staff training. Don’t let up after the first training, keep up with changing threats. Before your company is struck with ransomware make sure you can recover from an attack by frequently testing the daily backups.

        Managed Services – A method for improving operations and receiving an improved Return on Investment from technology resources. For more information visit our previous blog. The way to have a well-managed technology stack is by engaging an outside service provider to proactively plan and manage the company technology. The best Managed Services providers use strategic planning, advanced tools and state-of-the-art techniques to continually improve technology performance and reliability.

        Armed with this simple vocabulary you should be able to hold your own when meeting with the manager responsible for your business technology. And never neglect to ask for clarification of a term—the wellbeing of your company’s technology is more important than an embarrassing moment.

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        Do you trust your business continuity plan?

        All businesses–regardless of size–have a digital presence. This mandates that both mundane and mission critical data must be regularly backed up and ready for recovery at the drop of a hat. Whether it is managed in-house or outsourced, business owners and financial managers don’t always know what data is backed up, how often it’s backed up, where it is stored or how long it will take to recover when disaster strikes.

        Here are some questions around data backup and recovery that should be asked to whoever is responsible for this function:
        The key take away for business managers is that backing up your data and storing it either onsite or in the Cloud is only part of the solution if your business suffers catastrophic damage.
        Data backups are far from perfect. Company data can still be lost through corrupted files, power outages and accidental deletions. Sometimes data can be re-entered but information captured on the fly as transactions occur is gone unless your servers that or back up new information as it is entered. Are these used at your business?

        • Is the company data safely stored and readily available?
        • Is it easy to recover? If stored in the Cloud, how will you recover if the Internet is down?
        • Is sensitive data encrypted? If you handle important customer data or intellectual property, it should be encrypted. Laptops and all mobile devices that store and transmit company data should also be encrypted. The bottom line? Encrypt all sensitive data when it is backed up.
        • Should backups be stored both onsite and offsite? Onsite data is much easier to recover rapidly which reduces the time needed to recover from problems such as hardware failures. Offsite data, on the other hand, is essential in the event of a fire or flood.
        • Can you afford lost productivity and revenue if your data is destroyed? If yours is like most businesses the answer is “no”. That’s why a workable disaster recovery plan that has been well thought out and practiced is so essential.

        It is critical to understand that backing up your data, even daily, is not the same thing as a disaster recovery plan.

        Corrupted files can often be recovered within the same program that the user is working in, such as Word or Excel, but other applications don’t offer this option. Do you know the capabilities of your software applications?
        Should your company’s data be catastrophically breached or be irrecoverable by ordinary means, a disaster recovery plan will provide a guide to the restoration process.

        Disaster Recovery Plans

        When implementing a new plan or reviewing the one you have keep these points in mind:
        This plan will be your “cookbook” to follow when total chaos occurs. If contact information is incorrect or steps are missing in the process the recovery time will increase. That’s why it is imperative to review, test and change the plan as the company evolves.
        Business continuity goes beyond a defined process or plan, and when full continuity is achieved, a company is prepared to not only recover from a disaster but also limit the adverse effects of the event. Implementing business continuity practices ensures that the appropriate people have access to critical functions. This is why business continuity cannot be achieved simply through one solution or technology.

        • Document at what point the recovery kicks in and who makes the determination
        • Include alternate locations that key recovery personnel can work from in order to recover company data
        • Regularly review and update contact information for key recovery personnel
        • Document the order of events required to fully recover operations

        Business Continuity

        Companies must plan their business continuity strategy on two fronts: planning for how to continue business processes in the event of disaster and choosing the appropriate business continuity solution to support these processes. If a company lacks the correct solution(s) in place, access to data vital to their functions could be unavailable for hours, days or even weeks depending on the level of damage and/or the amount of data that needs to be recovered. Frustrated employees, lost clients, revenue deficits or business closure are all possible in an extended recovery scenario.
        Cybercriminals armed with ransomware are a formidable adversary. While small-to-mid-sized businesses aren’t specifically targeted in ransomware campaigns, they may be more likely to suffer an attack. An IT staff that is stretched thin and outdated technology is the perfect environment for a breach to occur. Security software is essential, however, a proper ransomware protection strategy also requires a strong backup and recovery process.

        When assessing disaster preparedness every aspect of the planning process must be viewed from both a technological and human standpoint.


        If your business suffers a ransomware attack, properly managed backup technology allows a roll-back of data to a point-in-time before the corruption occurred. When it comes to ransomware, the benefit of this is two-fold. First, there is no need to pay the ransom to get the data back. Second, restoration is to a point-in-time before the ransomware infected your systems, the system will be clean and the malware can’t be triggered again.

        Regardless of the cause, once this disaster is over and recovery is complete, now is the time to determine the cause of the outage. Remedying the “root cause” will harden the business against future failures.

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        A C-Level guide to computer changes

        Smart business owners know that improving their computer systems keeps them competitive. These changes are often undertaken to improve efficiency, reduce costs and increase revenue. While it’s unlikely that management will perform the actual processes, it is helpful for them to understand their choices.

        Three terms that are used to describe these changes are Upgrade, Conversion and Migration and, unfortunately, they are often misunderstood and sometimes misused.

        This is perhaps the easiest concept to understand. It simply involves taking an existing software or system and changing it to the most recent version. For example, Microsoft issues new versions of their operating systems every couple of years which are applied using the upgrade process they provide.


        Upgrades often fix security or functional issues leading to improved performance. Sometimes major new features are included in an upgrade and, if so, plan on scheduling staff training time.

        Tips when upgrading:

        This term is applied when one set of data or information needs to be changed to make it compatible with another system. For example, you may have client information and sales data that you want to integrate into a financial system to help with sales forecasts. The two systems have to use the same data format for this to occur. One of the formats needs to be converted or modified to match the other. While a conversion can create huge efficiencies for the organization, the process can be time-consuming.

        • Prior to upgrading, have your support group check for the compatibility of any applications in other functional areas such as accounting, customer management, etc. that work in conjunction with the system you are upgrading.
        • Be sure to have the technicians make two backups and verify that they work before starting the upgrade


        Tips when converting:
        Business owners often confuse “migration” with “upgrade” and use the terms interchangeably. A migration, however, is more like doing an upgrade and conversion all at once. Migration is the process of moving from an application to a totally new one rather than continuing with one that is outdated. If additional resources are required, the process will also require a new server as well. The goal in a migration is to preserve the historical data and place all data into the appropriate locations in the new system.

        • Look for available options within the software for converting data
        • If needed, research third party conversion tools that work with your applications
        • Determine which data you need to convert

        Application Migration

        Migrating to a new system tends to have the greatest efficiency improvements but it also has higher risks if it is not well planned and executed. Businesses looking to make a bigger leap forward through the addition of new features usually choose to migrate to a newer option.

        For effective migrations, data on the old system must be mapped to the new system, and after being moved, the results must be verified to determine that the data was accurately translated. Also, it must fully support the processes in the new system. Automated or manual data cleansing is commonly performed before or during a migration to improve data quality, eliminate redundant or obsolete information and match the requirements of the new system.

        The migration process also includes changes to the new system settings so it operates as needed for your business. Time must be allocated for training and to get back to the normal daily production pace from before the changes.

        Application migration can be a complicated process due to the differences between the original and new environments. Elements such as operating systems, management tools, networking architecture and storage systems can differ so make sure your team researches all these issues.

        Cloud migration

        Cloud migration is the process of moving data and applications from on-site computers to the Cloud, or moving them from one Cloud environment to another. Cloud migration projects are complicated because the data being moved is stored and managed remotely by external organizations that often store data in multiple locations. As a result, special considerations must be made in regard to data portability, privacy, integrity, security and business continuity.

        Tips when migrating:
        A migration project commonly has multiple phases so it is essential to have a seasoned project manager who can break the migration into manageable chunks such as data conversion, creating new reports, verifying compatibilities, implementing the solution and training staff. The business partner or vendor you choose and their ability to manage the project will impact your budget.

        • Plan, plan and plan some more to make for a smooth migration
        • Copy the data to a test environment and run repeated migration trials until it works right every time
        • If the migration fails, return to the pre-migration point and try again another day

        A migration can be stressful, but it can also be an opportunity to see delightful improvements. Once a business has gone through the process of selecting the new system, most can’t wait for the rare chance at a fresh start.
        So consider using a business partner for these procedures to ensure that the ride will be smooth and the results will be well worth it.

        The Benefits of Outsourcing Technology Changes

        • When upgrading: all applications will be thoroughly tested to verify the upgrade doesn’t “break” them. Often, upgrading without sufficient testing leads to unexpected downtime
        • When converting: established procedures will be used to make the process faster and less stressful on the staff
        • When migrating applications: standard application migrations procedures will be used to make the process finish faster and cause less disruption
        • When migrating Cloud resources: an experienced outsourced technology services company will properly plan and execute the work and streamline the process to ensure success

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        Persuasive Technology Board Presentations

        A board presentation about technology can strike fear in the hearts of many a C-level executive. Fortunately there are steps that can be taken to not only meet the board’s needs and expectations but win their lasting support and respect. Given the importance of technology to overall business strategy, as both enabler and growth driver, technology discussions make regular appearances on board agendas.

        A persuasive presentation describes business outcomes that result from technology changes.

        Many boards encourage technology dialogs to help them better understand the critical role it plays in the business. But that doesn’t make the prospect of speaking to the board any less daunting. In fact, keeping the board informed and educated about the state of technology in the organization has become more difficult. Both the quickening pace of technical change and the increasing tech-related risk that companies must manage have made this information vital to the decision-making process.

        Cybersecurity has quickly risen to a top agenda item for boards, given their responsibility to guide their management team’s risk mitigation strategies. The challenge is to inform the board without drowning them in too much data. The key is to pick the most important topics and craft a clear, concise, and compelling message.

        Here are several guidelines for creating a persuasive explanation:

        Know your audience

        It’s important to understand the board’s stance on technology topics in general and specific ramifications in particular. Do they have “hot buttons” that may derail the presentation? Do they view this issue as an opportunity or a threat? Knowing how to frame the information helps to start off in a good position.

        Play to the room

        Know what most interests and motivates the board. Do they have a particular focus on growth, operational improvements, new opportunities, compliance or cybersecurity? Most boards appreciate presentations that give them a better handle on emerging and strategic opportunities and risks.

        Stay on top of the news

        Be aware of technology or business news and consider how trends and risks may impact the business. What’s happening in other companies has relevance for your business too.

        It’s all about the outcomes

        Clearly identify the real business benefits of any proposal. The best approach is linking technology investments to the company’s growth and profit strategy. Weaving technical items into a discussion of business outcomes will go a long way when asking the board to approve expenditures.

        Be clear and concise

        The first rule for dealing effectively with busy board members is to not waste their time. Keep the presentation short and focused and give them further details on paper so they can delve into the fine print on their own time. Come to each board meeting armed with a big idea and a well-curated set of data to help them see around the corner and feel confident about your leadership on the topic. Because board members are removed from the day-to-day operations of the company you can’t assume they will always be on the same page as the operational management. Prepare to move on if the board quickly gets a point and slow down for topics where there is a deeper interest than originally anticipated. Delivering information connected to business outcomes goes a long way in persuading a board.

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        How Effective is your Technology Support?

        ​How do you know if your IT staff or technology service provider is right for your business? Do they really understand the fundamentals? Are they following best practices?

        Many owners and C-level executives resist getting into the weeds when the topic is technology. They hired an outsourced vendor or in-house support staff to take care the technology so they don’t have to. Many think that as long as the computers work all day and haven’t been breached, all is well. They don’t need to know the specifics…or do they?

        Some will say “I’m just not an IT person”, while others are truly concerned that the people entrusted to maintain these critical systems may not know what they are doing. What level of involvement is appropriate to assure the health, productivity and security of the technology environment?

        Even if you don’t doubt the ability of your experts, here are some key questions to ask to shine some light on the situation. The answers will quickly demonstrate if the most fundamental aspects of your company technology are understood and correctly managed. It doesn’t matter if you don’t know much–if at all–about data wiring or a network diagram because the answers (or non-answers) will tell you all you need to know.

        These key questions should be easily answered by any competent technology support group and backed up with documentation and details. If paperwork doesn’t exist or hasn’t been updated in a long time it may be time for a change.

        • Can you show me the certification and documentation for our data wiring?
        • I’d like to see our detailed network diagram with a list of the critical components.
        • Would you show me our technology licensing and warranties and their expiration dates? (Hint: nothing should be expired)
        • Show me the logs for the backup system with proof we can restore data in a timely manner.
        • Describe the credentials or certifications of anyone who works on our technology.
        • Is our technology support agreement all-inclusive? If not, what specifically will be billed extra? If the monthly cost is artificially low, look closely at the exclusions.
        • Will a live person answer the phone? And more importantly, will I have to repeat the issue to every person who works on it?
        • Do you partner with us to create a strategy to improve the technology? If so, ask for examples. If not, they view their service as a commodity purchase that doesn’t offer value beyond the basic agreement to keep things operational.
        • Do projects have a detailed fixed-price quote with a scope of work or are they just estimated? With estimated projects you may face “sticker shock” as the final cost balloons due to a scope that was created “on the fly”. Poorly written proposals can obscure what is included and what is billed separately or not at all.
        • What is the cost for afterhours support? Technology breaks at night, on weekends and holidays. If there are additional charges for afterhours work they can add significantly to the cost of services.
        • Do they provide value when meeting with our management team? Reports that are dense with data that hasn’t been distilled into actionable information don’t help you make informed decisions. Without analysis it is difficult to tell if the technology is aligned with business goals to drive improvements.
        • Is full application support included in the price? Solving problems with applications is labor-intensive and requires specific expertise. If this service is billed separately it will add cost and, when absent, the staff will lose valuable time trying to solve software issues.
        • Is coordinating with related vendors such as ISP, phone, and wireless covered? Your technical support should have the expertise to deal with your other vendors to make sure things work.

        Engaging your internal IT staff or outside provider in a conversation at this level will verify if you have technology support that contributes toward business success.

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        Data security: real risks, real results

        As a small-business owner or manager, you may think your company is too small to be concerned about data breaches and data risk management. If so, you aren’t alone. Sixty-eight percent of business owners surveyed in 2017 by the HR firm Paychex reported that they are not concerned about cyber threats. And to the extent they are concerned, they assume others will feel the pain.

        In a recent Harvard Business Review, Alex Blau reported that “many C-level executives believe that their own investments in cybersecurity are sufficient but that few of their peers are investing enough (a belief that, given how widespread it is, can’t possibly be true).”

        In fact, data breaches are a serious and increasing threat for small organizations and their leaders. In a recent Ponemon Institute survey of businesses with fewer than 250 employees, 54 percent of respondents reported a data breach in 2016 (this, of course, excludes those not detected). Traveler’s Insurance reported in 2015 that 62 percent of data breach victims are organizations with fewer than 500 employees.

        So why don’t we pay as much attention as we need to? One reason: It’s hard to estimate the cost of data breaches and the ROI of related investments. Breach costs include cleanup, forensics, lost efficiency, exposure to legal claims, and reputation damage — all of which vary widely from industry to industry and company to company. Still, as difficult as it is to quantify the risks, they are real, and as often is the case in small organizations, we need to rely on estimates and judgment to prioritize efforts.

        A good technology risk management plan can reduce the likelihood of a breach, provide the tools to identify security problems when they happen, and minimize the damage caused.

        The good news: The same measures that reduce data breach risks also help avoid costly disruptions by improving the overall reliability of information technology, and allow quick recovery from mistakes and failures. Here are three straightforward steps to develop a risk management plan:


        Evaluate the sensitivity of the various data that you create, store, and modify. Prepare for continued operation during failures and disasters, consider cyber-insurance, and develop written security and incident-response plans.


        Over time make changes that manage risk and provide the best “bang-for-the-buck” protection of sensitive information. This includes firewalls, backup systems, patch management, strong authentication, password management, encryption, and replacement of systems that are out of manufacturer support.


        Cybersecurity is a process, not an event: Assign responsibility to internal or external resources to review logs and provide employees with continuous security awareness and social media training. Proactively maintain and replace systems. Regularly test, review, and improve your security plans to include new vulnerabilities.

        Even the smallest of businesses can do this. Require that someone inside or outside the organization is continually overseeing cyber security. Develop a risk summary, commit to small steps each year, and continuously monitor improvement. It will all be worth it when your business escapes unscathed from the latest cyber attack.

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        Reducing your Frustration with Technology

        There is no doubt that business executives dealing with Information Technology have more than a few frustrations. That’s why we’ve identified five of the more frustrating aspects of Technology Management along with some suggestions for dealing with them.

        ​Successful use of technology will generate great benefits for a business.

        Frustration 1: IT is complicated.

        ​This is a big field of study with many specialties and complex language. There is hardware for networking, point of sale and workers (PC/laptop/tablet/smartphone). There is software for order management, customer management, financial management, marketing, manufacturing and the list goes on.

        ​Each of these items needs to work together flawlessly to ensure smooth business operations. The best way to do this is with software packages that connect to each other either through integrations that are native to the software or by being bundled together into a suite or line-of-business package. These software packages should be well integrated so they eliminate entering data from one system into another. Using a Cloud-based platform is one way to address the issue. These systems perform all of their operations on equipment located in the Cloud using an internet connection for access. This approach can reduce cost, improve system interoperability and increase user access.

        Frustration 2: IT takes time to learn.

        ​Learning anything new takes time. To quote a line from the Manhattan Transfer “First you crawl then you walk, scat then you talk.” The learning curve for all the technology your business uses could take years!

        ​The best way to manage this is to have qualified IT staff (either in-house or outsourced). Finding and keeping IT staff can be expensive because the best practitioners have multiple opportunities and it is a very competitive marketplace. Additionally, there is no guarantee that the person you hire can perform all the parts of the job well. One way of addressing this is by hiring an outsourced IT firm for support and advice. They constantly train and develop their staff and are knowledgeable about the latest technology and how it can improve your business.

        Frustration 3: IT practitioners speak a “funny” kind of English if it is English at all.

        ​After all, what is a “subnet” and what do “octets” have to do with them? Why should I care if about the API and that we need to add another one? If the data cache is full just empty it, right? Technicians have their own language to describe their universe and understanding them can be difficult.

        ​Many technicians have not developed the skills to translate technology concepts into business language. Project management skills are often lacking so many businesses now have a new position called “business relationship management” to help fill the gap. A business relationship manager is conversant in technology and its language and equally conversant in the language of business, finance and operations. This role is unique because it requires a foot in both worlds. Some companies hired a CIO (Chief Information Officer) to perform this service but smaller business would typically use an outsourced technology management advisor for this role.

        ​Frustration 4: Security gets in the way of access.

        ​Security is essential because it is critical to keeping your intellectual property, financial information and employee private data safe. To keep sensitive data safe, you must make it difficult to access. One approach is restricting user access by accounts, device, location and perhaps even the time of day. You may have to issue different user IDs and passwords for various systems that have different naming conventions and password security requirements. Single Sign On across multiple applications and platforms may solve the problems with multiple passwords. Another option gaining traction is multifactor authentication.

        ​Unfortunately security can sap valuable time and resources. What frustrates executives is the fact that there can be no rock-solid assurance the business is totally secure.

        ​Frustration 5: IT can be expensive.

        Most organizations view the cost of IT as all of the equipment acquisition, licenses, leases and salaries. Costs such as operating power, cooling, the square footage used and other below-the line costs (link to Iceberg) are often not factored in. The costs that come from outages, application issues and misconfiguration errors are often overlooked too. These costs can be identified and managed with someone who understands the link between technology and business success.

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        Learn to dance in the rain

        In leadership, unexpected curveballs can strike out of the blue at any time. So what do you do when bad things happen? Neuroscience has some remarkable useful tips. This is the sister blog to the very popular ‘Leaders, use your brain for a change.’

        DUCK! Here comes another of life’s curveballs

        In leadership, unexpected curveballs can strike out of the blue at any time. Often, we have no control as to what, where, when or why these happen.

        But here’s the rub - you are in control of how you choose to deal with them.

        I don’t know about you but, when bad things come along, I just want them to go away. That reminded me of this famous quote:

        But, what does it mean to dance in the rain?

        To dance in the rain is a metaphor. It means: “that a person has learned not to allow circumstances deter them reaching their full potential. They don’t wait for bad things in their life to go away. Instead, they have a positive attitude and take challenges head on and enjoy the journey.” (Christine Smith, Family and Consumer Education at Wayne County, North Carolina 2013).

        I believe there are some useful lessons here, to apply to leadership.

        Hmm - fate, Or destiny? Choices, choices!

        I have observed that often people seem to spend their lives reacting to life’s circumstances. Driven by fear or out of habit, they seem conditioned on going along a path set by fate (events outside their control).

        But every once in a while a person just like you comes along and knocks down all the obstacles that fate puts in their way.

        These are the people that realise free will is a gift. But, here’s the thing - you won’t know how to use it until you unwrap it.

        Therefore, one day you won’t have to follow fate because you put the effort in and tested yourself. You deserved the right to reach for your destiny instead. It isn’t an easy road, but one less travelled!

        But, when something rains on your parade, dealing with it still takes courage, character, attitude and conviction. These are essential leadership qualities. What’s more, neuroscience says you can train your brain to develop these. We will explore this next.

        Uh oh! - we found this monkey in your brain

        Sometimes in our lives, when it rains, it pours. That can trigger one or more limiting beliefs. These are basic survival neuro-pathways that your brain can build. When a limiting belief is in play, it fires off all sorts of negative mind chatter that fills up your head with bad thoughts. For instance:

        Typical, why does this always happen to me?

        Why am I never worthy (or good, pretty, clever) enough?

        I always get things wrong; I’m a failure, why do I never learn?

        Professor Loretta Breuning, Ph.D. neuroscience expert, author and founder of the Inner Mammal Institute picks up this theme. She says, ‘when your brain senses threat it releases a spike of cortisol - the stress hormone. Cortisol is nature’s emergency alert system. That spurt arouses your survival and protection reactions to avoid a threat. Cortisol creates a bad feeling and that also sparks your limiting beliefs to get your attention.’

        It is the wiring of the downstairs part of your brain that warns you of external signals of danger or anything like what has hurt you before. Loretta goes on to say, ‘if you always treat that cortisol blast as if it’s a real threat, you end up with more being triggered’ – and your negative mind chatter hijacks your brain.

        So, a practical way to deal with difficult circumstances is to recognise a bad feeling as it happens. That feeling is an old neural pathway that has set off the flow of cortisol. Loretta believes the trick is that when you sense it, give your body time to dispel the cortisol release. Back to my metaphor, to dance in the rain! It is useful to find a distraction to interrupt any limiting beliefs and exit those old patterns.

        You get to decide and choose in every moment. (Loretta Breuning)

        Train your brain for a change - happy days

        Leaders know that they are at their best when they engage their upstairs (thinking) brain. Not only is your upstairs brain infinitely capable, did you know that it also has access to your happy chemicals such as dopamine, oxytocin, serotonin and endorphin?

        Loretta says that your upstairs brain looks for facts that make you feel good. When you engage your happy chemicals, they give you a boost. Moreover, they override the feel bad factor of cortisol. Every rain cloud has a silver lining!

        Loretta recommends that you can:

        Take a step toward a goal, whether a huge goal or tiny goal. This releases dopamine, the reward chemical because your brain anticipates reward instead of anticipating pain.

        Stimulate oxytocin – the hug chemical too, with a little faith, take a small risk or a step toward trust (a little bit of real trust is much better than lots of fake trust).

        Prompt serotonin by comparing yourself favourably with others instead of wondering what they might say and think about you.

        Trigger endorphin with a belly laugh - a real laugh. So, make time for humour and things you find funny. Endorphin is released to counter pain too. So, it gives us a feeling of joy when we work hard to overcome an obstacle.

        See all these in action and check out this inspired video clip of a child’s simple, but profound words on a rainy day. At the same time, it teaches us not to sweat the small stuff:

        Oi, you! Yes, you. Look in the mirror - that’s who’s in your way

        Here’re are ten useful tips for leaders. They help you engage the upstairs part of your brain along with your happy chemicals. They also teach you not to take yourself so seriously at work and in life:

        Have a go at taking the occasional risk. Like the mother in the film, challenge your embarrassment. Nobody will care if you get a bit ‘red-faced’ once in a while

        Set yourself a goal to take a few chances. For example, take time out to build your team, or present your ideas and passions to wider audiences

        Drop the pretense that you are The Big Cheese. Eat a bit of humble pie for a change and start to accept other peoples’ ideas too. You might surprise yourself

        To make a mistake is okay. But your fixed mindset will tell you that you aren’t capable if you fail. So tell yourself that to learn from failure leads to better success

        It’s okay to lose once in a while - things don’t always work out. The trick is not to make a habit of it

        Give yourself a slap on the back whenever you stop yourself being harsh and critical. Learn to feel good about others and yourself instead

        The ultimate source of happiness is a positive mindset. So, see the funny side of your oversights and flaws

        Be generous, kind and above all forgive others (how are you doing with that one?). Have gratitude too

        Nothing is permanent

        Smile, if you want a smile back.

        So, work on these tips, get out of your own way and every now and again dance in the rain. Let go of the little things and don’t let problems rain on your parade!

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        Human Resource Department Return on Investment Model

        ​A few years ago I was asked to give a presentation to the local chapter of the Society of Human Resources Management. They were interested in learning about finance and how to apply it to human resources. Initially I gave them a primer on accounting/finance 101, linking it to personnel management. As the discussion moved on, a number of participants lamented about their Human Resources department having a difficult time expressing the financial value they add to their company.

        As our discussion progressed they agreed the three key value contributors nearly all HRDs have in common are:

        1. Recruiting: This includes understanding the talent required by the company, sourcing and onboarding that talent.

        2. Skill Development and Deployment: This includes developing the company’s talent and deploying its talent in the most effective way possible.

        3. Cultural Development: Because they are charged with bringing on the right talent and developing that talent, human resources nearly always takes on the role of corporate culture steward.

        This narrowed down the main business contributions HRD makes. Now the hard part. How could we devise a simple means to estimate the value creation for the business in these three areas?

        Our discussion turned to developing an ROI model. We decided base the ROI on the net benefits (revenue or cost savings net of expenses) from these three areas less the cost of operating an HRD divided by the cost of operating the HRD or

        (Net Benefit from Value Contributors less the Operating Cost of the HRD) / the Operating Cost of the HRD

        Building the financial model for each of three key value contributors.

        The model we agreed on is based on one year of activity. This timeline creates some limitations but in general has many positive aspects.

        The first section requires some standard data that will be used in other calculations; Total Company Compensation paid during the past year, Number of Current Employees and the Average Years of Employee Service. (note: italicized items reflect how this variable is described on the HRD ROI tool itself)

        The next sections describes each key value contributor identified above.

        1. Recruiting: We hire people with the expectation they will be more valuable (increase revenue or decrease cost) than we pay them in compensation. It’s incumbent upon the hiring manager and HRD to understand this dynamic. (Think about how many times we hire for a vacant job because the job is vacant, not because we know what the job is worth. Hire for required skills, not open jobs).

        When recruiting for a position the discipline to estimate the value (revenue or cost savings) the skills for that position contribute to the company is an important component of the process. It’s certainly harder to do for some roles than others, but it must be done for all hires to evaluate the ROI of HRD.

        New Hires Revenue or Cost Savings as % of Total Company Compensation: In the model we use this field to capture the gross benefit from our Recruiting efforts. We have you calculate the figure based on Total Company Compensation. For example, if you hired 3 employees last year and their expected benefit was $500,000 and the Total Company Compensation was $ 5 million, you would use 10% ($.5m/$5m) in the input field

        New Hires Comp as % of Savings: This is a direct cost for the new hires.

        Recruiting Costs as % of Comp: If you incur outside recruiting costs when hiring new employees enter the % of News Hires Comp… to estimate the outside recruiting costs.

        2. Skill Development: As with recruiting, skill development is expected to add revenue or improve the cost structure in an organization. This value contributor challenges you to determine the financial benefits from skill development and the cost for that training.

        Skill Development: In this section estimate the value of enhancing current skills or developing new skills within the company. Include this figure as an annual lump sum in the input field.

        Training Costs as a % of Skill Development: This figure represents the cost of enhancing or gaining new skills within your current employees. We ask you to calculate it as a % of Skill Development revenue to help you focus on this relationship.

        Note: the value of enhanced or new skills can accrue over many years so it is not uncommon for the Training Costs as a % of Skill Development to exceed the revenue (benefit) generated from a single year’s Skill Development. Be aware of this when reviewing the overall ROI for the HRD.

        3. Cultural Development: Maintaining or improving the culture of an organization is a long-term investment. We believe its impeded by high employee turnover, so our approach is to measure cultural development based on average years of employee service. The higher the average years of service, the greater the value contribution of culture to the organization. In general, the model assumes good recruiting and skill development will retain employees and a longer serving average workforce will contribute more value to a company.

        Cultural Development: In somewhat arbitrary fashion we begin adding the value of culture to the model when the years of average service exceed five years. For each year of service over 5, we add 1% of the Total Company Salary and Benefits as the Benefit under Cultural Development.

        Cultural Development Cost: In line with the 5-year rule noted above, when the average employee service is less than 5 years we “charge” a Cultural Development Cost to HRD department in the same 1% increments used for the Benefits section.

        Annual Cost of the HRD

        The final component of calculating the ROI of the HRD is the cost to operate a Human Resource Department. To assist you in the process we have sorted the costs into 4 buckets:

        Compensation: This includes the salary and benefits of HRD employees. This cost is input as a % of Total Company Salary and Benefits to gain insight on how HRD fits into the total organization.

        Occupancy, Communication and Other: These costs make up the other annual expenses incurred by the HRD. Note, be careful not to double up on costs that may have already been included in the Total Direct Costs.

        Net HRD Investment Benefit: This is the net of Total Gross Benefits less Total Direct Costs less the Cost of the HR Department

        ROI = Return on Investment: This is the return the company is getting on the Cost of the HR Department based on the figures you included in the worksheet. If this is your first time through this exercise there are probably a lot of questions (and concerns). That is really the whole point. This can be a catalyst to drive great discussions around The Pillars of Human Resources, Recruiting, Talent Development and Culture.

        Below is an image of an example of the Human Resource Return on Investment:

        Here is a link to Human Resource Return on Investment Tool for your use.

        Pitfalls to watch out for:

        This model penalizes startups and fast-growing companies whom by definition or design have an “inexperienced” employee base. That makes sense to us because we expect more resources must be committed to maintain or develop the desired culture in these situations.

        It may not be simple to project the benefits or costs of recruiting and skill development. Unfortunately, that doesn’t make it any less important. Use the discussions around these areas to develop understanding between management and HRD on what is required to begin a recruiting campaign or commit to specific skill development efforts.

        The benefits of skill development may be an annuity. In this model they are treated as a single year benefit. Be aware of this when using this tool - just like you should when you make the skill development investment decision.

        I hope this explanation helps you get started from the beginning this time around and makes this worksheet a great framework for your company to build discussions around the value of your HRD. Please comment freely and send along your improvement ideas.

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        Business Valuations Help Owners Grow and Protect Value

        The wealth of 70% of small business owners is tied up in their businesses, making their companies their primary retirement savings vehicles. But without knowing the value of the business, how can they know when they can stop working, or what kind of lifestyle to expect in retirement?

        A business valuation can be critically important in planning your future. There are different levels of valuation detail and you don’t need to spend a lot of money to gain productive insights.

        Thanks to innovative technology, a business valuation no longer needs to be the complicated, invasive process that it used to be. Today, leveraging the power of big data and sophisticated software, useful business valuations can be created in a few hours. Many business intermediaries (including Venture 7 Advisors) will complete them free of charge for clients.

        There are many ways that a business valuation supports building and protecting company value. Here are a few of them:

        Increase the value of your business. Finding out what your company is worth is the first step to making it worth more. A comprehensive valuation will tell you if your company is headed in the right direction or if there are specific steps you can take to enhance value.

        Timely Strategic Decisions. The value of a business depends, in part, on the current merger and acquisition market. Every owner should be prepared to align their exit plans with market realities. Periodic business valuations reveal opportunities for early or especially successful exits. They may also reveal the advantage of postponing an exit. Either way, a valuation enables strategic decision making.

        Capital infusion. Outside investors and lending institutions review business valuations as well as business plans, shareholders’ agreements, investment memoranda, and other information before investing or lending capital. Objective valuations improve your capital options and negotiating position.

        Tax reduction strategies. A valuation report can lead to tax benefits an owner might not otherwise claim, making more cash available for growth and increasing your options for exit structure and timing. A current valuation is required for S-Corporation elections, estate tax settlements, calculating capital gains tax liabilities, and for income or property tax disputes. (Note: an informal valuation estimate may reveal opportunities to reduce taxes, but a formal opinion of value, performed by a certified valuation professional, is recommended for the implementation of major tax strategies.)

        Employee incentive programs. The best incentive plans motivate employees and keep them on board based on formulas that link compensation (cash or stock-based) to growth in business value. An objective business valuation is essential to administering a fair plan.

        Dissolution of partnership or partial exit by an owner. When business partners agree to part ways, they have to find a fair and equitable split of interests. A business valuation allows the partners to make decisions based on facts, not opinions. Most partnership agreements call for updating company valuations annually, a requirement that many business owners neglect.

        Divorce. Business ownership is usually a marital asset, and is often a part of an owner, partner, or shareholder’s divorce settlement. Spouses may approach divorce settlement proceedings with independent business valuation reports, so historical valuations could provide important insights.

        Insurance planning. Nearly three-quarters of small businesses do not have adequate insurance coverage. When an owner doesn’t know the value of his/her business, it’s impossible to determine how much insurance is needed. Also, if an owner is injured or wrongfully distracted from business, a historical valuation could help recover losses.


        Too many business owners operate for years without really understanding how their day-to-day decisions impact the value of their company. An objective valuation helps owners to prioritize efforts that are most likely to increase and protect long-term business value. There was a time when securing a valuation required an expensive and invasive process, but those days are over. Modern technology makes securing a meaningful business valuation easier than ever.

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        Can your business grow too fast?

        Entrepreneurs are passionate about their products and services. Their strengths are often in those business disciplines closest to the customers and product: sales, marketing, engineering, and production. Financial management and accounting are often viewed as necessary evils. As a result, small business owners often postpone investments in strong financial management practices until the company reaches some mythical milestone in the future. And that can cost them dearly in the long run.

        A Smart Growth Strategy Without a Foundation

        This is the story of a manufacturer that was too busy growing and making profits to focus on financial planning. “As long as the company is growing and profitable”, their thinking went, “why waste money on sophisticated budgeting systems and financial planning?” Early in the company’s history, the owners could meet their limited capital needs through personal loans and deferred compensation. And it worked. The company grew steadily for many years, providing high-margin, semi-custom products to small customers.

        As revenue passed $3 million per year, the owners decided it was time to compete for larger orders. They developed a strategy to produce high volumes of a few standard products and market them to larger customers. They also secured their first major bank loan to finance product engineering and manufacturing capacity.

        The new business model was a stunning success. Average order size grew from $800 to almost $3,000 in only a year and revenue was accelerating, but there was a problem. The rudimentary annual budgeting process that served them well in the early years didn’t anticipate the working capital impact of selling higher volume orders to large customers. Their gross margins dropped, payments slowed and inventory climbed. The business was growing fast and profitable, but they were running out of cash!

        Sleepless Nights and Lost Money

        Their new working capital requirements were much greater than anticipated - more than the owners could cover through deferred compensation and personal loans. When they approached the bank for a substantial line of credit, they discovered that their liquidity problem had pushed them out of compliance with their original loan. The bank demanded financial reports and credible budgets that the owners struggled to provide. Production slowed, orders were lost, new customer relationships suffered, and the owners had many sleepless nights.

        The company survived a tumultuous year and eventually resumed its growth, but the setback cost them a year of lost revenue growth and profit. It also lowered their revenue trajectory, which impacted their valuation when a large competitor purchased them three years later. Without the business interruption caused by the cash flow crunch, the owners would have realized at least $ 2 million for the company more at the time of the sale.

        The Moral of the Story

        The decision to defer investment in more sophisticated financial planning and budgeting systems was a costly one. By “saving” money on financial management early on, they lost profits, lowered their valuation by more than $2 million at exit and endured a year of unnecessary stress. If the company weren’t so successful to begin with, an error like this could have easily bankrupted them.

        Growing a successful business requires a broad array of skills. Long-term success depends on assembling a team of employees and advisors with complimentary abilities. At Venture 7 Advisors, we’ve all successfully started, grown and sold companies, and we’ve helped our clients to develop integrated operational plans to avoid costly surprises like this. Don’t hope for success, plan for it with the help of people who have been there before.

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        High Performance Teams - fact or fantasy?

        Do high-performance teams really exist? It seems that very few people I talk to about this topic have ever worked with one. However, those lucky ones that claim to have speak about it with joy. So, are high-performance teams fact or fantasy? Read on to find out more.

        Let’s begin with a definition of high-performance teams. This term refers to teams, businesses, or groups that focus on their goals, achieve superior business results and outperform all other similar teams and expectations.

        What do the experts say?

        Well to kick off, a Global and Development Director (and a friend of mine) prefers to develop functional teams. She defines these in managerial terms such as ability and skills, clear roles, duties and reporting lines, deliver against a clear strategy and have good communication processes.

        In this way, she affirms that for 20% effort she gets an 80% return. Whereas to reach for high performance in her business may only be required for less than 20% of teams. So, she then turns to experts (like me for example) to fulfill high-performance team development programmes when needed.

        Leadership gurus and authors point us to learn softer skills to a achieve high performance. Patrick Lencioni, for example, holds that teams mature by working through their dysfunctions first.

        Richard Barrett, uses a values-driven approach. He argues that teams need to move away from basic fear, survival, and ego-driven needs towards growth values such as to find meaning, make a difference and have a purpose.

        Daniel Goleman, coined the phrase Emotional Intelligence as an effective way for teams to learn how to perform at their best.

        Bob Chapman, CEO, and author believes that leaders can create workplaces in which everybody connected with that enterprise thrives and that everybody matters.

        Carol Dweck, the author of Mindset says, ‘[high performance teams and] growth-minded leaders, start with a belief in human potential and development — both their own and other people’s. Instead of using the company as a vehicle for their greatness, they use it as an engine of growth—for themselves, the employees, and the company as a whole.’

        On a practical note, in the past, I have been lucky enough to have lead what I (and others) deemed to be a high-performance team. I still look back on that time with joy.

        These were the success factors that made us into a high-performance team:

        For us, our high-performance team just seemed to happen, and years later, we all have fond memories of that time. However, on reflection, there were some important factors that had an influence. For example:

      3. We had the right mix of people, attitudes, ability, and managerial functions.
      4. Also at the time, we worked for a thriving, stable and well-resourced FTSE 100 company in an economy that flourished.
      5. We also believed in each other and growing and developing through the experience of being involved in something important and of purpose.

      6. Furthermore, we had all benefited from first-class in-house soft skills programmes that matured us.

        Today, in my development work with leaders, managers, and teams I have noticed that to build a great team is more than functional business processes, KPI’s and metrics. While they are of course vital for business effectiveness, they are not the be-all-and-end-all for high performance. (Note that few of those are present in the above success factors). I believe that great teams transcend these things. Even if individual team members are highly skilled or talented, that does not mean they will make an effective team together. Those are different skills.

        So, how do you build high performance teams? What’s the secret?

        To make a real difference, you have to work together to create an excellent high-performance team.

        I argue that the success factors previously mentioned can be cloned and taught to any functional team.

        It’s not about some extrinsic magic formula that you apply from the outside in, however. Nor is it about a team full of the cleverest people. You cannot become a high-performance team that way. It does mean you must have the right purpose, people, skills, input, direction, management processes and environment. Moreover, however, it is about people growth from the inside out. That means personal development around soft skills and emotional intelligence. It also means shedding a fixed mindset and instead encouraging a growth mindset (see my latest book below). However, ability and experience need to exist too (that’s a given).

        The good news is it is possible to learn these types of intrinsic soft skills.

        Don’t be mistaken; this is not a namby-pamby or fluffy process, however. Not at all! To develop people and teams from the inside out requires a willingness to mature and grow as individuals and as a team. That takes courage, time and some effort to nurture these.

        To become a high-performance team needs dedication and willingness to take time out to develop. Moreover, to get there, you will need to:

      7. Commit to growth as a team.
      8. Develop a growth mindset as a team and shedding fixed mindset attitudes
      9. Being humble and vulnerable with one another - let go of ego
      10. Learn how to collaborate, cohere and boost your emotional intelligence
      11. Work towards big goals.

      12. The other benefit of high-performance teamwork means that you can then get on and run a successful business. Furthermore, you will not have to waste so much time on countless people issues.

        A suggested approach

        I have worked with teams at all levels for well over a decade now, and this model depicts how I help develop leaders and managers (or any functional team) to become a high-performance team:

        (Andrew Jenkins, my latest book, Developing High Performance Teams)

        First, it begins with the essential teamwork skills to learn how to build trust, harness conflict and to collaborate. When teams develop these skills, they start to contribute together to make an effective impact.

        Second, as already mentioned, you will need to grow as individuals and as a team too. Feedback skills to call out each other are powerful change agents. In this way team members let go of potentially limiting behaviours and become accountable to each other. A positive frame of reference, a growth mindset and purposeful language are also crucial for high performance.

        Third, agreed on team values, healthy habits, and behaviours create team spirit. A Team Charter, for instance, helps teams to commit to the fundamentals and reminds them how to collaborate effectively. Also, teams that plan together in creative ways to grow, provides purpose and direction to the business and is a critical leadership task. Besides, big goals keep teams motivated.

        Use the Team Trust Review Assessment to help launch a step function improvement in the way your group works together.

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        Leadership Recipe

        The leader’s main job is a little direction and lots of execution in the few essentials.

        Translation: The common literature tells us that the leader’s main job is direction (where should we be going?), but the common literature is wrong. This should be obvious. If mostly successful people pick a direction and go there, at least for a while, then there isn’t much direction-picking left to do during the year. Perhaps occasionally, but not frequently. Yet the instructions conjure up a vision of the prototypical leader looking a lot like Sacajawea pointing the way.

        SPEED BUMP: Pointing the way is necessary but not enough.

        The much higher-impact work is to deeply understand your business model. That means where is the money made now, where will it be made next year, and what will it take to capitalize on those insights. There are lots of activities in a business that accompany being in business, but the best leaders pick out the few bits of chocolate from the pudding.

        One of the biggest things you have going for you is your top two people. Most organizations have at least two; the fortunate few have more, but let’s look at the two.

        SPEED BUMP: How can you get the most out of your best people?

        It’s not about giving them big jobs to do, or more work. Instead, it’s two things:

        1. Place them on top of the highest-leverage activities in the company. Leverage means impact on sales and profit. It doesn’t matter what their technical skill is. What matters is their ability to figure out quickly what matters, who matters, and what’s needed for success—and go there.

        2. Once you’ve placed them, sweep away the trash around them.* The trash is not the people, it’s the policies, the rules, the “ways we’ve always done it”-anything that’s of questionable value and eats up the priceless time of your best folks. Their main asset is time. Whatever you can evaporate, dilute, transfer, or put on a boat to another country, do it. Then ask them what else is in their way and vaporize it unless it’s illegal or might really have value. When in doubt, remove it. It’ll be clear soon if it was an error, and it can be fixed fast, since someone already knows how to do it.

        SPEED BUMP: The best compliment you can give a leader is a vital and tough job.

        Competitive rowing (crew) in an “8” (numbers of crew) has a specific requirement for every position. Everyone knows that the cox is a skinny little person who could tame an LA freeway jam-up. “Engine room” is the tallest, strongest, meanest person on the crew, who has the combination of disdain for losing, ever, and pride in being the strongest on the crew. Believe it or not, people compete for that position, because it’s the highest-impact seat. Sort of like placing your best people.

        ACCELERANT: Who are your two best, and where will you put them?

        *Thanks to expert Heidi Pozzo

        A note on SPEED BUMPS: Use them to click quickly with an idea that can immediately be implemented in your life as a business leader. Think: “How can I use this today? or “Who can use this?”

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        Are You Ready For Robotic Process Automation?

        I’ve just come back from the Future of Finance Summit 2018 in London where one of the hot topics was robotics and RPA (Robotics Process Automation) and while this topic is not new it did help me clarify a few things. Essentially, it gave me a price point and some do’s and don’ts which I thought I would share with you so hopefully you become clearer about the concept as well.

        What is Robotics Process Automation?

        Let’s start with the basic question and demystify any odd perceptions of the concept. All it is, is an automated work flow where you use a piece of software to carry out a specific task. One vendor showed how they had 1,000s of standard robots that could be plugged straight into your ERP system and perform a specific task. If you have a process which they were yet to cover with one of their robots they would simply create it for you. The robot will execute the task for you without fail and around 99,95% uptime which is excellent for any given system uptime. You can run with fully automated tasks or you could build in manual checks should you wish so whereby you would confirm that a given part of the work flow had been performed before the robot would move on to the next one. Some of the tasks to be performed could be data pulls, sending e-mails, processing payments etc. but even some FP&A tasks and other more complex tasks could be automated.

        What are some of the do’s and dont’s?

        The robot can do repetitive tasks for you fast and efficient with no downtime and no breaks – I’ll show you the economics later. However, if you have a broken process it doesn’t make sense to plug a robot into it. You need first fix your processes and then plug your robot in. The good news is that you don’t have to redesign your full process landscape as you can plug robots into individual processes where than fully automating an end-to-end process. Ideally, of course, you would like to aim a full end-to-end automation but for many companies this is unattainable now in my opinion. Another thing to get right is to code the robot right from the beginning. Yes, it can do a lot of tasks for you fast and efficient but it could also be doing a lot of tasks wrongly fast and efficiently if you haven’t covered all the necessary steps in your process. In addition, you should have a clear plan with what to use the freed-up resources for. Do you let them go, retrain them or assign them to different tasks yet to be automated?

        Tell me what the robot costs then?

        To build a business case you need to know what to automate and the cost of said automation. The price point mentioned at the conference was 20¢ per task. If you then consider a worker who works 40 hours a week for 48 weeks a year (without any breaks which is unrealistic, of course, but arguments sake) then depending on the fully loaded FTE cost of said worker here are how many tasks the worker needs to perform per hour to compete with the robot.

        So, it’s just above 50 tasks per hour per 20,000$ annual fully loaded FTE cost. Now try for yourself with a simple task such as sending 50 e-mails to different people with slightly different content. How many can you do an hour? How many can you do a day? Now compare that with your own fully loaded cost and see where you stack up against the robot. Seems like a simple business case, doesn’t it?

        Where are you on the journey with Robotics Process Automation in your company or specifically in the finance function? Are there any learnings you can share from working with the robots? Finally, how far are you from being able to automate end-to-end processes such as OtC, PtP or AtR? I’d be very curious to learn about it!

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