New Website!

Sorry for the delay in posting new material but it was for a good reason—my website was just revamped, yeah!  Please check out the great work here.

Thank you Rob Thomas of Sourceline Media Inc for bringing my new website to life–creatively and functionally.  Rob has tremendous talent, provides great marketing advice, and fantastic turnaround time.  If you need help with your website or marketing, please put Rob at the top of your list and contact me for a personal endorsement:  Rob Thomas, Sourceline Media / rzombie44@gmail.com / 217-369-9390

You can reach me here or at 217-649-8794 or through social media here:

LinkedIn
Facebook

Thank you for taking a look at the new site and let me know what you think about it.  I really want to hear from you.

Josh

 

Culture Eats Strategy for Lunch

Inc. magazine defined company culture as “…the shared values, attitudes, standards, and beliefs that characterize members of an organization and define its nature.”  I’m embarrassed to admit it took me the better part of 15 years to figure this culture thing out.  Yes, this CPA used to be focused on the numbers and not the people—please stop laughing now!

Many clients have said to me, “I could never do what you do; dealing with numbers is so tough.”  The funny thing is that numbers are easy; people are tough.  People are also the #1 factor in your company’s success—please don’t ever forget that and know the importance of company culture cannot be overstated.  You can have all the damn strategy sessions, meetings, budgets, lofty goals, product launches, advertising, and acquisitions you want and it won’t matter one bit if your people don’t believe in you as a caring, competent, and visionary leader.  And the bigger your business gets, the more important culture becomes to managing it all—it’s the glue that holds your company together.  Why?  Because it’s absurd to think that a small group of upper management can actually change your company’s direction and grow it without employee help and buy-in.  It’s simply a numbers game you can’t win.

Think of playing tug of war.  Did you play tug of war with a big rope back in grade school?  Yeah, kids can’t do this now because of injuries and lawsuits but you and I did it, right?  What would happen if you put 50 people on one end of the rope and 5 on the other?  Could the 5 pull the 50?  Of course not!  Unfortunately, this is exactly what many companies attempt to do.

What are some specific, real, and provable problems with pretending company culture is not an issue:

  1. There’s a very good chance that your best ideas will never originate out of the boardroom and ideas are the new currency.  Your rank and file employees are on the front lines—they see the opportunities and the problems.  Look to them for input and trust their understanding is greater than yours in many areas—even if you’re the CEO (especially if you’re the CEO).  Also, who’s going to generate more ideas – 5 people or 50?
  1. Picture a circle with a line through it like this image below:

circlewithlinethroughit
The line running through the middle represents employees working at an average level—working just hard enough not to get fired.  The top half-circle represents employees pulling the company up, working harder than they have to and beyond collecting a paycheck.  What does the bottom half-circle represent?  That’s what poor company culture looks like—your employees are actively working against you and pulling your company down.  Maybe they’re not doing anything unethical but certainly grumbling, gossiping, hoarding work, and not cooperating with one another.  In the worst case (which I’ve seen), they actually stop doing their primary jobs altogether and commit fraud.  Which type of employees do you want?

  1. Your stars or “A” players will leave. They simply won’t put up with this crap.  And the bigger the star, the quicker you’ll lose them and the more it will cost you.  Compounding this further, who do you think your “B” and “C” players follow?  The “A” players, of course.  So, now you have the problem of weaker players following weaker managers and questioning whether they should stay or even put forth the minimum effort.  Do you want to keep your “A” players?  Your “B” players?

Action Plan:

Assess your company’s culture.  Are your employees happy—truly happy?  Do they believe in you and the company’s mission?  Do they feel like they have the resources they need to do their jobs?  Are you listening?  You have to start here if your company is struggling—company culture is always the end result of your leadership abilities.  OK, you may have some problems in one or more of these areas.  If you’re the leader reading this, do you care?  If not, you need to go because you simply can’t build a valuable business otherwise.  It’s just like a sports team that loses season after season–at some point, you must change the coach to change the tone, direction, and vision.  I have seen this up close and personal–an uncaring and dictatorial leader will eat through a company like termites–sometimes slowly but eventually it falls down.  If you’ve read this far, it’s likely you care and it’s definitely not hopeless.  Take control of your company’s culture.  Don’t just talk–live your values, attitudes, standards, and beliefs in everything you do and say.  I have faith in you to make these critical changes.

Need help assessing and fixing your culture?  Please send me a message here.  As always, introductory business reviews are always free and yield more than enough Cash and Hours to pay for your time.  No obligation to you.

See you again soon,

Josh

Famous Peter Drucker Quotes

Leadership, A Short Story

“The true measure of Leadership is influence–nothing more, nothing less.” John C. Maxwell, The 21 Irrefutable Laws of Leadership

I once valued 2 businesses with identical family ownership.  The family members were the “silent partners”, and they had hired 2 individual managers to run each of the companies.  I called each of the managers to schedule on-site interviews.  This is what followed:

Business 1

The manager was extremely polite and generous with his time.  He spent most of a day with me, explaining how the business generated its customers, innovative ideas he implemented, and how he managed the profit margins.  He knew exactly where his customers were coming from and also understood growth was limited by a single location so he was partnering with another business.  He commented to me that every day he turned the key and opened for business, he had to cover “X” dollars for overhead—salary, insurance, utilities, etc.

Business 2

The manager never returned my repeated phone calls and I never met him face-to-face.  I met with the controlling family member instead.  There were no changes or innovations in progress and the primary focus was on the lack of demand and what he viewed as a poor economy.  They were waiting for the business to turn around.  The accounting records showed they were having difficulty managing inventory and direct costs and they had no answers for fixing this problem.  My favorite quote from the meeting was, “Do you want to buy this company?”

Any guess as to which company was profitable in every single year I reviewed and which one had large and repeated losses and needed additional capital to survive?  Of course, business 1 was the successful and profitable one but that’s not the real point.  What was the difference?  Business 1 didn’t sell Apple iPhones; it sold mostly commodity products like Business 2 so that wasn’t it.

IT WAS LEADERSHIP

Business 1 had a leader.  In every single company I’ve worked with, without exception, the difference between success and failure was ALWAYS the leadership.  Leadership can make a commodity product profitable; no leadership can make a novel product sink.  Leadership can make employees with average skills excel.  Leaders look outward when giving credit and inward when there’s a problem.  They reverse course when the plan isn’t working and take the blame when it’s going poorly.  Leaders have a plan and they communicate effectively and often to their employees about that plan.  Leaders get employees to buy in—not through bullying or bribes but by showing how everyone will benefit.  Leaders know that a company’s most valuable asset is its people not its products or services and treats them accordingly.  Leaders are empathetic—they care about the team and its struggles and offer continual encouragement through tough times.  Leaders have an ability to see around corners and a plan for the future, but they are also wise enough to know when you need to change the plan.  Leaders know how their business makes money and that you must keep score to know if you’re improving.  Leaders understand that you’re only as good as your last day and you must look ahead for new sources of growth.

My philosophy on leadership is very simple.  Anyone can be a leader if they first pass the “Have a Heart” test.  First, do you have a heart?  Do you truly care about other people?  Most importantly, and in this order, do you care about your employees and your customers?  You’ll never have happy customers without happy employees.  If you can pass this test, you can learn the other traits mentioned above.  Better yet, please refer to books written on leadership by the masters.  I’m not breaking new ground here.  I’m standing on the shoulders of those who taught me how to be a leader.

Leadership is the TOP element on the Mastery framework.  I always start with Leadership when assessing a business.

Action Plan:

Assess your leadership ability at a basic level.  Can you pass the “Have a Heart” test?  Next, how many of the other leadership qualities mentioned in this post do you exhibit?  You probably do some well and some not so well, just like me.  I generally believe in the philosophy of playing to your strengths so don’t spend too much time on your weaknesses.  But, are there a few areas where you could improve?  Where is your business struggling?  Then, look in the mirror and ask yourself, what are some daily habits I could put into my routine to help my business?  Maybe you should start giving more complements to staff, customers, and vendors.  Maybe you need to spend some time understanding your accounting system.  Maybe you need more time alone to plan strategy or simply to think.  Focus on the areas where you could lead that have the most impact on your business.  Also, don’t forget that the best leaders are supported by the best staff and colleagues.  They will often tell the world that they are not the smartest person at their company.

Need help assessing your leadership?  Please send me a message here.  As always, introductory business reviews are always free and yield more than enough Cash and Hours to pay for your time.  No obligation to you.

See you again soon,

Josh

Cash is the Undisputed King

cash is the undisputed king

There are hundreds, maybe thousands, of ways to measure the health of your business, but there’s only one way that cuts through the clutter to get to the heart of what is going on:  CASH!

I remember one point in my career when I figured out my tough and streetwise client who had built his business from nothing understood this far better than I did.  I thought I was a smart CPA, dutifully preparing his balance sheet and income statement each month.  Meanwhile, he was looking through the lens of reality, “I’ve got this much coming in and this much going out”, he said.  My client was projecting what was going on in cash.  His method was better than mine for determining financial health at that moment as well as where they were headed in the short-term.  He never called me on it, and I’m not sure whether he realized I missed something.  But, I never forgot it and it has since been the most important financial metric I use to evaluate every business.

Here are a couple of terms used to measure businesses that can often distract and confuse if you don’t understand them:

Sales.  Sales are not necessarily cash.  If you decide to hire me and I complete the work, the “sale” should be booked.  But, that doesn’t necessarily mean you paid me—in cash.  I worked with a company that continually focused on sales as a measurement of success.  What was the problem?  They also extended very favorable payment terms to too many of their customers and had high inventory holding costs and slow turnover.  This is a combination that can be deadly to a business.  You can actually “sell” yourself into bankruptcy if you fail to manage your cash-burning inventory effectively, particularly if you have bank debt payments to make.

EBITDA.  For the non-financial gurus reading this, EBITDA is Earnings Before Interest, Taxes, Depreciation, and Amortization.  So, what the heck does this mean?  This is how I would put it:  EBITDA is “Earnings”, which consist of Sales (that are probably not Cash in) less Expenses (that are probably not Cash out) BEFORE (that is, NOT INCLUDING):  Interest expense, income Taxes, Depreciation, and Amortization.  Banks and Wall Street analysts love EBITDA—a high EBITDA gets them to jump out of their chairs.  I don’t know why—it’s WORTHLESS.  Why?  Interest expense is a huge cash cost for a company carrying debt.  Income taxes can run as high as 40% or more for a successful business and must be paid—in cashDepreciation and Amortization are simply fancy terms for allocating real cash costs of buying equipment, buildings, and even non-tangible items like trademarks.  These can be LARGE cash costs, particularly for a capital-intensive company like a manufacturer, builder, and many others.  There are also 2 other MAJOR drains on cash not addressed by EBITDA–working capital and debt service principal payments.  Working capital is simply the cash your business needs to survive while it waits for inventory to turn over and receivables to be collected.  Depending on your type of business, working capital needs can require months of available cash.  Debt service principal payments?  Yes, the bank wants the interest AND the principal.  EBITDA ignores this issue.

And if you don’t want to listen to me about whether EBITDA is an inflated and over-hyped metric, take a look at a quote from Charlie Munger:  “I think that, every time you see the word EBITDA, you should substitute the word ‘bullshit’ earnings.” Forbes Charlie Munger on EBITDA  Who is Charlie Munger?  He’s the right-hand man to the most successful investor in the history of the planet and world’s 3rd richest person, Warren Buffet.  When Warren or Charlie speak, I tend to listen a little harder.

Action Point:

If you are not currently, I’d recommend you make the Cash Flow statement or something similar the most important financial metric you monitor daily, monthly, and yearly.  The Cash Flow statement is the undisputed king.  You also need to carefully monitor the Balance Sheet and Income Statement (neither discussed today) to help you manage your business’s finances.  Don’t know what any of this means?  That’s OK but please talk to someone who does.  Please don’t be afraid to contact me here or a good CPA in your area.

And, as always, introductory business reviews with me are always free and yield more than enough in Cash and Hours to pay for your time.  No obligation to you.

See you again soon,

Josh