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Mark Derr, B2B CFO Partner talks about The Danger Zone and the dangers of running a business.
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THE DANGER ZONE
Presentation toJackson White P.C.
Mark Derr, PartnerB2B CFO®
May 18, 2012
What Is B2B CFO® ?
Established: Founded in 1987
National : 200+ Partners in 44 states, 6,400+ years of experience
Focused: Privately-held companies with sales up to $75M
We are Specialists In:
Banking and Lending Relationships
Profit Improvement
Financial and Strategic Planning
Cash Flow Projections
Working Capital Improvement
Gross Profit Optimization
Expense Reduction
Timely & Accurate Financial Statements
Increased Sales
Exit Strategies
Some B2B CFO® Publications
Who Am I?
• 35 years in finance, operations, business development, strategic planning and information technology
• CFO, VP Finance and Administration• $250M+ businesses as well as small businesses
under $1M• BS and MBA (Drexel University, Philadelphia)• As a B2B CFO ® Partner, I help companies achieve
a higher level of success using our proven six stage process - The GamePlan™
What is it? How to Avoid it.
THE DANGER ZONE
Hidden Organization Chart
Source: The Danger Zone by Jerry L. Mills, ©2011, p. 18
Characteristics of Finders
• Creative, innovator, visionary, dreamer• Idea generator• Risk taker• Act quickly• Catalyst for change• Confident in their convictions• Relationship creator/builder, especially with
customers
Characteristics of Minders
• Deep expertise in one area: Finance, HR, IT, Marketing, etc.
• Like structure and process• More risk averse than Finders• Like to follow Finders who are good leaders• Relationships are primarily with suppliers
Characteristics of Grinders
• Focused on the task at hand• Do not like to delegate• Like doing one thing at a time• Distrust Finders and Minders• Will do as instructed, but rarely generate new
ideas
Who’s Who
• Finders: Entrepreneurs, Business Owners• Minders: CFO, VP of HR, CIO, VP of
Marketing• Grinders: Workers, Salespeople, Recruiters
Some individuals may have a mix of characteristics
Timeframes
• Finders: 2 years from now• Minders: Next month, last month• Grinders: Today
Stages of Business Growth
Source: The Danger Zone by Jerry L. Mills, ©2011, p. 64
What is “Infrastructure”
• Employees• Vendors• Subcontractors• IT systems• Operating procedures• Machinery• Buildings/office space
• Contracts• Policies• Websites• Advertising• Bankers• Accountants• Attorneys• Consultants
B2B CFO® Truism
Most Finders do not spend a lot of time methodically planning their business infrastructure
Source: The Danger Zone by Jerry L. Mills, ©2011, p. 66
Infrastructure Creation Stage
Source: The Danger Zone by Jerry L. Mills, ©2011, p. 64
The Finder’s Activities During Early Days of the Business
• Obtaining financing for working capital• Refining products and services• Ensuring quality delivery• Spending time with current customers• Finding new customers• Giving direction on the fly to the Minders and
Grinders• Working long hours, but enjoying it
Infrastructure Peak Stage
Source: The Danger Zone by Jerry L. Mills, ©2011, p. 69
Business is Booming
• The Honeymoon Period continues• Plenty of cash• Can give a false sense of security about the
company’s future
Characteristics of the First Two Stages
High customer service
Short cash collection cycles
Few customer complaints
Low overhead
Personal sacrifice by the Founder
During Infrastructure Creation and Infrastructure Peak
Company runs “lean and mean”
The Finder’s Perspective Shifts
“Maybe I should raise employee
pay”
“We need more people so we can
take time off”
“We need a better building”
“I need a new car/house/vacation…”
“We should buy more equipment or
inventory”
The result of running lean is......
1. Burn-out – of owner and employees – who have been doing the 100-yard dash for 100 miles
2. ‘Extra’ cash leads to thoughts like:
What Happens to the Finder?
• Realizes that the current infrastructure is too thin to support a larger company
• Focuses on infrastructure investment needed, BUT…– Less thought is given to the needs of customers– More thought is given to the needs of the company– More resources begin to be spent on things that do not
lead to increased sales and better customer service– Finder spends less time Finding
The Finder Becomes a Minder and Grinder
Source: The Danger Zone by Jerry L. Mills, ©2011, p. 19
Infrastructure Outgrowth Phase
Source: The Danger Zone by Jerry L. Mills, ©2011, p. 74
Consequences of Inadequate Infrastructure
• Customers – complaints increase, customers dispute charges, time spent on customer problems rather than customers sales
• Productivity – quality decreases, inaccurate information, more meetings, equipment downtime
• Employees – higher turnover, increased theft of time, money and inventory
• Cash – receivables increases, increased dead inventory, owner lends money to cover overhead
• Vendors – delay deliveries, relationships decline, time is spent finding new vendors
• Overhead – legal fees increase, government fines increase
• Lenders – complaints about delays, accuracy of accounting information, borrowing costs increase
Remember…
Most Finders do not spend a lot of time methodically planning their business infrastructure
Source: The Danger Zone by Jerry L. Mills, ©2011, p. 66
Who’s Doing the Finding?
Someone is spending time with your current and future customers.
If not you, it will be your competition.
Source: The Danger Zone by Jerry L. Mills, ©2011, p. 125
Result? The Danger Zone
The Danger Zone is created when the cash needs of your business far exceed the cash available to meet those needs
Finder’s Activities During Infrastructure Outgrowth and Danger Zone Stages
• Endless meetings with staff, bankers and lenders, attorneys, accountants...
• Analyzing cash flow• Deciding which bills can be paid• Hiring or firing staff• Writing checks
But …
• The Finder hates these activities
• Minding is typically not the Finder’s skill set – no good at it
• Finder needs complementary skills that can handle the Minding and Grinding…
• …So the Finder can get back to Finding!
Consequences of The Danger Zone for the Finder
• Loss of current and future customers• Damaged business relationships• Damaged relationships with family members
and friends• Less enthusiasm for the company• Death of the Finder’s dreams• Death of the company
The Danger Zone
How to Avoid it
The Finder Must Return to Finding!
Stop trying to solve all the problems personally
Rely on others for Minding
Refocus on finding new customers
Refocus on product and market factors
Source: The Danger Zone by Jerry L. Mills, ©2011, p. 19
When The Business is Small
• The all-purpose Office Manager, or your cousin, may be good enough…
• …But the company’s needs will likely outstrip their abilities as the business grows
Target Skills Mix Across the Management Team
• Understanding the market and thinking strategically and long-term
• Creating great products and services• Finding, retaining, and growing customers• Managing financial performance• Finding, motivating, and retaining talented
staff• Managing risk
Look for Minders with these Characteristics
• Good at tactical and operational planning (based on strategic goals set by the Finder)
• Have the experience you’ll need 2-3 years from now, not just today– Consider adding part-time supervisory/mentoring from experts to
help them
• Have the discipline to write down processes and procedures• Hire people you’ll feel comfortable giving authority, not
just responsibility– You’ll also need to give them sufficient money to build the
infrastructure needed for growth
Educate and Monitor Your Minders
• Make sure they understand “the business” (i.e., product/service delivery)
• Articulate your goals and dreams to them• Set clear priorities, and communicate when
they change• Make sure your Minders do what you’ve asked
them– If not, fire them and replace with better people
Efficient Business Monitoring for Finders
• Determine Key Performance Indicators (KPIs)– Examples: sales, inventory changes, employee turnover,
staff utilization, cash balances• Have daily, weekly, monthly dashboards
– Color-coded for easy scanning• Attend periodic business reviews, run by the
Minders and key operational managers• Get clean and timely financial statements• #1 Rule for all growing businesses: CASH IS
KING
Prescription for Escaping The Danger Zone
• Let the Finders find the sales
• Let the Minders find the cash
Questions? Comments?
Mark Derr, Partner, B2B CFO®
e-mail: [email protected]: 480.570.9329website: www.markderrcfo.com