Post on 04-Dec-2014
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DANGER ZONE
The Danger ZonePat O’Brien
Partner B2B CFO®
The Danger Zone
Business fundamentals• Common illusions
Life cycle of a business• How a business starts• How a business grows• How we get to The Danger
Zone
What do we do about it?
Characteristics of the entrepreneur
Live in the future; pull others into the future
High ethical and moral business
core values
Creative, visionary, innovator, dreamer
Relationship builder
Risk manager
Why do entrepreneurs start businesses?
Freedom to “run the
show”
Innovative product
Provide superior service
More income
Create value for the future
How does it start?
Infrastructure Creation
Build an infrastructure
Bankers
Vendors
Lenders/leasing companies
Employees
Build an infrastructure
Machinery/ equipment
Accountants/attorneys
Procedures/processes
Office space/buildings
Owner’s Activities
Building relationships
with customers
Creating relationships
with vendors
Delegating tasks to
employees or associates
Causing sales and cash to
come into the company
Infrastructure Peak
Business Grows
High customer service
Short cash collection cycles
Few customer complaints
Low overhead
Personal sacrifice by the Founder
As a result of Infrastructure Creation is Infrastructure Peak.
Company runs “lean and mean”
A Shift in Perspective
“I should have a raise”
“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”
A result of running lean is......
1. Burn-out – of owner and employees – who have been doing the 100-yard dash for 100 miles
2. This ‘extra’ cash leads to thoughts like:
Result of Shift
During infrastructure peak
Less thought is given to the needs of the customer
“lean and mean” is no longer the mantra of the company.
Outgrowth of Infrastructure
Symptoms of outgrowing
infrastructure
Customers
Complaints increase
Orders decrease
Problems increase
Productivity
Quality decreases
Inaccurate information
More meetings
EmployeesHigher turnover
Increased theft of time
Increased cost of benefits & training
Cash
Cash shortages
Receivables increase
More dead inventory
Owner lends money to cover overhead
Vendors
Delay deliveries
Relationships suffer
Time is spent finding new vendors
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
Owner’s New Activities
• 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 …
• They hate doing it • It’s not their skill set – not good at it• They don’t know what they need, or how
to go about filling those needs
They need to realize that:
A business is more than just getting customers
They need complementary skills – more than currently exist within the company
Traditional Organization Chart
Real Organization Chart
Real Organization Chart
FinderThe entrepreneur, the visionary, the leader, the idea generator and the catalyst for future change.
MinderThe administrative, accounting and operational staff of the company.
GrinderThe people who do the physical work of the company. Grinders may be construction workers out in the field or telemarketers at a desk or the sales staff in a company.
Different Life Time Zones
Finder
Works in the FUTURE.
Minder
Works in the PAST.
Grinder
Works for TODAY.
Finder Becomes a Minder
When the Owner’s Activities Shift
BEFORE• Building relationships with customers• Creating relationships with vendors• Delegating tasks to employees or associates• Causing sales and cash to come into the
company
AFTER•Endless meetings with bankers and lenders, attorneys, accountants
•Deciding which bills can be paid•Hiring or firing staff•Writing checks•Analyzing cash flow•Making collection calls•Purchasing computers
Owner Must Return to Finding
Stop trying to solve all the problems
Rely on others for Minding
• Find someone who is good at it• Bring in someone Finder can trust
Return the focus to finding new customers
Refocus on product and market factors
Let the Minder Find the Cash
‘Liberate’ cash tied up in A/R, Inventory, fixed assets…….
Re-negotiate credit facilities based on:• Clean and timely financial statements• Acceptable key ratios• Evidence of improving cash flow
Find alternative sources of credit• Bank• Asset Based lenders• Subordinated lenders
Pat O’Brienpatobrien@b2bcfo.com
214-536-3095