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October 23, 2016 by fiscaldoctor

Opportunity Cost (824 words)

Fourth of 5 of the Most Common Mistakes to Avoid When Growing Your Business

Remember the last time you heard the saying that “you need to get the right people in the right seat on the bus.” Combine that with another phrase “follow the money.” There are times when your business will be better off if you place the right people, money and resources in different places. To get the money to make those changes, something that currently exists often needs to change, be sold, or even liquidated. People may need additional training, be moved to another area, or humanely helped to join another organization.

For leaders, it’s extremely difficult to let go of anything in your business in which you have invested time, energy and money. This emotional response is one of the reasons companies do not want to re-evaluate their assets, much less sell a nostalgic part of the business. Call this the Uncle Joe’s warehouse situation. Things have changed dramatically. That warehouse (or product or customer) stopped making economic sense long ago. When times were good, substantial, sometimes growing losses, were ignored. Consider the process suggested below to look for your version of an Uncle Joe’s warehouse.

Although business is not meant to be emotional, often it can be, especially when it’s your own company that you started from scratch. Determining which assets the company needs to invest in, re-evaluating their worth and possibly selling them when their value has diminished can be a challenging endeavor. That is why you have to think logically, and make decisions about your assets based on the company’s overall well-being.

Once you open your planning to the fact that opportunity cost upsides can make it worthwhile to reallocate resources, even if doing so creates a short term accounting loss, you can create some extremely rewarding options. Start with asking yourself to answer true or false on this statement. My business has an asset it would be better off selling even at a loss to free up cash and pursue a more promising opportunity.

Once you expand this question to suggest periodically reviewing assets, procedures and even your people, it is almost impossible not to see this issue as a point to regularly revisit.

Getting started very inexpensively. When was the last time you heard the CEO, CFO, or financial department mention that the company has to keep losing money on a branch, service, or product because it can’t afford the financial loss it would have to record now to dispose the asset? Admittedly, sometimes this is due either to good intentions or a never say die attitude. I’ve witnessed this situation recurrently dealing with corporations of all sizes. Sometimes people either did not fully understand the real value of its assets, or they looked at the asset through rose-colored eyes.

Consider a process to help you logically review your organizations assets and related liabilities. Imagine what you will see when you look at return on equity related to assets within departments. Many companies have one or more assets that can be associated to a band-aid solution, or assets that should be sold (even at a loss) and re-invested in another opportunity. This can be particularly true when the executive bonuses are mainly a function of the absolute dollar level of profitability, with limited influence from return on equity or similar measurements. This unhealthy situation approaches business flu when allocations or centralized debt costs are excluded from recurring updates.

A different version of this premise is also heard all too often. You (another person or company) would be better off selling: stocks, assets or the business, and putting the money in treasury bills. I saw a situation once where the subsidiaries of a holding company earned 2 % on equity when the prime rate was 4 %. It’s agonizing when your company’s equity can’t even match the current rate of inflation.

On a positive note, businesses that sell stagnating assets, and invest in new creative lucrative assets can build opportunities that not only keep their business afloat but grow constantly, like a never-ending plush rainforest. Why not implement thorough asset performance measures, and embrace the change that may lead to your company moving forward.

You will be amazed at what your intuition will lead you to consider, if you play full out on this question. If you realized a substantial one-time opportunity this quarter, what existing financial balance, staff member, or problem would you change or solve?

Next step, regardless of this quarter’s results, why are you kicking the can down the road on any of these issues, whose resolution you have now admitted to yourself is past due and probably festering?

How long will it take for one of these actions to help your business make more bottom line profits by better managing limited resources available to create sustainable growth and profitability with more accurate financial information?

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Known as the Fiscal Doctor, Gary W. Patterson has helped 2 INC 500 companies and over 200 companies in manufacturing, technology, service, construction and distribution in companies from start-ups to Inc. 500 to Fortune 500. Gary Patterson helps you grow top line revenues, keep more of the bottom line and make life more fun. Author of Find Your Blind Spot – Before It Finds You, and Million Dollar Blind Spots. Contact Gary when you need a speaker or consultant on strategic profitable growth while removing risk at www.FiscalDoctor.com or 678-319-4739.

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opportunity cost (824 words)

October 21, 2016 by fiscaldoctor

Overly Optimistic Financial Statements (802 words)

Third of 5 of the Most Common Mistakes to Avoid When Growing Your Business

One of the hardest decisions every leader has to make is allocating and managing scarce limited resources normally through some version of a capital expenditures process (CAPEX). Which is why this article will focus on how overly optimistic financial statements can impact your crucial prioritization decisions.

As the first step in that thought process, where do you need to re-evaluate the accuracy and usefulness of current financial statement balance sheets, income statements and existing processes? What really complicates your evaluation and increases the likelihood of a major mistake in growing your business is that generally accepted accounting principles (GAAP), tax regulations and a plethora of official sounding principles often say the financial statements are fairly stated. Translate that as close enough, reasonable or at least acceptable. Yet, in a heartbeat some of you would sell one or more assets for a fraction of balance sheet value, if hitting this month’s numbers would allow.

Once you open your planning to the fact that numbers acceptable in the accounting world may not fully reflect near term reality in the economic world in terms of making optimal business decisions, you will see some interesting options. Start with asking yourself to answer true or false on this statement. My business occasionally capitalizes expenses that create assets which now may have questionable recorded value.

Whether helping clients or speaking to groups in an off-the-record setting, the vast majority of leaders acknowledge this may be happening. It happens to us all, often more than once. Companies of all sizes have legitimately capitalized items in the past that should be consistently re-evaluated and questioned. Some may ask, does it really matter if the CPA firm, banker and the IRS are happy enough?

For you to go deeper on this question, consider the impact when using marginally useful financial information you invest scarce resources on proposals which go the wrong direction for the company.

On the upside, if you invest capital in cutting edge resources synonymous with practical innovation your organization can grow and profit in a monumental way.
On the downside, no company has the luxury of unlimited best people, money and time. With outdated or inaccurate information, it is easier to squander those limited resources.

The High Cost of Making Mistakes with Outdated or Inaccurate Financial Information.

People always like a classical or current story to illustrate sometimes esoteric business or accounting concepts.

Even large companies with access to award-winning systems still make monumental mistakes when they misinterpret the market, or ignore sanity checks. A classic example is where Cisco, a worldwide leader in Information Technology misread the market. Cisco had world class information systems and processes for financial reporting and operational controls, when it wrote off $3 billion of inventory in 2001. Cisco admitted they misread the market downturn. In a series of widely discussed articles the focal point was “how could a write-off of such magnitude happen to a company with such incredibly sophisticated systems?”

At least, Cisco was honest about making an embarrassing mistake. It’s incredible what the enormous cost can be for organizations that don’t evaluate their decisions thoroughly, and temper that with common sense. It is always hard to keep your head when others are losing theirs.

Closer to home, think of the last time you saw, heard or were part of a situation where a new CEO came in with the luxury to clear the decks and write off everything except the kitchen sink. (I helped in several such reviews.) When I tell people that going forward their incentive plan will be based on a return on equity invested in their unit, and there is a limited window to clean up a “few things, what do you think happens?

If you have reserves, allowances or estimates for loss, why not take a more critical look at them now and at least once a year going forward to decrease risk?

When bad things happen to good companies, because they didn’t correct or re-evaluate previous decisions, the end result can tarnish a company’s image instantly.
Constantly re-evaluating decisions and capital expenditures from all angles avoids scapegoats and maintains a flourishing business.

Building on these discussions, where should your business look to avoid letting small economic inaccuracies become so large that a new CEO will come in and sweep out you or some colleagues as part of their clear the decks process? If politically necessary, why not get an outsider to wear the black hat?

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Overly Optimistic Financial Statements (802 words)

October 19, 2016 by fiscaldoctor

Change: Opportunity or Nightmare (253 words)

Being aware how your product affects your top clients is crucial in today’s competitive business world.

Start with asking yourself to answer True or False on this statement. Your company knows how changes to one of your top 10 customers may affect your bottom line.

There will always be a time when one of your top ten customers will drop off your A list.

Also, if client management changes, make sure you are the first to know. You don’t want the new management to change to someone else’s services or products.

Time to return to the leaders whose business answers “no” regarding the ability to monitor change at your best ten customers. The moral of the story is that your top ten customers will change over time, so it’s up to management to stay updated. Moreover, ensure you always are serving the current ten best customers and recognize changes that need to be taken on these customers that have fallen off the A list.

Resolve to puts time on your side to be better prepared for when, not if, you lose all or a large part of one of today’s 10 best customers.
What can you start doing now to grow or acquire a comparable valuable to your bottom line replacement customer?
This could be as simple as looking to see which customers would provide you more money if you created a product extension or service to offer even more value to them.

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change 253 words

October 18, 2016 by fiscaldoctor

Middle Market Leaders: Disruptors on the Horizon?

East Greenwich, RI /Atlanta, GA – The Society for the Advancement of Consulting® (SAC) invited one of its distinguished global members, Gary W. Patterson; to comment on

“What disruptors are our clients experiencing and/or do we see on the horizon? What advice do we have for them?”

Keep Your head, while others lose theirs –

“Turbulence creates opportunities for strategic growth when you can be the disruptor and not the disrupted” notes Gary Patterson, the FiscalDoctor® author of Million Dollar Blind Spots: 20/20 Vision for Financial Growth.

“To reach your goals of comprehensive preparedness, best practices and regulatory compliance, you must have accurate measurements that provide quantitative assessments. Those measurements can be used to answer a variety of critical questions:

Where does your organization really stand today?
What does your business need to improve?
How much progress are you making in various key strategic initiatives?Call to discuss your specify situation to have a great year at 678-319-4739. Find your million-dollar blind spot: before it finds you.
“Which of these questions will implementation help move you toward a super disruptor capability?”

October 17, 2016 by fiscaldoctor

Change: Opportunity or Nightmare (820 words)

Second of 5 of the Most Common Mistakes to Avoid When Growing Your Business

After you understand and increase your vigilance about customer and product profitability, as featured in the theme of How Well You Accurately Know your Best ten customers, it’s time to consider how your business appreciates the impact of relentless change.

Simply put, let’s look at the aspect of avoiding mistakes when changes occur to your customers, specifically your top 10. Being aware how your product affects your top clients along with the changing dynamic of their company is pivotal to keep updated in today’s competitive business world. If your top clients are losing profits or innovating the state of their product—you need to know. Your services and products could substantially decrease if you are not catering to their changing business needs or unaware they are steadily losing profits. Or out-of-the blue, they could be acquired by someone who changes out your value based relationship despite your best efforts.

Once you open your planning to the fact that your business is going to lose some of its best customers, you can create contingency planning options. Start with asking yourself to answer True or False on this statement. Your company knows how changes to one of your top 10 customers may affect your bottom line.

The results on this question are harder to evaluate by size. Although most middle market company (normally 50 million dollars and up) are comfortable with their basic customer and product profitability, most are NOT comfortable about understanding how changes to their best customers will impact them. Understandably, smaller companies often struggling with an accurate grasp on customer and product profitability are not much happier with their capabilities in this area.

Whatever the size of your business or client forecasting monitoring capability, let’s go deeper on the topic of change in your customers’ business and planning for its impact on you.

How Changes to Your Top 10 Clients Can Affect Your Business.

How will your profitability on your top customer accounts be impacted when those customers’ profitability decreases? There will always be a time when one of your top ten customers will drop off your A list. Consider this over-the-top example. Buggy whip manufacturers were profitable customers for some businesses until automobiles became the standard. Rather than laugh at that comparison, review how the product or service your company provides might become the buggy whip of tomorrow, for one or more of your current best customers.

Another more relatable example is Kodak. Kodak did not change their business model, innovate and failed to create the digital camera. Trying to maintain steady top clients that are innovative may be something to consider. Also, if there is a huge change in management with your top 10 customers, make sure you are the first to know. Then you can be ready for possible changes and find ways to update relationships with new management. Welcome new management of your top clients aboard with a positive attitude. You don’t know if they may suddenly want to go in a new direction with someone else’s services or products.

Time to return to the leaders whose business answers “no” regarding the ability to monitor change at your best ten customers. A company that does not know who its most profitable customers are, probably will have major difficulty estimating how their customers’ profitability could damage your business. There is a value to recognizing this blind spot. Just imagine how that lack of knowledge or visibility increases risk? The moral of the story is that your top ten customers will change over time, so it’s up to management to continuously analyze their data. Moreover, ensure you are serving the current ten best customers and recognize changes that need to be taken on these customers that have fallen off the A list.

Whether you are in the yes or no answer group relating this second common mistake to avoid in growing your business, always be on the lookout for new clients, because your A-list customers may suddenly go out of business. That may be out of your control, but easier to manage when you have other customers in the queue.

Resolve to puts time on your side to be better prepared for when, not if, you lose all or a large part of one of today’s 10 best customers.
What can you start doing now to grow or acquire a comparable valuable to your bottom line replacement customer?
This could be as simple as looking to see which customers would provide you more money if you created a product extension or service to offer even more value to them.

How long will it take for one of these options to help your business make more bottom line profits by better managing limited resources available to improve customer and product profitability, even if you lose one of today’s ten best customers?

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change 820 words

October 15, 2016 by fiscaldoctor

The Value of Knowing Your Most Profitable Customers: (227 words)

One of Five of the Most Common Mistakes to Avoid When Growing Your Business

How would it feel if you could more comfortably accurately understand where your business makes its cash-flow?

Try this process. Answer True or False. My business knows it’s 10 most profitable customers, and has accurate information about these best clients.

Regardless of business size and your answer above, just stopping long enough to answer this question normally makes leaders receptive to improving their own profitability.

Whichever size group you are in; you can benefit from this action which can specifically apply to your current business. Almost all leaders can benefit from very targeted, normally inexpensive advice from your outside CPA. They love helping clients and either have or can quickly prepare three customer or product profitability suggestions for your specific business. Many understand their clients’ financial statements more than non-accountant clients do.

Due to fee sensitivity or past directives to only do the very least needed to file your tax return or prepare financial statements, many do not offer those suggestions. Fortunately, for the cost of your buying lunch, or a very small project, most will gladly offer one to three profit enhancing suggestions based on what they know about your numbers and business. Well worth buying lunch or that reasonable one-time project.

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customer profitability -227 word version