May 30, 2013

Better - Faster - Cheaper

Skiingby Jay Perry

Regardless of what business we are in, we will always be challenged with a common task: to provide a product or service Better - Faster - Cheaper.

Look at any business. It is the same challenge. From the logging industry to manufacturing cars to computers to television news, always a better mouse trap. You are in business. What makes you think you are immune to the same challenge? You are not.
 

The Challenge

The challenge will always be the same. That sameness is actually providing the difference in the “day-to-day” that keeps us going to the shop to open the doors. Without having a challenge, you would have no interest in your business. As an owner, manager or supervisor, the job of looking for continued improvement to the efficiencies of your operation should be your primary concern.

Customers are no longer willing to pay for industry’s inefficiencies. Consumers are more educated (and protected) than before, also making demands that stretch our abilities. They make “unreasonable” requests. I say to you those “unreasonable” requests are going to be the new standard for minimum performance by your business. It is the business that responds to the marketplace’s requests that will soar above the crowd of competitors.
 

Keep Looking

Also, you should always be on the lookout for people to assist you in improving your business, making it run smoother, developing into a better place to do business for the community you serve. The people can come from outside your industry or could be as close as one of your vendors. Keep your eyes open for people who have a caring attitude toward others and enroll them into the supporting of your business.
 

The Lime

Here is an actual experience.
When I arrived into town late one evening, I went to the hotel restaurant. I felt like having a beer. After ordering one, I asked a server for a lime wedge. The woman I asked this of was not my server but one of the regular staff, filling salt shakers. After she was gone for what seemed a long time, she returned with a little bowl full of lime wedges. I asked her what had happened. She informed me that the kitchen was out of limes so she had to go clear across the hotel’s casino (very large) to the bar to get some for me. I recognized this as someone who would not let anything stand in her way of making the customer happy and subsequently talked to her about a job as Customer Service Rep at one of my clients’ businesses. She interviewed and took the job offer. She become their best performer in the month of December of her inaugural year.
You need to lookout for people who can make a contribution because they hold the view that part of their purpose is to help others. With the continuous improvement they can bring to your business, you can do what you do better, faster and cheaper.
Links
Jay Perry
Improve the processes and you change the culture. Ally Business Coaching helps progressive companies manage both aspects of these kinds of transformations. Leadership is developed in people, not trained. With over 20 years of experience in developing leaders through a coaching style, Jay brings quick, effective and permanent improvements to clients all over North America. Here are the complete services. You’ll find more about Jay on the Experion website and LinkedIn.









May 15, 2013

Survive and Thrive In Turbulent Times

turbulenceby James Phillipson


When a business encounters turbulent times, there are many ways that the CFO/Controller and CEO can face the challenges to enhance the financial position and significantly improve opportunities to restore business growth. These strategies enhance the likelihood of the business surviving turbulent times and being put in a position to thrive again, when the environment improves.
 

Cash flow management

The management of cash flow is one of the cornerstones of most successful businesses and becomes much more critical when a business goes through turbulent times. We all agree that “cash is king” but many businesses leave the decisions about cash flow management to the clerical level staff and only occasionally instruct that minor changes be made. The CFO/Controller and CEO must have management of cash flow as one of their key areas of focus during challenging times.

Consider the possibility of your biggest debtor (often your biggest customer) being unable to meet established payment terms. In many businesses this would cause a potentially fatal cash flow crisis. This is not an unforeseeable event for many businesses in today’s economic climate.

So many actions can be taken to improve cash flow from working capital that it often only requires some focus and a determination to find the best way to reduce your risk. The first place to focus your attention is on collection of accounts receivable. See the article on speeding up the collection of receivables in the Mastermind archives


Consider your ability to release cash tied up in your business by managing the following:
  1. Payment of suppliers
  2. Reduction of inventory
  3. Speeding up the production cycle

Banking Facilities

We have all heard that “a banker is someone who only wants to sell you an umbrella when the sun is shining,” or some variation on that. Certainly, if you expect to have a downturn in financial results in the next few months, then now is the best time to ask for an increase in the facility that you have with your bank and to seek out other sources. After a downturn in operations causes the need for a larger facility, it is difficult to convince a banker that you are deserving of his umbrella — much better to ask before there are a few months of reduced profitability or even losses.
 

Key Performance Indicators

Take a few minutes to carefully assess the trends in your ratios and Key Performance Indicators (KPI) over the last two years. Consider how you can reverse any adverse trends and how you can improve those that are stable. It often helps to consider each of the factors in the calculation of the KPI, not just the result, as that is where the action step will need to be taken to yield the result. For example, when assessing the KPI of Days Sales Outstanding, examine the amounts outstanding from individual customers – say the twenty largest balances and any balance that is more than X days outstanding.

Update the KPI regularly and incorporate them into the ongoing reporting and management of the business. Include them in the budgeting process and report the KPI compared to budget.
Ensure that you investigate and take action on any KPI that changes from expectation. Challenge your management to improve on selected KPIs each month. For example, make next month the month in which you challenge your management to improve Days Sales Outstanding by 10% (and then illustrate the success by showing the effect on cash flow).

Ratios have the ability to reflect trends that are not easy to spot. If you track and graph your ratios on a monthly basis, with comparatives to previous periods and budget, you should be able to easily explain why a ratio has changed and what you propose to do to manage the situation, for better or worse.

For example, the Days Sales Outstanding and Days Inventory on hand are often effective warnings about cash flow problems and usually the first sign that more analysis and focus is required, so that management can develop a solution.
 

Disposal Of Non-core Assets


Consider every asset in your business as a candidate for disposal – no exceptions! There are often assets hidden in categories where the component part can be sold. For example, slow moving inventory, surplus or old equipment, waste, scrap, by-products, accounts receivable, business units, lines of business, product lines, etc.

If your challenge is caused by a downturn in business volumes, consider selling or sub-letting surplus space. One creative idea, in certain circumstances, is to “sell” your surplus capacity to a non-competing business that would need the same equipment. In other words, your business becomes a sub-contractor for them. A simple application is to use surplus space to provide storage for another business.

Take a page from retail businesses that sometimes have concessions in their premises, selling products that complement their lines of business. This can generate cash flow from the rental charge for the space, as well as draw additional traffic to your store. Is there a way to apply that to your business?
Links
 
James PhillipsonJames Phillipson is a Chartered Accountant and a Principal of Mastermind Solutions Inc. with over twenty years experience in large and small businesses. He has provided financial counselling to his clients since 1996, often in the role of a Controller or Chief Financial Officer, for both public and private corporate clients. James has experience in financial roles in a wide variety of businesses and industries. This includes several large corporations and many medium-sized public and private companies. James can be contacted at james@mastermindsolutions.ca or 905-731-8255. You’ll find more details on the Experion website and LinkedIn.





















May 02, 2013

Bankruptcy – ‘Creditor Proposal’ As A Business Funding Model

Gold coin graphby Florian Meyer

Hard as you try, does it feel like your business always has more debt than it can pay off? You’ve spoken to your banker, your family and friends, and no one is able to offer you any financial help. Does the constant debt pressure make you wonder whether it would be better to just throw in the towel and bankrupt the business? No … not yet!!!

There is a solution that could provide you with the breathing room you need to help you recover. And it’s legal.

Within the Canadian Bankruptcy & Insolvency Act (BIA), you are allowed to make a proposal to deal with your creditor debt and remain in business.
 

How To Start

First, you need to engage a Chief Restructuring Officer (CRO) and a Trustee. The CRO works inside the business with you to develop and monitor a clear plan for moving the business into a more positive financial position and to encourage you to make some of the hard strategic decisions.

The Trustee works with you for the benefit of the creditors. The Trustee begins by preparing a Notice of Intention to File a Proposal (NOI) that is filed with the courts. That stays all creditor actions against you. In other words, creditors are legally prevented from doing anything to collect on the existing outstanding debts.

After the NOI is filed, you have to ensure that all obligations incurred in the future are paid as they become due. Within ten days of filing the NOI, you have to file a Cash Flow Plan with your Trustee and the courts. The Cash Flow Plan shows how you expect the company to generate enough cash flow to cover any new debts plus a portion of the historical debts that were stayed by the courts. Your CRO will help you prepare the Cash Flow Plan and will help present it to your Trustee.
 

The Creditor Proposal Meeting

With the cash flow filed, you have 20 days to develop a plan for the business and a plan to repay a portion of the historical debts before you are required to have the Creditor Proposal Meeting. It’s often possible to get extensions of up to six months for having the Creditor Proposal Meeting as long as the creditors are not disadvantaged. An extension requires court approval and needs a reasonable justification, such as: 
  1. You have not negotiated a settlement with the secured creditors, or
  2. Another activity that needs to be completed before the proposal is ready to be presented to the creditors.
 

Payments

Generally, you will offer to repay 15% to 20% of the existing, unsecured debt over a three to four year period. You send a cheque monthly to the Trustee who annually distributes the payment among all the creditors included in the NOI. The Trustee’s fees to administer the process are paid out of the pool allotted to pay the creditors, with no additional cost to you.

Bear in mind that a Creditor Proposal will not reduce your obligation to pay off any bank loans or other secured debts. By obtaining a secured interest for their loans, the secured creditors have acquired a legal interest in some or all of your company’s assets. You and your CRO will have to negotiate with them to arrange a repayment plan that eventually pays those debts in full.

After the Cash Flow has been filed and a repayment plan has been negotiated with your secured creditors, the CRO will work with your unsecured creditors to obtain their verbal agreement to the plan. Finally, the Trustee will hold an official Creditor Proposal Meeting to receive legal and court approval of the process.
 

Benefits

The Creditor Proposal Process gives you a legal avenue for reducing your unsecured debt to a more manageable range of 15% to 20% with a defined schedule of how it will eventually be paid off. With the assistance of your CRO, you will develop a go-forward plan to bring your finances back to a much healthier position. Your CRO will help you negotiate an achievable repayment plan with your secured creditors and help you look for additional sources of financing, if needed. And, your time can be more effectively devoted to managing and improving the business to ensure that the plan works.
 

Resolution

Now you can move the business forward with a much improved cash flow. The creditors are no longer calling to collect, and you have a new plan that allows you to move forward with the historical issues resolved.
 

Example

As an example, I worked with a client that was behind in payments to the landlords and other vendors. It owed a large debt to the Canada Revenue Agency (CRA) which was primarily unpaid payroll source deductions for which the owner was personally liable. At first glance, there simply seemed to be no way to move forward.

I stepped in as the CRO, connected the client with a Trustee, and introduced an accountant who could effectively manage the financial reporting. By helping the client work through and obtain approval of its Creditor Proposal we accomplished the following:
  1. Developed a go-forward plan that realistically gave the company a chance to succeed.
  2. Engaged a lawyer and obtained court approval to eliminate an obligation to a creditor who had inappropriately attempted to declare its claim as a secured debt.
  3. Established a six-month payment plan with CRA. They would no longer continue to chase for collection, and the accrued penalties and interest were stopped as of the date of the Notice of Intention to File a Proposal (NOI).
  4. We renegotiated with the landlords to have rent reduced to a level that the company could afford. The accountant worked with the internal staff to ensure that informative and timely monthly financial Statements were now being produced.
  5. After the six-month payment plan with CRA was completed, the plan began paying the unsecured creditors at 15% of the original obligation over the next four years.
Although it may feel as though there is no hope of keeping your business afloat, our legal system provides a life raft to give you a second chance.
Links
Florian MeyerFlorian Meyer is resourceful and imaginative Chief Restructuring Officer (CRO) who maximizes the benefits of restructuring for the business. As a client recently said, “You never give up until a great solution has been developed and implemented.”
Florian has an MBA and CPA, CA and is a Principal of Newhouse Partners Inc. He has been consulting as interim CFO and CRO to a number of private and public companies since 1996, You can reach Florian at fmeyer@newhousepartners.com or 416-873-8684. You will find more details on the Experion Group website and LinkedIn.