The Best Advice for Entrepreneurs

Looking for the best advice for entrepreneurs who want to succeed? There’s a lot of “noise” telling you what to do. Here’s how to build your business foundation and apply best practices.

Entrepreneurs, we’ve all heard it, haven’t we? When you talk about a stressful situation at work and someone says, “Gee I really wish I could run my own business,” or “I wish I was my own boss.”

Entrepreneurs know it’s not always fun and games. In fact, little does your pal know the 24/7 work and dedication it takes to make your business succeed. If you’re like me, you probably think, “Be careful what you wish for, buddy.”

As an entrepreneur, there’s no simple formula for success, no clear-cut path, or secret. The best advice for entrepreneurs is to learn how to tune out the noise and focus on the day-to-day progress that moves your business forward.

Does the Best Advice for Entrepreneurs Come from Books?

The best advice from entrepreneurs comes from many places; books, mistakes, and more
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Like many self-made business owners, you’ve probably read all the books you can find on leadership and running a business. They make it seem easy, don’t they? “Here are the 7 (or 10, or 13) steps to success,” or “get the right people on the bus in the right seats, going the right direction.” “Simplify your systems, hold people accountable and your business will thrive!” Right?

There’s a lot of books out there that claim to have the best advice for entrepreneurs—the secret formula to success. Many of these books have helpful advice and good takeaways, but it’s often nebulous or incongruent with your reality. How do these great books relate to the day-to-day of the small business? You may browse the business section at the library and wonder, have any of these authors really run a small business? How would Jack Welch or any of the others really know what it’s really like to be a bootstrap entrepreneur? 

The reality is, being an entrepreneur (especially a female entrepreneur) is tough! It requires you to think on your feet, adapt, and roll with the punches. Entrepreneurship isn’t for the faint of heart.

In my small business, I oversaw a staff of 10. This, of course, meant when one person was out, 10% of my workforce was absent. Because each person had multiple roles, as is common in a small business, one absence meant that several “departments” were missing as well. I found myself often wondering, when does a large corporation like GE have that problem? (Answer—never!)

While business experts like Jack Welch, Napoleon Hill. and Stephen Covey espouse the best advice for entrepreneurs and great management concepts, they’re often hard to sync up with the real-world challenges faced by small business owners. After all, it’s hard to imagine implementing everyone’s appropriately colored parachute, when your biggest customer now sources from overseas, one of your machines started a fire, and your controller just quit. At that point, ANY parachute will do (or perhaps a life raft). Okay, so maybe you won’t face all those challenges at once, but even one event can make you wonder how the concepts in these books apply.

As my dad would often say, “When you are up to your behind in alligators, it’s hard to remember that the original mission was to drain the swamp.”

Small Businesses Run Lean but Some Advice Still Applies

Setting smart, attainable goals is some of the best advice for new entrepreneurs
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Looking around your business, you may see you have an almost non-existent management team. You may fit the mold of the “E-myth;” you started a company because you were good at a certain task. Now you have to wear so many other hats and be good at so many other tasks to keep the business afloat… Or, do you? All the books, articles, and TED talks with the best advice for entrepreneurs say don’t try to shoulder it all alone. But that advice is easier said than done, especially when you ARE your business. So, why read the books and seek principles to do better? Is it even possible to do better?

Personally, I think it is. There are important principles that can still be gleaned from these books, even if it doesn’t seem perfectly congruent to your business model. I‘ve read more success books than I can count. Everything from Stephen Covey’s 7 Habits of Highly Effective People to the 13 principles in Napoleon Hill’s Think and Grow Rich, to my current reading of John Maxwell’s The 15 Invaluable Laws of Growth.

Reading and understanding the concepts within those books may not help find a new right-hand person or file and insurance claim, but the concepts withstand the test of time. They really do contain the tried and true best advice for entrepreneurs, business owners, and leaders. In fact, I’ve found that many of these books repackage the same concepts, because they’re so mandatory for success. Napoleon Hill started writing about best practices 100 years ago and many of his principles are used in more modern works. The essential truths don’t change.

Running a small business is HARD. But there are many lessons along the way. Think of the advice you’d give your teenager: learn from your mistakes. You can do the same and learn from others who have gleaned their own experiential wisdom.

Having read too many books to count, (spoiler alert), the majority contain universal truths. Across the board, they all encourage you to:

  • Identify your core values and those of your business. Are you honest, loyal, trustworthy? What do you want to represent? What do you want your company to represent?
  • Define your role and purpose in the market. Do you want to be business that’s the fastest, cheapest, or highest quality? Do you want to serve your customer base better than any competitor does?  
  • Set aside time to identify and plan for:
    • Your long-term vision (3 to 5 years). Do you want to be the market leader or low cost producer? Do you want to change your level of customer dependence, so that no single customer comprises more than 10% of your sales? Do you want to reduce your company’s supplier dependence? Is there anyone that you think would add value to your team that you want to start a dialogue with? Where is your industry going and are you prepared to lead or follow?
    • And, short-term goals (<1 year). How much does your business want/need to sell? Will your staffing support the level of sales and do you have the cash flow to pay the staff, and cover operations, inventory, etc.? What are your contingency plans, should an emergency arise? What are your areas of risk? 
  • Use a defined process to set targets and goals, define specific actions toward their achievement, and hold people accountable within the process.
  • Select a form of project management that fits your team.
  • Recognize that any business plan you develop needs to add competitive differentiation.
  • Motivate and encourage your team. Team members must be aligned to achieve the goals.
  • Realize that your leadership defines the success or failure of your business.

Often, authors offer an abundance of advice on what you should or shouldn’t be doing, and not as much advice on the logistics of “how” to get achieve it. There are two books I’ve found that incorporate the “how” very well and offer some of the best advice for entrepreneurs. The current go to book is Traction: Get a Grip on Your Business by Gino Wickman, explaining the EOS© system. While many reviews talk about the usefulness of this book in the context of start-ups, I believe this a great tool for any small business. Another older resource is Mastering the Rockefeller Habits by Verne Harnish. Harnish does a good job of explaining how to simplify processes and accomplish each business objective based on the practices and teachings of John D. Rockefeller.

How Do You Apply the Advice to Your Own Business?

Fortunately, there are many excellent books out there and we can all find value from various resources that apply to our business.

While the two I mentioned above have some great core advice and offer a “how-to” approach, the real secret is to pick and apply what works best for your business specifically. The basic principles outlined in most best-selling business books hold up over time. A key element in transitioning from the entrepreneur with too many hats to a competent leader is applying the skills preached in the books.

Many entrepreneurs have a plan for this business in their head, but it's getting it into a comprehensive attainable plan that's a struggle
Image via Burst

Many business owners believe they have a plan for success, but when it’s in their head, it’s hard to develop a competent management team with a cohesive mission and strategy to take the plan to fruition. If you want to achieve your plan for success, simply choose a method that’s clear, uncomplicated, and inspires you to lead your team to complete action items, taking you closer to your goals. And, as Nike says, “just do it”.

It is your responsibility to work ON your business, work with your team to establish clear, achievable (SMART) goals, set timeframes, and hold team members accountable.

So, if you’re ready to go, start now. TODAY, get your calendar out and schedule time for yourself (1- 2 days) offsite to really think about your business. This will help you get your vision sketched out and in order. Once you’re clear on your vision, share it with your team. Enlist their help on the process and path to success.

Work out the logistics of “how” by scheduling an offsite strategic planning session where you:

  • Set (in the initial) goal and then review your company’s 3-5 year goals.
  • Decide 1-3 annual company objectives (1-3 is a guideline for small organizations).
  • Establish 5-7 steps to achieve the objectives.
  • Determine the cross-functional teams.
  • Set timelines and a process for reporting.

As you work ON your business, apply the advice and best practices you’ve discovered to identify and address roadblocks as well. Does your company culture allow for all team members to speak honestly and openly about their concerns? Don’t forget that part of the strategic planning process includes identifying areas of concern so that over time you can mitigate risks and bolster strengths. Long-term planning lets you anticipate future hiring needs. When you work with vision, you can look ahead and set strategic actions, like networking and “getting to know” a targeted hire.

Again, like books with the best advice for entrepreneurs, the concepts often sound simple:

  • Priorities defined to allow focus, progress, and management.
  • Data available to manage the Company (firsthand and immediate).
  • Rhythm to maintain alignment and drive accountability.
  • Systems and structures in place to handle complexity.

The challenge is often not finding great advice or the best business practices, but in reining yourself in.

If you are like most entrepreneurs, you will bite off more than you can chew. I would like to encourage you to be conservative (ok, maybe a bit of a stretch) in this first round of strategic planning. This ensures you can achieve your goals and celebrate the success along the way. As you apply the advice, slowly and deliberately, you will see positive change. You’ll be leading and managing not by the seat of your pants, but with intention and inspiration.

Finding success as an entrepreneur means being open to learning more every day. It’s not about finding and applying the very best methodology, goals, and team. Simply pick something and get started. Keep your plan and objectives on the top of your mind. Schedule regular reporting as part of the process to ensure follow-through. Your life will get easier and you’ll find a better balance as you set expectations and manage the business against a set of goals and with accountable team members.

The best advice for entrepreneurs is to keep learning. Whether it’s from the words of wisdom written by business leaders or from your own mistakes. Growth-mindedness will keep you moving forward on the path to success.

Featured image via Burst. All images licensed via Burst licensing.

How to Manage the ERP System Selection & Implementation Process

Finding and implementing an ERP system is a big job! Here’s what you need to know to get through the ERP system selection and implementation process.
Dear CFO,
Our company is looking for a new ERP system. My CEO just informed me that I am leading our ERP system selection process as well as participating in the implementation team once we find the right fit. I’ve purchased accounting software in the past but selecting an ERP system seems like a BIG job. Can you give me some tips to help in the process?
ERP System Searching in Idaho

First, let me congratulate you. Obviously, your CEO believes that you are capable of leading the team through the ERP (Enterprise Resource Planning) system selection. You’re right—ERP system selection and implementation is a big and important task. You’ll need to do plenty of homework to select the best system for your company.

Before you begin, there’s one matter to get out of the way: you need the authority to accomplish the objective. So, the first order of business is to make sure the CEO puts the proper priority on the ERP system selection project and participants (in person or via other communication) in the project management and implementation process. If those who are not direct reports miss deadlines during the selection and implementation process, the CEO must validate your authority. The CEO is also responsible for fixing any business issues that exist from lack of discipline to cash flow issues. Frequently the financial department is responsible for taking the lead in ERP system selection, because the system dovetails into the company performance, and enables the reporting management desires.

Before Starting ERP System Selection

There are a few steps you should take before you begin the ERP system selection. These steps will ensure that you know exactly what you’re looking for once you begin your search.

Coordinate communication with your CEO.
Take steps to ensure you’re consistent in your communication cycle on the new ERP system–setting expectations and keeping appropriate team members in the loop. Be prepared to continue with status updates, both formal and informal throughout the ERP system selection and implementation process.

Obtain or create the current workflows for all company operations affected by the new ERP system.

  • If fancy flowcharts exist, use them. If not, a quick and dirty flow chart draft will suffice – it’s highly likely the processes will change with a new system anyway.
  • Documentation should include the details of who, what and where for each step and identify the data collected. Be sure to distinguish what processes are automated today and which ones are manual; that will assist in defining staff needs and systems required to close gaps.
  • The information included in the workflows will guide the system evaluation, including needed changes and system improvements.

Engage the ERP system selection participants.
These team members are usually selected by the CEO and/or department heads in the project planning process; this includes subject matter experts (SMEs) from each area affected by the proposed new ERP system.


Researching and Finding the Right ERP System

When selecting a new system, create a list of needed features to help narrow down what kind of system you need
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During the research phase, you’ll be setting up metrics, checks, and balances, so you’re sure to be successful in your ERP system selection. This phase of the process is as much about finding the “best” software as finding the RIGHT software for your company.

Needs / Wants / Nice-to-Haves

Define the needs, wants, and nice-to-haves for each area or department. This is a critical step and worth the time. You will want to make sure that, at the minimum, the software meets the absolute needs of each area of the business. The workflows are a good resource for setting the baseline, but think broadly – you are looking for a new ERP system to improve your business. It’s important to find a system robust enough to carry your company forward. Separate out the needs, wants and nice-to-haves:

  • Needs – Elements critical to performing the operations of the business, eliminating significant pain points, or meeting government or internal reporting requirements. Your business will probably have unique needs that may not be available features in off-the-shelf software.
  • Wants – Elements that improve processes or facilitate reporting but aren’t critical to the regular operations of the business.
  • Nice-to-haves – Items that, if the cost/benefit makes sense, could improve some aspects of processing or reporting.

Score System Features

Set up the needs definition as a scorecard to evaluate each need/want/nice-to-have against the various ERP software features. Be sure to weight the scorecard based on the needs; are all the needs of the same value? Is the end-of-day balancing of the same importance as regulatory compliance or daily reporting? If so, they get the same weight but you may find that the needs have several levels of importance within them.

Data Transfer

Decide how much historical data will transfer to the new system. Frequently, data from older systems isn’t as easily transferable. Companies may decide to keep old systems running for a period of time to provide reference or historical information. A corollary of this is setting a timeline and selecting the expected date of transition to the new system.

Data Clean-up

Begin cleansing your data. For any data exported from your old system, this is the time to clean it up. Start tidying up your data for consistency (addresses, naming conventions) and completeness (adding email addresses, phone number, or other missing data). Once the new ERP system is selected, the data available from the old system is mapped to the new system fields and this may highlight additional data element needs.

Demo Testing

Develop “use case” scenarios to test the demos and evaluate how well the software meets your needs. These should be the exact processes that you use in the business on a regular basis. Provide real data (changing names or identifying information). Some vendors will upload your data to the new ERP system so you can test it in a “sandbox” format.

Enlist Subject Matter Experts (SMEs)

Subject matter experts can help determine what kind of system you need to work across all levels of your business
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Engage the SMEs within your company to set up a preliminary project plan and timeline.  You may wish to use a project management tool or simply list the plan in Excel for the initial run.

  • Brainstorm every task required for ERP System implementation – this should be as detailed as possible.
  • Identify the SME for every task.
  • Put the task list in a sequential order.
  • If the details or steps are significant, consider breaking each into sub-projects. There might be sub-projects for every segment of the business. For example, manufacturing’s project might include renaming the inventory item master, updating bills of materials, integrating machine software, training staff, designing reports and dashboards.

Build Excitement

Start to build excitement for the new system amongst your staff and team. The people factor is critical to the successful ERP system implementation. Keeping your team members engaged, informed, and encouraged is important in the long process of ERP system selection and implementation.


The ERP System Selection Process

Once you’ve identified your needs and done your homework, it’s time for the official ERP system selection. This is a big step as you weigh all the factors—cost, capacity, user-friendliness, and more.

Narrow Down the Field

  • Identify industry software within your budget, if available. Recent hires into the departments may able to shed light on other systems they used at previous companies and how well the systems performed. Identify industry association or other comparisons of potential software. For example, the AICPA offers an annual review comparing tax software. Keep in mind, most of the reviews only cover the most generic functions of the software. Also, long-standing industry software may still be operating on “old technology” behind a modern-looking interface. I don’t view this as a deal breaker unless the reporting is too old school.
  • Choose the finalists. Once you have identified several software options, try to quickly narrow down the choices to five (or fewer) and only delve deeply into those finalists.

Focus on Usability Specific to YOUR Business

  • Be sure to look at the reporting tools. How flexible are the reports? Are there third-party report add-ons that integrate with the system? Will you be able to generate the reports that management requests (and is it efficient to do so)? For example, behind the scenes, Great Plains Dynamics was 20+ years old, but they updated the reporting to make it very adaptable and user-friendly. Be sure to understand the skill sets required to build reports. Do those skills exist amongst your team or are the requirements new?
  • Make sure the data collection in the system is complete for your needs. For example, if you’re required to file governmental reports on minority contractors your company uses and there’s no data field to identify the minority contractor, you will need a workaround.
  • Provide your “use case” scenarios to the vendor and request a demo version of the software to test. Test under the Pareto principle: meet the exact needs of 80% of your transactions, don’t try to identify and make the ERP system selection based on the outliers. With larger ERP systems, the vendors will typically be more accommodating than vendors of smaller cloud-based software. Don’t believe a task can be done by the software system unless you see it for yourself. If a vendor claims it can be done always say, “show me!”
  • Prioritize when you select software. When using the Pareto principle, measure by several facets: first by cost, then importance. Make sure the most expensive processes are covered by the ERP system, while simultaneously ensuring the most important processes are covered as well (whether they are regulatory or business-driven).
  • Identify how long the software provider has been in business, how many users the company has, and request their upgrade release schedules. If you are under regulations such as HIPAA or GDPR, verify that the software is compliant. Identify the size of the development team that created the ERP system you’re potentially buying. If it was engineered by a small team, you may need to ask about retention packages for key individuals.

Enlist SMEs for More In-Depth Systems Research

  • Obtain three current users for each ERP system you’re exploring and contact them for insights and references. Be sure to have your SMEs talk to users in all areas of the company. If possible, an in-person visit and demonstration is even better. You will be able to see the software in action.
  • Ask about all aspects of the software and user experience. In addition to the use case scenarios, vendor history, and user satisfaction, ask about:
    • User security levels (set-up, access within functions, etc.). Larger systems can offer security on the field level whereas smaller systems may secure access at the module or transaction level.
    • Customer support and maintenance. What is included if you buy a customer support program? How much support is available in the initial learning phase?
    • Set-up process and requirements. In my opinion, this is one of the most important points. The set-up is critical to the successful implementation of a new ERP system. Whoever guides you through the set-up process needs to be intimately familiar with the effects of any choice made in the set-up. Bad set-up creates long-lasting pain. Examples might include: thinking serial number control might be good and then finding out that every single transaction needs the serial number to move it through the system, causing added workload; deciding to treat an item as non-inventory without recognizing that limits the ability to track it; or a simple misidentification of the type of account resulting reporting errors.
    • Release schedule and what might be coming out during your implementation period.
  • Determine the need for all modules of the software based on the interviews with references and your team’s evaluation. This is also the time to decide on the ERP system implementation process: phased or “flip the switch.”

Select Your Finalists

Narrow down your choices. If only one software meets your needs and falls within your budget, you can skip this step. However, if you have 2 or 3 finalists that meet your needs and price seems to be the deciding factor, set up an analysis to compare total costs over a 3 to 5-year period. Consider the following:

  • Maintenance coverage may be included in the first-year implementation plan of some options, but not others.
  • Necessary hardware upgrades to satisfy system requirements; be sure to include software expense for all regions. Typically, software users have to buy a production region, test region, and perhaps others based on the size of your organization.
  • The need for any add-on products such as reporting tools to fulfill the needs analysis.
  • Ongoing annual maintenance costs, user fees, per seat costs, or historical price increases.
  • Consulting or other out-of-pocket implementation costs.


Planning for ERP System Implementation

Creating a visual workflow for your system transition makes it easier to plan the next steps
Image via Pixabay

Once you’ve settled on an ERP system selection, you’re ready to begin implementation. A little foresight and planning will help you avoid any issues as you move forward.

Create a Workflow

As you work on creating or restructuring the workflow for the new ERP system consider:

  • Entering data at the point where you create data.
  • Eliminating multiple touches on the data.
  • Creating exception or control reports to verify processing (for example, cash deposit reports, payroll payments exceeding a certain dollar amount, employee utilization under a certain percent).
  • Eliminating multiple check or approval points (this may involve security levels for managers different from front-end users).
  • Performing comparisons within the system.
  • Optimizing the system capabilities to eliminate redundancy.
  • Standardizing and using file naming conventions and electronic filing capabilities.

Watch Out for Implementation Issues

Be on the lookout for common issues in implementation. Some of these implementation issues include:

  • User security levels are set too tight or too loose. I prefer setting the security levels tight and as the user encounters a roadblock, freeing that capability. This security assures access is available only to the needed parts of the system. Even though some companies prefer more lax security limitation, HIPAA and GDPR considerations should drive set-up and security.
  • Even with thorough evaluation and testing, there will be transactions or reporting that require workarounds. No system meets all the requirements.
  • Team members complain about change, the workload, learning – you name it. This is normal and shouldn’t be discouraging. Continue to communicate the why and the benefits to the company and the user.
  • Something wasn’t set-up right. Many elements of set-up can be changed after implementation, but some are set for life. Hopefully, the problem is correctable. Make sure you know what is administrable and what is not. Have multiple people trained on maintenance during implementation.
  • If you do a data conversion, make sure the team knows how the data migrated, then test the system extensively.

Outline a Transition Plan

Define and outline the transition plan to the new system during project planning (and leave room for adjustments). Transfer of historical data (manual or electronic) is part of the transition to the new ERP system. Some of the detailed information for the implementation may not become available until the software system is purchased. These variables may include transaction volume, staffing, and training. Typically, there are two ways to transition to new software:

  • Concurrent processing for a period – This means the data goes in both systems and the results are compared for agreement prior to fully switching to the new system. Keep in mind, most companies are running lean and concurrent processing puts an undue burden on staff.
  • Cold cutover – This means the use of the new system begins on a specified date. With adequate training and testing, I believe the cold cutover works more efficiently and can save extra work from your staff.

Adopt a clear plan for customer/vendor portals. Opening client or vendor portals involves developing a communication plan as well as a training plan. This will vary from an email to a personal session depending on your customer and vendor base. Most portals are easy to use but don’t neglect the communication of the how and why. Highlight the benefits to their business or organization. This transition to a new ERP System should improve their interactions with your company.

In the most recent ERP system transition that I oversaw, we developed the procedures for each process prior to training. Each person’s training verified the documentation of the procedure and we edited as necessary. Using the procedure outlines and previously processed transactions, we built the historical data using it as training material for the new system.

During the transition to the new ERP system, all team members trained and after each month’s data entry, we ran reports to verify the accuracy and completeness of the processing in the new system. The team was working on real transactions and issues that would arise every day were part of the training. This involved some additional work, but it assured that the training was real world and made for a successful ERP system transition.

ERP system selection and implementation require cross-functional interaction and agreement. When done well, it can be very smooth and will result in real gains from the new system. Good Luck!

Featured image via Pixabay. All images licensed for use via Pixabay licensing.

The Art & Science of Selecting a New System

Considering selecting a new system for your business? Whether it’s a new accounting system, CRM or ERP, here’s how to ensure your upgrade is a move in the right direction.

In the business world, we’re all about systems. Software and programs help us manage all aspects of our office life. But, of course, as time marches on, systems become outdated. If you’re considering an upgrade or update, there’s an art and a science to selecting a new system.

No matter which business system you are trying to replace, your process should always start with exploration. Before you consider selecting a new system, there are some basic questions you need to answer. I may sound like a broken Simon Sinek record, but nearly every business decision you make from acquisition negotiations to systems selection should start with why. Before starting the search for a system, analyze all the reasons why you are seeking to upgrade, replace, or add a new system for your company.

Often, the process of selecting a new system starts with researching on the internet to “find the best investment,” rather than an evaluation of what you are trying to accomplish with the new system. Research-first, ask why later is not a good strategy. You’re setting your company up for extra work, if not a failure.

Without identifying your needs and then evaluating how the new system will potentially meet those needs, you’re susceptible to the sales pitch and biases of the individuals involved in the selection process. Selecting a new system requires self-awareness and analysis—know what’s working and what areas of the business need attention. Be aware that a new system will not solve organizational dysfunction. It can, however, be used as a catalyst for change and improved efficiency you desire. This is why you must start with the big questions before selecting a new system.

Why are you going to invest in the new system?

Selecting a new system for your business operations is a big choice that take a lot of consideration
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The question of why is the most important one to ask at the beginning of any new business process. The most common reason for the selection of a new system is to improve the efficiency and the effectiveness of the business in some aspect. That’s a very broad umbrella and unless you define what that looks like in much more detail, the system selection or implementation goals will fall short.

Selecting a new system need not be a big project because, as you know, entrepreneurs tend to be action driven. In an entrepreneurial business, slowing down the action for some deeper thinking makes the entire process easier.

What are the considerations and outcomes expected in changing systems?

Depending on the size of your business, the amount of your day-to-day participation in the actual system change will vary. Depending on your delegation skills and preferences, you may be very involved or fairly hands-off. As CEO, you need to make sure your team has answers to their questions, especially the questions of why and what when selecting a new system and during the implementation process.

Before You Start Researching a New System

Before you start “Googling,” it’s important that you define the need. Are you looking for an accounting system, an HR system, a timekeeping system, or a fully integrated ERP system? Know what solutions you’re seeking and which systems you need to improve before you start your search. If your identified needs change during the process (you started looking for an accounting system, but see the benefits of the ERP), go through the full exercise of exploring why the change once again. You started with an initial rationale and now it’s different — why? Should you still go forward with the change?

Once you’ve explored the why, there are other questions you should explore as you assess your need for a new system:

    • What are our current processes and workflows? How will the new system revise the workflow, and do we have an evaluation and documentation process in place? Do we know the internal costs of our current processes? If not, how can we measure and assess any improvements?
    • Is there discipline and order in the existing processes? Does the right information get in the right place in a timely manner? If not, how will the new system improve discipline? Or, more importantly, how will we need to change our management and expectations to encourage this discipline and ensure success?
    • Are we only trying to eliminate manual processes or are we trying to improve the processes as well? If we “computerize” manual processes, have we missed out on an opportunity for improvement? Should we be following the current processes, altering them for efficiency or even eliminating them all together?
    • How will the selection and implementation impact existing business operations and how will we accommodate the disruption? Can we afford to pay our staff overtime during the new system implementation? What incentives might we consider for staff who puts in extra effort on the system?
    • How will the new system change impact our customers? Will they receive information faster? Will it be more secure? Will there be a lower likelihood of errors? Will our customers even notice the change?
    • If the new system is creating efficiencies, whether in processing or IT, how will we position those efficiencies within the current staff? Will they lose their jobs due to automation, or will they simply move to a different role and take on new tasks? What motivation will current staff have to help with the new system implementation if they could potentially lose their job?

Getting Ready for Selecting a New System

After exploring some of the challenging background questions about your company and the need for the new system, it’s time to start the process of selecting a new system. Once again, taking a deep dive on self and company-assessment on the front end will prevent many issues from cropping up down the road.

Here are some important areas to explore as you get ready for selecting a new system:

    • Have we defined what we need from the new system? What are the needs/wants/nice-to-haves that we will need to evaluate the new system against? Are there software comparisons and assessments online that we can use as an assessment starting point?
    • Do we have the right people defining the system needs of the company, to create a comprehensive view of the new system’s impact? Each department carries biases whether financial, manufacturing, marketing, HR, or another area, and these biases can affect their perception of the need for the new system.
    • As we’re selecting a new system, what is the budget range to meet our objectives? Should we determine a hard budget before beginning our search and selecting our new system, or should we seek information first to decide on a relevant budget range? What do we need to consider if we can’t find a new system within our target budget range? How will we determine Plan B?
    • Do we have the right on-staff talent internally to create a decision matrix and facilitate the review process for selecting a new system? Do we need to look externally for an objective resource?
    • If our company is buying a large system, can we request and schedule an onsite demo? In my experience, most demos now take place online. Not unlike those onsite in the past, every system manufacturer claims that “the system can do it all,” so buyers beware. Demand a demo when possible, especially for a large investment in a new system.

Smoothing the System Selection Process

Once you’ve decided on your internal factors like budget, staff, and workflow, it’s time to start selecting a new system. This process includes shopping around and narrowing down your choices.

Here are the steps for selecting a new system (especially) if you have several options to choose from:

    • Which systems are our industry peers and competitors using? Compare the systems not only of your direct peers but of businesses that are the size you aspire to grow into.
    • Do we need to select a new system that’s industry-specific? Do we need to integrate features for manufacturing operations or timekeeping? Will extra features and integration capacity add value to our new system or just complexity?
    • Are we seeking a fully integrated system or integration of multiple “best in class” options? What is the downline cost of each alternative – more conformance to the system, more manual reporting, or systems integration costs? Do the various best-in-class system options integrate and how complex is the process? If we decide on the best-in-class option when selecting a new system, do we have an IT team that can support the 24×7 nature of the new systems? Is our organization moving toward cloud-based systems or SaaS models? Do you prefer to host information as sensitive as finance and HR data? Do you have the system security protocol in place to protect customer data?
    • What are the reporting tools available in each of the new system options, and how do we expect to use the tools?
    • Can we quickly narrow down the new system selections to 2 or 3 choices and only delve deeply into the finalists?
    • Can we contact current users of the new software options and preferably visit them onsite to see how they actually use it? If not, why not?
    • Is the new system we’re considering the right size (cost and complexity) for our current company? Is it scalable to our growth, and will it support where we plan to be in the next 5 years? Can we use the new system in either its most simple or complex form? Are we buying a more robust system than we need or would ever use?
    • How will we evaluate the total cost involved in selecting a new system and the implementation process? Do we have benchmarks? (For example, multiply the system cost by 2 to estimate the additional cost of consulting.) Be sure to include hardware and software costs. Don’t forget the depreciation expense of the new system in your costing models. Areas that are often missed in the cost assessment are the testing regions needed before implementation of the new system and all the development to integrate the new platform. Whatever you estimate for hours, assume 2x. After selecting a new system, your business will likely change during the changeover and implementation process. Incremental changes will need to be accommodated that were not anticipated at the beginning.
    • What are the ongoing costs of the new system? Are there monthly per-seat costs, annual upgrades, etc., and what options do those costs include? In my experience, if you are comparing two or more systems on cost alone, you should consider a 3 to 5-year horizon. For example, if you have a first-year maintenance plan included on one and not the other, or if you need hardware upgrades or additional reporting tools to accommodate one of the systems, be sure to include those costs when selecting a new system.

Planning for the Implementation of the New System

Once you’ve decided on the best new system for your business, the next step is planning for the implementation. There are several assessment questions to explore that will help you create a smooth implementation.

Here are the questions to ask:

    • How will we switch to the new system–running a concurrent system for a timeframe or a cold cutover? Who will decide and what will the decision be based on? If it is a concurrent switch, there is an additional workload to consider? What kinds of testing and preparation are needed for the system change?
    • Do we need to convert customer and company data from the current system to the new system? Data conversion can be costly and time-consuming. It’s rare that data will convert seamlessly from one system to another.
    • Does your data need to be replicated to a database for reporting? Don’t forget to estimate staff time and efforts required for reporting.
    • Who will decide the staff training plan required on the new system and develop the documentation? How and when will process changes be incorporated into the system documentation and training?
    • What should our customers and vendors know about our change? Will the system change be transparent? Will customer or vendor interaction change? If there are differences, how will customers and clients learn how to use the system? Do we need to plan on training? What is the communication plan?
    • Which processes are we willing to change and adapt based on the best practices built into the selected system? Do we need to adjust a “we’ve always done it that way” mentality?
    • Can we move the data into the new system at the time it is created? Can we eliminate extra touches on the data entry process by authorizing appropriate access to the new system for any individual involved with the process?

Selecting a new system is truly an art and a science. System feature implementation varies by the personality and culture of your company. Some companies prefer to seek out ALL possible features available in the new system and attempt to implement the features into the company processes. Other companies may find the skeleton to be enough for their business at first.

Selecting a new system is a science, so make sure you're addressing every component
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Since most systems are designed around the common denominators, it will not meet all the needs/wants/nice-to-haves of everyone in the company. Remember there will be trade-offs when selecting a new system. Reporting and integrations with other software systems are often critical to the performance you want to achieve.

It’s important for leadership to be cognizant of the fact that new systems create change and change creates uncertainty. Uncertainty fuels the rumor mill. To counteract concerns and allay fears, as soon as possible, start the communication cycle on the new system. Start setting expectations and giving notice to those who might be involved in selecting a new system and in the implementation process. Explain the why and the what. Continue with regular status updates, both formal and informal.

As with any other new process, setting expectations is key. New systems do not solve business problems. A new system implemented with poor discipline and incorrect data simply means you get bad information faster. Cash flow problems don’t go away with a new system either. However, new systems, when implemented with due diligence on the front end will improve effectiveness and efficiency in the organization. Use the system change to your advantage; a new system is often the catalyst for changes you want to achieve.

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The Importance of Due Diligence in Acquisitions and Mergers

When your company is going through an acquisition due diligence is vital in all areas. Here are the most important points requiring due diligence in mergers and acquisitions.
Dear CFO,
Management is currently targeting an acquisition and I’ve been told I will be in charge of the project plan for the acquisition due diligence and subsequent integration of the business. This is a new experience for me and I am not sure where to start.
Finance Manager in St. Louis

It is wise to seek help during the acquisition process. The good news in your question is that management is just targeting an acquisition. Since seeking an acquisition is often a very confidential process, gathering data and setting up the plan as a “preparation for a potential acquisition” is a good cover. This gives you time to actually plan and seek input from the various departments within your organization before the acquisition takes place. Often times the acquisition due diligence and integration are an afterthought of the “hunt.

Keep in mind, participation in acquisition due diligence is often quite limited due to the confidentiality involved in seeking and evaluating an acquisition target. Make sure your CEO or Corporate Development Team clearly defines who can and will be involved in the process. Often outside firms are used during the due diligence process to avoid rumors of the sale disrupting current operations of either business. If your CEO clearly defined the “why” and the “what” of the acquisition, the focus of the acquisition due diligence is clearer.

Acquisition Due Diligence

The main objective in due diligence in acquisitions and mergers is the verification of the thesis for the acquisition. Typically, the objective of acquisition due diligence is verifying the business representations of the seller (financial results, market penetration, customer satisfaction and continuity, vendor availability, production/service capability, distribution channels) as well as identify “skeletons in the closet” (outstanding warranties, lawsuits, insurance issues, customer concentrations, vendor reliance, a new product by a competitor, or unfavorable contract clauses, to name a few).

The results of due diligence in acquisitions and mergers may reframe the negotiations or actually kill the deal. If the Letter of Intent (LOI) is well written and there is a joint vision, surprises in due diligence can often be overcome without killing the deal. This is why strategic planning is so important. Involve your outside legal and business advisors to create a comprehensive acquisition due diligence plan. Experienced advisors will point out gaps in your process and provide tips on specific areas needing attention. You know a lot about your business, so use that knowledge and that of your advisors to form a comprehensive framework, including pertinent tips below.

Due diligence in acquisitions and mergers often starts with the analysis of the historical financial statements and forecasts. In a larger company with audited financials and full footnotes, you can place more reliance on the historical statements themselves. There are additional procedures for all financial due diligence. In a smaller company with internally prepared or reviewed statements, I would suggest additional financial due diligence.

Acquisition Due Diligence Procedures

Bring your acquisition team together to carefully go over the procedures and steps involved in acquisition due diligence
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  • Verify that each account on the balance sheet is reconciled, preferably monthly, and review the reconciliations for unusual items, just as you would with your own company’s balance sheet. If allowed, confirm customer balances and aging, and engage in discussions with vendors on payment history.
  • Validate revenue through cash. In a spin-out from a larger organization, the seller represented sales at a level that I could not trace through to cash. So, in my opinion, sales were overstated. As a result, a $1 million look back provision held money in escrow that we claimed when sales did not match the represented amounts.
  • Determine policies and procedures are in place to assure control, completeness, and accuracy of financial information. If these do not exist, focus more procedures on the forecasts and financials to verify the information.
  • Identify the qualifications of the individuals contributing to the financials and evaluate the general level of competence of the staff.
  • Identify activity on the financial records that might lead to other disclosures: legal expenses, rent, or outside services might identify or help quantify risk/exposure areas.
  • Verify all expenses were included in the financials. Often financials of closely held companies are adjusted for the “extras” that the owner took out of the business; be sure that your company will not incur similar expenses. Watch another area of adjustment: the removal of “one-time” expenses (often with further discussion, they are not one-time).
  • Observe service/production and inventory areas for general organization and busyness, paying attention to the workforce and physical characteristics. Pay attention to potential obsolete and unused equipment, work areas, and inventory. Observe the quality and quantity of any finished goods not shipped. A previous client of mine once had significant consigned inventory on-site from both vendors and customers (billed but not shipped). Ask questions to make sure what is on-site belongs to the company and is in use. Often a complete inventory observation is a condition of the sale. Verify that assets on the asset list are physically present and in use.
  • Analyze any forecasts and assumptions thereof with a critical eye in the context of:
    • Historical performance and relationships – if the company claims a new product will bump sales by X%, what is the basis of the claim and have they achieved a similar success in the past? How have supporting costs moved in a similar direction? What is the basis of the cost relationships?
    • Assumptions in the forecast related to the balance sheet make sense. If they are at 80% capacity and increasing sales will exceed capacity, how will they meet the need, expansion, or outsourcing? Is that properly reflected in the numbers?
    • Changes in divisional or product line expectations, especially if they are inconsistent with past performance.
    • Are balance sheet assumptions consistent? If they are going to improve collections to reduce days sales outstanding in receivables, is the strategy plausible and are any associated costs also projected? Will they need more inventory if a new product line is added and have they forecasted that?
    • Ask more questions on anything represented in the business plan that has a financial impact. Clarify both the thought process in the conversion to the forecast as well as the actual inclusion in the forecast.
    • Look for all elements of the business plan (private placement memorandum or another document) consistently represented in the financial statements and forecasts.

Generally, during due diligence in acquisitions and mergers, a buyer will also run their own forecasts using both the seller’s assumptions and adding their own, such as economies of scale, consolidation of positions, etc. Even if the seller recognizes that you will be gaining additional benefit, most buyers try not to pay for what they bring to the table. Keep in mind, although this is conventional wisdom and a laudable goal, in competitive bid processes, buyers are often paying for synergy they bring

Verifications During Due Diligence

Verify acquisition due diligence by carefully going over information and paperwork involved in the process
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Even though the numbers are a significant driver of the pricing in the sale, other factors also influence pricing including representations and “skeletons.”  In a small company much of the acquisition due diligence falls under the umbrella of the financial area, so you may be called upon to verify items outside of the financial statements. Thorough analysis of the financials may reveal skeletons and verify representations, however addressing other financial issues often requires independent verification of representations.

Some areas of verification during the acquisition due diligence process are:

  • Customers – To determine satisfaction, look for online reviews, analyze customer retention, or send a survey or other independent means of verifying satisfaction. Customer contracts giving special pricing or long-term commitments with customers should also be factored into your analysis.
  • Market penetration and position – Contact an industry trade organization and seek government or industry reports on the size of the market and new developments in the industry. Compare these reports with the seller’s representation and actual position. Look for new products that are competing within the market. Pay attention to the cliché here – Did buggy whip manufacturers see the end of the market with the introduction of the “horseless” carriage? Think broadly. Remember, only Steve Jobs saw the “need” for the iPhone.
  • Vendors – Determine if the primary raw materials of the seller (ex. people, steel, plastic, or other material critical to the process) are readily available and obtainable through multiple vendors. Also, contracts and purchasing agreements both length and availability affecting the cost of materials come under scrutiny.
  • Employees/Culture – com reviews, compensation and benefits packages, tenure, discipline actions, interviews, and observation of the work areas can all help frame the culture of the organization and the ability to fit with yours. In a large company where I consulted, there were bells to tell people to take breaks, eat lunch, etc. This culture may not bring employees fit for an entrepreneurial environment, or people with narrowly focused or previously micro-managed jobs may not fit an “all hands on deck” atmosphere, as I learned in my organization. In my opinion, we pay too little attention here and it often is the make or break piece of the deal.
  • Contracts – Have your legal team review important leases, software, and other licensing, purchasing, or sales agreements, distributor agreements, insurance, and any other agreements that may influence how you move forward.
  • “Skeletons” – Review legal bills to identify issues, insurance clauses for coverage of product liability, PR faux pas, OSHA reporting, and other inside and outside reporting or contracts for hidden risk areas. Evaluate company performance under various economic conditions. Are they the first to see the impact of a downturn or among the last, and where are they in the cycle now?

Some or all of these factors may or may not be important to examine during the acquisition due diligence. It really depends on the “why” and “what” behind the acquisition, as well as the form of transaction (stock purchase vs. asset purchase), if the company is looking at the acquisition for the short or long-run, if you need it to fill a missing part of your product offering, and so on. Look at all the factors that play a role in the acquisition. Planning your due diligence should focus on what you are seeking to gain in the transaction, but not to the exclusion of evidence to the contrary in moving ahead. Don’t fall in love with the process or the target.

I believe acquisition due diligence should be performed with skepticism. Identify the risk/benefit areas of the acquisition with an objective view and present the findings for deliberation in the negotiations and pricing steps of the deal.

After the acquisition due diligence comes addressing the integrations. For these steps and more important tips to help you succeed in your business, visit the RMR Analysts blog!

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Why Should You Forecast The Balance Sheet?

Are your business forecasts missing important information? If you don’t forecast the balance sheet, you could be overlooking important data.
Dear CFO,
Whenever our business does forecasts, the owners only care about the P&L (Income Statement). As the Controller, I want the business forecast and budgets to include a balance sheet. How can I convince them it’s equally important to forecast the balance sheet?  I also need to develop a model to forecast the balance sheet, once I convince them.
Expanding my forecasts, Baltimore

It seems like most entrepreneurs only focus on the income statement. In my experience, that sets up the scenario of unexpected cash flow problems for the business.

As you know, the balance sheet is measured at a point in time and reflects all the assets (what is owned) and liabilities (what is owed). The balance sheet captures the net, representing the owner’s equity in the company or the fundamental accounting equation (assets = liabilities + equity). The income statement reflects activity over time.

Why Forecast the Balance Sheet?

Assets and Liabilities

Income, expenses, liabilities, and many other factors are all involved in forecasting the budget sheet
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Auditors typically focus on the balance sheet because it tells the whole story. If you know the beginning and ending assets and liabilities/equity, the income is the difference.

Each account in the balance should be reconciled to supporting documentation at each period end:

  • Cash: reconciled to bank statement.
  • Accounts Receivable: tied to the detail of what each customer owes.
  • Fixed Assets: supported by a list of assets that the company owns.
  • Accounts Payable: reconciled to vendor statements and agreed to the list of what is owed to each vendor.
  • Bank Debt: reconciled to bank loan statements.
  • Other Liabilities: the amounts owed to various sources such as payroll tax deposits, worker’s compensation insurance payments, etc.

By validating the beginning and ending balance sheet, there is a high confidence level in the income statement.

The forecast of income is critical, as it reflects the ability of the company to sell product, pay expenses, and make money. The problem is cash flow. The income statement captures only part of the cash-generation and/or need for cash, the other often over-looked piece of your financial forecast is the balance sheet.

When forecasting the income statement, many of the components have a complementary impact on the forecast of the balance sheet. The income statement tightly integrates with the balance sheet and that drives cash flow.

Balance sheet influences from sales growth:

  • A new customer with longer payment terms (most Fortune 500 have 90+ payment terms) results in increasing accounts receivable.
  • The inventory increases due to more SKUs or faster use of items.
  • Additional equipment purchases or plant expansion to meet the new demand.
  • Increasing repair and maintenance expenses may mean new equipment requirements in the near future.


Another often-overlooked aspect of the balance sheet is the owner’s equity section.

In most small businesses, the amount the owners pay themselves goes through the balance sheet as owners’ draws instead of the income statement as wages. This poses another dilemma when you only look at the income statement. If you don’t have both income and cash flow to support owner withdrawals, the equity section eventually becomes negative because the business is not supporting the amount the owner is withdrawing.

Forecasting the Balance Sheet

Forecasting your business's balance sheet is a detailed process, but when you have the right steps, it's a powerful business tool
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As with any forecast, when forecasting the balance sheet, you should start with what you know. You have historical information that you can use to analyze how the balance sheet changes in relation to the income statement. It is critical to adjust the historical information for new assumptions. For example, if the new growth is through a new customer with extended payment terms or if you are moving ahead with higher deposit requirements, that too will affect the balance sheet forecast.

Let’s start with how we might project the various components as we forecast the balance sheet.

  • Cash – usually a fixed dollar amount that reflects “normal” cash maintained in your bank.
  • Investments – often assumed to be at historical levels unless the forecast expects equipment or plant expansion or other cash need to “use” it.
  • Accounts Receivable – using a benchmark of historical day’s sales in receivable, you can project balances. Adjust this for acquiring customers that do not fit your history. For example, if a large component of your new sales is a 90-day customer, calculate what days sales would have looked like if that customer existed in the past and use that in the forecast.
  • Fixed Assets – consider equipment purchases and/or plant expansions. If you are operating at 80% of capacity and the projected sales growth takes you to 120%, anticipate the expansion with an estimate of the costs of the expansion. For an annual forecast, don’t worry that it may be a longer-term project or break it down year 1, year 2 etc. Don’t forget to adjust depreciation for the change in equipment, here and on the income statement.
  • Other Assets – since these aren’t normally significant, unless you have information to the contrary, use historical levels in terms of dollars, percentage of assets, or other reasonable correlation.
  • Accounts Payable – benchmarking historical payables, typically as they relate to cost of goods sold in manufacturing or total expenses in a service company, gives a reasonable estimate.
  • Other Liabilities – these typically reflect a single outstanding amount such as payroll deposits, an insurance amount, or a payroll and are not significant. Like Other Assets, these can reflect historical levels.
  • Equity – reflect owner draws and the forecasted income. Owners’ draws are particularly important, as this is the only place on the balance sheet they appear.
  • Debt – Use debt as the balancing item on the “balance” sheet. If you have a Line of Credit or Working Capital line dependent on Account Receivable take the appropriate % of receivable to record the amount of the line. If there are investments that you would rather use, adjust there before determining the amount of debt needed. Once all other balance sheet items are forecasted, use debt as the WITTB (an important accounting term meaning What it Takes to Balance) – or the plug.

Once you have done the detail calculations to forecast the balance sheet – DO NOT forget to review it for reasonableness. No matter how logical your assumptions seem, they may generate outcomes that don’t make sense. Look for them!

It’s also very wise to look at your debt agreements to see if your bank will support your forecast. Don’t project 200% sales growth, if you can’t finance it internally or externally. This is where logic and reasonableness come in.

Income Statement Forecast

Just a word here on the income statement forecast: while many income statement line items can be predicted from relationships to sales or historical relationships (fixed and variable components), most often sales predictions are too optimistic. It’s one thing to set stretch goals and quite another to tell your banker that’s the expectation.

While my bent is very conservative, I have seen too many plant expansions, office building moves, and hiring done in anticipation of the “forecasted” sales only to bring the business to its knees with cash flow problems. The mental and physical stress wears the business owner down and prevents actually getting the sales! Be reasonable.

If all of this sounds too complicated, I have a model that brings this into focus. Visit my website to contact me for a free 2-hour consultation.

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The Benefits of An Advisory Board

Wondering if an advisory board is a good move for your company? Implementing an advisory board is a great way to boost your company’s value.
What constitutes an advisory board? Who should participate on an advisory board? Is an advisory board the right fit for my business? While most private companies aren’t required to have a formal board of directors unless investors or their banks insist, advisory boards bring value to the business. Even if you are the sole owner of your company, there are many reasons why you should consider setting up an advisory board. identifies the differences between a formal Board of Directors and an advisory board: “An advisory board is a body that advises the management of a corporation, organization, or foundation. Unlike the Board of Directors, the advisory board does not have authority to vote on corporate matters, nor a legal fiduciary responsibility.”

Why Engage an Advisory Board?

A well-selected advisory board adds significant value to your business. As a rule, any business can benefit from a group of wise and experienced outsiders who mentor, share successes and problems with the entrepreneur, and act as a sounding board. As an entrepreneur, you wear many hats and some hats fit better than others. An advisory board fills the gaps and provide guidance in areas where you have less knowledge and expertise.  Alternatively, you can form an advisory board for in-depth expertise in a particular area, such as forming a Medical Advisory Board if you are developing a new drug or medical device.

Considering an Advisory Board? Start Here.

A trustworthy board of advisors will help you put together the pieces of your business to help you achieve the visions you want for your business
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Who you are? Where you are in your business? What exactly do you need in terms of advisory services? Ask these types of questions to refine your thought process on an advisory board. Keep in mind, if you are not going to listen to the input of your board, don’t bother. An advisory board only works if you’re open to their suggestions.

Some questions to ask yourself as you consider implementing an advisory board:

  • Is your business growing? Do you feel you need input in areas outside your expertise such as sales and marketing or more technical fields such as engineering and accounting?
  • Are you considering a geographic expansion of your business? Are you looking for specific expertise in the expansion process itself or knowledge in the new geography?
  • Do you need help on the execution side of your vision?
  • Is industry upheaval requiring more specific industry insights?
  • Are you preparing for an acquisition, product launch, or other significant business change and seeking to avoid missteps?
  • Is your business in a rut? Are you out of new ideas?
  • Has a new competitor moved into your market and you need help responding to the new competitive landscape?
  • Is business running smoothly and are you just looking for suggestions to incrementally improve or monitor progress?
  • Are you willing to be open and honest about your company with outside advisors or will you hold back?
  • Can you deal with honest feedback – no matter what?
  • Can you accept change for the business, even if it goes against your likes and wants?
  • Are you organized enough to follow through on planning and preparing for the advisory board meetings to make productive use of board members time?
  • Are you primarily looking for mentors, a sounding board, accountability, help in dealing with issues, or a specific issue?
  • Are you willing to broaden your thinking based on the insights of the advisory board?

I repeat, if you aren’t going to listen (even though the final decision to implement the advice rests with you) then don’t bother!

Understanding The Who and What of the Advisory Board

Who should sit on the advisory board?

After defining the purpose of the advisory board, the first characteristic to consider is expertise and experience for the role; members who can bring an outside perspective and judgment. Defining what is outside may require thinking broadly. Board diversity brings value, as a Credit Suisse Research Institute study of 2,360 companies showed. Those with at least one woman on the board performed 26% better than comparable companies did. Seeking out divergent opinions is important. Depending on the reason for the advisory board, types of diversity might include differences in geography, social status, technical skills, risk-taking temperament, industry, gender, national origin, etc.

Like your company culture, diversity on your advisory board brings value, whether better understanding your customer, your business, or just improving financial performance. In a diverse board of advisors, not everyone has to be an extrovert – just willing to state their opinion. Often introverts bring additional insights. Using a tool like DiSC or Myers Briggs to assist in communication across diverse members might also be helpful.

While each member of the advisory board should be committed to your success, if you seek only those who agree with you and offer a similar perspective, there’s not much point in forming a board of advisors.

What does an advisory board look like?

Selecting members for your board of advisors might be a challenging process, but having diversity in opinions is a benefit
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A highly effective advisory board needs chemistry and operates within a culture of trust. Effective boards function with dissension and candid conversation. This isn’t easy. Susan Scott’s book “Fierce Conversations” provides tips for getting there.

Advisory boards are not ad hoc events. To be respectful of members’ time and gain insights, highly effective boards of advisors have:

  • A focused objective.
  • A definition of quality participation and contribution expected.
  • A defined term of service (2 or 3-year terms).
  • 3 to 8 members.
  • A deep respect for the knowledge brought by each member.
  • Meetings regularly (quarterly) for a specific duration with a formal agenda and a 12 to 18-month schedule.
  • Agendas and needed prep work distributed with adequate time for review.
  • A standard format for materials provided that is of an appropriate quantity and quality to serve its purpose (unbiased summaries and quick visuals).
  • A trained facilitator or chairman keeping focus and timetables.
  • Periodic communication on “hot topics” and regular business updates.
  • Opportunities to develop personal relationships (dinners, events, outings).
  • A compensation plan (ranging from paying for travel and lodgings to actual money).
  • Members that aren’t employees; outside professionals minimize any self-interest.
  • A plan to disband after completing objectives and retire members who are no longer contributing.

Creating the Advisory Board

After the self-analysis and formalizing the process, you are ready to draft the charter that will clearly communicate the expectations for the board of advisors. Be thorough in your thought process so expectations are clear to those you will approach to join the advisory board.

The charter might look like this:

My company seeks to improve profitability and growth through a six-person board of advisors. Individuals who can contribute will bring technical and industry expertise and have a record of accomplishment. The responsibilities of the advisors:

  • Contribute expertise and ideas to support growth and profitability, as well as the ability to address other issues as they arise.
  • Attend four meetings per year, at least one in person.
  • Review monthly reporting package and be available for questions.
  • Prepare for the quarterly meetings in advance.

The term of service is at least one year, and compensation includes travel and lodging expenses and a stipend of $1500 per year.

The charter may be expanded if there are specific additional considerations (for example, reviewing and commenting on FDA paperwork in the case of a new drug).

To recruit for the advisory board, use your network and those of colleagues. Seek out potential members while keeping in mind the criteria previously identified. A high-functioning advisory board can move your business forward quicker and more successfully than you alone are likely to do. Giving serious consideration to creating an advisory board is the right move for many companies.

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CFO Starters: How to Set Up a KPI Dashboard

Wondering how to organize those key performance indicators? A KPI dashboard is an essential way to organize the data in one spot. Here’s how to set up a KPI dashboard.
Dear CFO,
My boss recently came back from a seminar and was excitedly going on about setting up a KPIs and dashboards. Is this a new flavor of the day or are the KPIs and dashboards valuable tools for running the company? It seems it’s my job to start the process of collecting and presenting the key performance data.
Wanting to Make a Meaningful Contribution in Kansas City

I can relate to the “flavor of the day” business conundrum, but KPIs aren’t one of them. The term KPI (Key Performance Indicator) has been around for quite a while. One article described KPI as a term that “some brainiac coined … to help identify details that matter for businesses.” Details THAT matter vary BY business, of course, but there are commonalities. Often, the financial area is an effective starting point for developing KPIs and tracking them within the KPI dashboard, primarily because the financial systems already have a lot of numbers available and benchmarks to compare them.

In fact, whether or not you actually call them KPIs, the numbers you track every day, month, or year are likely KPIs. For example, comparing today’s sales from your POS (point of sale system) to yesterday’s is a KPI. Analyzing the financial statement margins by region compared to your budget, industry, and prior year are the top level of KPI analysis.

KPI Works from the Bottom Up

A KPI dashboard is a great way to track goals, progress, and even where to improve your processes
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Rather than identifying a problem at the top level, design your key performance indicators and KPI dashboards to identify the results and issues from the bottom up. Rather than using sales by product line to identify product mix differences within the region, and then further “drilling down” to look at the performance of individuals, a sales dashboard should identify the individual performance, product mix, or another KPI driving the variance. The department head is then responsible for flagging and explaining variances, as well as addressing the plan to meet benchmarks or goals.

KPIs should drive decisions and lead to action. Obviously, the financial department would have limited reach in the above example situation. Senior management must lead, as well as hold all team members accountable.

Common attributes of a good KPI include:

  • Well-defined, measurable information that is readily available or cost-effectively obtained.
  • Measuring a factor that has a direct impact on a specific goal or long-term performance.
  • Effective communication of the performance standards throughout the company, cascaded to responsible departments.
  • Actionable results. You should be able to act on it, holding team members accountable when the indicator digresses from the goal.

Where to Start with Key Performance Indicators

The financial area of your business is often the moderator of the “readily available or cost-effectively obtained” indicator. Frequently, there is so much enthusiasm for the implementation of KPIs that there are too many measures. As a result, it becomes too time-consuming to collect the data and everyone quickly loses interest.

I suggest starting with a few readily available metrics in each department:

  1. Identify 1-3 key performance indicators meaningful to the performance for each level of the company. Don’t overdo it with the number of indicators you take on at once. For company goals, cascade down; for operating objectives (benchmarks), work from the bottom up. Collections and Accounts Receivable may measure accounts over 90 days against a benchmark (less than 5% of total receivables) or a goal (reducing aging of over 90-day accounts to less than 5% of total receivables – thereby expecting a downward trend). Sales might measure against a goal (5 new customers each month or increasing average ticket to $500 or increase close rate to 50%). Check out this smorgasbord of KPI choices to help you get started – don’t pick too many!
  2. Determine the best time frame for setting and evaluating goals/benchmarks. Are you seasonal and therefore monthly goals vary significantly? Can you set an annual goal and expect to capture 1/12 of the goal each month? Do you expect it to take 6 months to reduce the 90-day receivables or is the goal to reduce by the end of the year?
  3. Determine the data elements needed to get the data for your KPI dashboard. For example, does the accounting system age accounts receivable? Is the average dollar value of the ticket available (or the elements needed – the number of tickets and sales dollars)? Is there a sales funnel that measures conversion to sales?
  4. If the data elements aren’t readily available, identify what needs to happen to get the needed data and whether are you able to capture and use it cost-effectively.
    • Review the existing systems within your organization to determine where to potentially capture the data. For example, to measure pipeline, you need to know outstanding quotes. Do you track quotes? If you track quotes, do you “close” them when it becomes evident you aren’t getting the business? Do quotes over x days still belong in the pipeline? Does your system track history to identify how many quotes convert to actual business?
    • The key to readily available data is taking full advantage of proper set up of your systems. What are the capabilities of your systems? CRM systems usually measure the sales funnel (calls to quotes to order). Basic accounting systems often have industry specific processing that can collect data (QuickBooks allows for the classification of quotes – won/lost, etc.)
    • Beware of GIGO (garbage in/garbage out). With any system, there are ways to scam or carelessly enter data. Optimizing the systems to capture data as it occurs increases the likelihood of complete and accurate data. For example, if all sales calls are required to go through the system, quotes prepared in the system, quotes converted to orders, and orders invoiced, there is little room for finagling. The process itself encourages accuracy.
  5. Everyone in the company must understand their role in the KPI implementation and why it’s important. Everyone means everyone: CEO, department head, and support personnel. Senior management must lead and enforce accountability as well as monitor response to variances from benchmarks or goals through a well-defined reporting structure.
  6. Verify the accuracy of the metrics on a periodic basis, as well as the reporting and actions. Incorporate this process into the monthly financial statement close and manager’s meetings at the direction of the CEO.

Establishing a KPI Dashboard to Manage the Information  

A KPI dashboard should be implemented and useful at all levels of your business - from the CEO to assistants and managers
Image via Pxhere

A KPI dashboard visually represents the performance of KPIs against benchmarks or goals. The most detailed KPI dashboard is at the lowest level of the company and the KPIs and related progress are consolidated as they move higher in the organization.

  1. Determine the parameters used to judge the performance against a goal. If you are 10% below your goal, should you take corrective action or just investigate? Should your company be 75% of the way to the target on September 30th or is your business seasonal (like retail) and only expected to be at 20% of the goal? The choice of percent vs. dollars isn’t critical to the success of the KPI dashboard, but rather that the KPIs are clear. Each person in the company should have the capacity and resources to reach their benchmarks.
  2. Determine a visual representation of the KPI at each level of the organization.
    • Department level – In the sales department, you may choose racehorses staggered with the “closest to goal” salesperson in the lead (whether the salesperson is closest to achieving the percent of the goal or the actual dollars). The achievement of the accounts receivable aging goal (reduce 90-day accounts to < 5% of total receivables) might show a trend line in green if it’s heading in the right direction or simply highlight the percent in red if going the wrong direction.
    • Senior management – The KPI dashboard may only show year-to-date sales with a color (red, yellow/amber, green) to show the progress. This KPI dashboard may not even reflect a report on the accounts receivable unless the A/R was off track or had a significant impact on cash flow. Consolidate data as you move up the hierarchy.
    • Some departments in your company may need more fun and competition to motivate them. Others may find success by staying focused on day-to-day performance. Keep the company culture and culture of the individual departments in mind as you plan your KPI dashboards.

Once a year, as part of your planning process, evaluate the efficacy and importance of the KPIs you’ve selected as your measurements. You may find the need to change them, add new indicators, and eliminate those that no longer add value. System improvements for data collection and evaluation can become part of the next year’s KPIs and should be added to your KPI dashboard to give you a constant snapshot of your company.

If the list of potential KPIs or keeping track of the data via a KPI dashboard still seems overwhelming, you’re welcome to contact me for a free 2-hour consultation.

Featured image and all post images licensed for use via Pxhere.

How to Successfully Take on A Business Partner

Are wondering how to take on a business partner smoothly and successfully? There are a few steps to help make the partnership process easier on the company.
The horror stories of business partnerships gone awry, often sound like bad divorces. Most of these stories serve as cautionary tales as to why we should never take on a business partner.  Of course, it’s possible to start and grow a business without partners, but there’s also nothing wrong with a good partnership. So should you take on partners and if you do, how do you create a good partnership?

The decision to take on partners is your choice alone. Look at the future of the business, your capacity to take on another executive, and carefully weigh the pros and cons. Once you decide to take on a business partner, follow the steps below to ensure the onboarding process is a smooth one.

Note: Partnership here refers to two or more people who are starting/heading a business not the legal form that could refer to several structures from a Corporation to LLC to traditional Partnership.

Change Your Vocabulary and Mindset About the Business

When you take on a new business partner, it's necessary to change your view of business ownership.
Image via Burst

Notice I said “THE” business. If you take on a business partner and you continue to refer to it as “your” business, you set the stage for failure. When you take a partner, the company is no longer just “your” business; it becomes either “the” business or “our” business. The words “our business” conjure a different perception. It may seem like a minor adjustment, but this small change in vocabulary helps shift your mindset toward keeping decisions broader and less personal.

Engage Professional Help as You Take on a Business Partner

Unless you hold a law degree and ample experience in business law, taking on a business partner isn’t a do-it-yourself project. The professionals will help hammer out the details and a trained legal eye can identify key clauses needed in the partnership documents to serve as a starting point for negotiations. The final partnership agreement will encompass legal and tax requirements as well as buyout and other options for exiting the partnership. Protect the company and yourself by putting all partnership documents in front of an attorney.

Iron Out the Details Up Front

It’s often much easier to define all aspects of the partnership before there is real money involved. If the partnership is for an existing business, the steps are the same. At any point in the partnership process, you may decide the union isn’t working. Perfect!

The process outlined here does entail a great deal of work up front, but setting clear expectations will pay off. Most of us would agree that the costs of comprehensive analysis are much less than the legal battle of a failed partnership. Before you begin, you may also want to retain a facilitator for the process. Using a facilitator as you take on a business partner ensures the discussion is thorough and all decisions are documented.

Steps to Successfully Take on a Business Partner

1. Agree on the vision.

It’s crucial to define the business in legal documents but running the business day-to-day requires a shared vision. Partners should also be on the same page regarding the mission of the business as well as the balance of their personal lives. Consider the vision for both the long-term and short-term. If you are the type of person who lives to work, and your partner works to live, identify how that affects roles, responsibilities, equity, and so on, as you form the details of the partnership.

2. Define the exit strategy.

The discussion around an exit strategy is likely to expose differences in the expectations of partners for the business as well as identify differing long-term intentions of the partners. As you discuss the other aspects of the agreement, you may circle back to this conversation multiple times. Expect the perspective to change as you go through the process. Revelations that arise as you define the exit strategy may kill your deal.

3. Agree on the business plan.

When taking on a new partner, it's important that both partners agree on a business plan going forward. Does your new partner share your vision?
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Define the steps required to make the business a success. What is the business plan? Do you and your potential partner agree on market segments, distribution channels, forecasted revenues, expenses to support those revenues, funding sources, and cash flow projections? Other business decisions to include in the business plan are: first hires, the team needed, and the plan for ramp up. These topics should generate vibrant discussions to identify differences of opinion that should be resolved. Exuberant support of varying positions will add helpful perspective, and the resolution of any conflicts is an important part of the partnership process.

4. Identify the roles of each partner.

Once you know (or think you know) what the business needs, define the roles required to make it happen without identifying who will take on the role. Common roles are sales, executive, administration, accounting, IT, engineering, manufacturing, and customer support. What roles did you define as needed in the business plan? If you are taking on an add-in partner for an existing business with a team in place, this discussion is the same – defining the roles of each partner.

What does the role of partner mean? What are the responsibilities under the partnerships and what is the level of authority? What is the reporting hierarchy?

For example, a simplified engineering role may include:

  • Maintain knowledge of all relevant product safety rules.
  • Meet regularly with manufacturing to improve product quality and ease of production.
  • Provide drawings and bills of materials for all products.
  • Propose changes to the product to meet safety rules or to enhance production.
  • Report to Engineering Manager.

In a small business, a partner might take on the roles of both the engineer and engineering manager. The engineering manager has a role and reporting structure as well. When an existing company takes on a business partner, much of this legwork is already complete. The definition of roles should clearly designate the ultimate authority of each role.

Assigning the roles to partners involves matching skill sets. It’s important when you take on a business partner, you balance the workload (to the extent possible) and clearly define how the authority is distributed; budgeting, spending, hiring and firing, are just a few examples.

In defining roles and dealing with the perceptions of the work involved in a role, recognize the different requirements as well. For example, accounting may require more hours than sales, but both teams contribute to the success of the company.

5. Agree on the components of equity.

After all of the roles are defined, the partners have a clear understanding of what they are looking for, and the commitments they’re willing to make, it’s time to talk “equity.”

  • Ownership Structure – Ownership structure should follow contribution to the business. In a 2-person partnership, often ownership is assumed as 50/50, and rightfully so. However, a 50/50 partnership may lead to a predicament even with an arbitration clause. Consider instead an equal partnership at 49/49 with an outside 2% holder as a swing vote in case of an impasse. Use caution and diligence to choose the 2% holder carefully.
  • Work Equity – In theory, after all the legwork above and a periodic review, you and your partner will agree what equity looks like and avoid the argument of who is doing more work.
  • Compensation – This is a corollary of work equity. Having defined roles and responsibilities, benchmarking compensation will help avoid future difficulties. Entrepreneurs should budget and pay compensation to all active partners (including themselves).

The Benefits of Taking on a Business Partner

The benefits of taking on a new business partner are sharing ideas, achievements, and setting now goals while growing your business
Image via Pixabay

Is it worth all the work to take on a business partner? Only you can decide what’s best for your business, of course, but in most cases, the right partner compliments you and brings additional value to the business by:

  • Providing a sounding board for new ideas. Whether taking on a devil’s advocate role or simply by bringing a perspective from a different background, your partner has a stake in helping you make better decisions.
  • Offering additional capital if you can only bring your idea to fruition with more money than you have, and loans aren’t an option.
  • Bringing needed talents and skills. Entrepreneurs often wear too many hats and rounding out your expertise grows your business faster and better. If you are visionary and details bore you, a detail-oriented partner will increase the probability of success (possibly while driving you crazy, but remember it’s all about balance).
  • Challenging and energizing the business. Entrepreneurship is difficult, facing obstacles with a shared vision and mission enables you to have challenging conversations while still remaining enthused about the business.
  • Sharing responsibility. While employees also lighten the load, a partner makes developing the business a shared experience.

Taking on a partner is a huge step. Katie Felten of Strategy House expressed it this way: “Yes, having a partner has been transformative for me… (we) created a rock-solid operating agreement, and talked through the what-ifs of things not working out early on. We are aligned in our business growth goals and have very complementary skill sets. We each do what we love and what we are good at every day and appreciate that the other takes on aspects of the company we wouldn’t want to spend time focusing on.“

Of course, when considering if it’s the right step to take on a business partner, many of us focus on the risk of loss when we should objectively evaluate what we can gain. Would you rather own 100% of a $1 million business or 50% of a $3 million business?

Evaluate what you think a partner brings to the table and force your thinking toward focusing on the gain, not the loss. The process is designed to ensure you are on the same page and the partnership will last, creating a successful future for your company.

Featured image via Pixabay. Post images licensed for use via Burst and Pixabay usage rights.

File Naming Conventions: Best Practices to Save Time (& Money)

Wondering how to set up file naming conventions for your company? Implementing file and folder organization saves your company time and money. Here’s how to organize your business files.
Dear CFO,
I am an accounting manager at small injection molding company. I’m also over the IT administration. Many of our employees complain they can’t find files in the system when they want them, myself included. I also have concerns about the security of some of the files. I am wondering if there are tips for filing best practices in a small company that might make this easier.
Can’t find it, Detroit

That has a familiar ring to it. In the small company I ran, finding files and information was a common problem until we established standard file naming conventions and filing procedures. The search for files and sorting through misinformation cost our company time and money. While establishing file naming conventions and filing procedures didn’t fully eliminate the problem, it did mitigate the costs substantially.

Looking for files is an insidious time waster; some estimates put this cost at $2000 to $6000 per year (and that sounds low to me). The estimated cost doesn’t include the frustration, poor decisions based on less-than-full information, or the reproduction’s variance from the original document.

Creating Folder Naming Conventions

Included in the process of setting up the file structure and file naming conventions is addressing the question of limiting access. We used Windows Small Business Server (now known as Windows Server Essentials) and were able to establish a hierarchical definition of the electronic file structure based on the roles of individuals.

Our directory structure cascaded security like this:

Executive – President only
Finance – President & Finance only
HR – President & Finance only
IT – Above plus outsourced IT
Sales — President, Finance and VP Sales only
Accounting – Above plus Accounting Clerical
Service Provider – Above plus Sales team members
Customer Communications – All team members, including temps and interns

Implementing file naming conventions across your company will save your business tons of time and money wasted on searching for files.
Image via Pixbay

Under each electronic folder were organized various subfolders adapted to our business. We created a clear definition of the types of information in each folder.

Depending on the size of your organization, this filing structure could be adapted to a department head and those under him or her, with filing organized by roles. So, if the Controller had a larger department with Accounts Payable, Accounts Receivable, and Cash Management working under them, the folders would be identified and secured by role.

When deciding on the file structure, consider internal controls, data protection requirements (especially if you are international and covered by GDPR or medical under HIPAA) and the level of transparency your company follows. In my company, most information was distributed on a “need to know” basis, but this may depend on your company culture among other factors.

To define your filing folders, first define what needs storage in the folders and by whom. It’s important to be specific when you create folder names as well. Filing Excel files in a folder called Excel and Word documents in a Word folder is unacceptable. Also, filing under individual names, on C drives, or memory sticks is verboten – keep your electronic files housed in a place where they’re regularly backed up.

A good method of defining the subfolders involves identifying the process-generating data, its form, and appropriate access (whom and how). The size and type of your business will also have an impact on the folder naming methods, as will the sophistication of your systems.

For example, let’s say you run a service company and your dispatcher needs to know if a customer has past due balance. In a sophisticated system, the past due balance might appear in the form of a red light on the screen with an amount to collect. In a smaller system, the dispatcher may have to access the customer’s account to find the past due balance, or to follow up with a copy of the invoice if the customer has further questions. A walk through of the needs in each process helps to frame the requirements.

The system capabilities drive another aspect of the filing. In the invoice example, does the system generating the invoice drop a single file for each day’s billing and simply place the dollar amount in the customer’s account (i.e. no drill-down capabilities to the invoice)? In that case, file the invoices into folders by day or month, not by customer name. If you generate a small number of large invoices manually, you may file them individually into a customer folder.

A word of caution on the folders: one of my bad habits is filing too deep. I used to have a folder with 4 or 5 levels of sub-folders. Unfortunately filing this deep results in misfiled documents, as well as too much “clicking” to get to the file you want. I would suggest instead, you create subfolders no deeper than 3 levels. If you still feel you need more categories, develop a better umbrella category and move the relevant folders to a new main category.

Establishing File Naming Conventions

Establishing file naming conventions requires thought as well. What is the best grouping for files: by date (year, day, month, time), by customer, by address or…? The choices for file groupings are endless. It’s important any files regularly accessed by multiple team members follow the defined file naming conventions.

However, choosing the right file naming conventions accomplishes these objectives:

  • The file naming groups common references together (customer, invoice, legal documents, etc.)
  • The file names are sequentially logical
  • The file naming convention is consistently followed

Grouping Common References Together

File naming conventions are the easiest way to keep track of files and stay organized in your business
Photo via Pxhere

Common references mean items you would commonly seek together. If you were seeking information on a customer account, again depending on your systems and departmental structure, possibilities include:

Where the customer is the most important point of reference:

Customer number_YYMMDD_Name of document (ex INV 556325)
Customer name_YYMMDD_Small claims court lawsuit
Customer number_YYMMDD_Notice of past due account
(Note: this date format is always sortable in date order by year within the customer number of name)

Where the system generates a file for invoices each billing date:


(Note: Even if the invoices were always put in a folder labeled billing, I recommend including a description in the file name; if there is a slip of the “click” the file is still identified as a billing file. If your system generates more than one file on a date, it’s often useful to have the invoice numbers identified on the file. For systems where invoices are stored within the system itself, obviously, there is no need for saving the files in a second location.)

Files for items like invoices for asset purchases depend on the type of business and type of asset. Cars and Trucks may use a VIN number and description, while large pieces of equipment may have serial numbers and descriptions. Furniture, on the other hand, may only require descriptions. In some systems, the invoice for asset purchase attaches to the original transaction within the system.

Larger companies with a high volume of equipment may put asset tags on all the equipment to identify it. Frequently the accounting department maintains the records. A key element of the file identifier is the date purchased, as the date of purchase drives tax reporting.

Examples of Assets by Date:

YYMMDD_Asset number_2Ton Crane
YYMMDD_VIN number_2018 Ford Explorer
YYMMDD_Steelcase Executive Desk

(Note: keep away from naming that might change, such as “Bill’s desk,” or “NE Corner Crane.” If you have multiple cranes or desks, consider tagging those assets)

File Names Are Sequentially Logical

What is the sequence you’ll most like search for: customer by date or date by customer?

Beer vendors, for example, use location as their key – there is always a bar at the location, even though the ownership might change– not the customer. Hence, much of their file naming is conventions include location. Within that file naming convention, there are still variations (12390 Greenfield Rd Waukesha WI or YYMMDD_WI_Waukesha_Greenfield_12390). This type of file naming convention is helpful if, by chance, you need to report all new locations in the state by the city as part of your annual reporting to the BATF.

The File Naming Convention is Consistently Followed

Everyone one needs to follow the rules. Period.

Remember your file naming conventions are only effective if they’re followed by everyone in the company, every time. This may mean you need to delegate responsibility to the department heads or another party who will quickly identify and raise the red flag if file naming starts running off the rails.

While the concept of implementing file naming conventions is somewhat “old school,” it is still a highly effective way to manage your document storage. Following company-wide file naming convention best practices will save you stress and headaches in the long run. The new paradigm of file storage and search that doesn’t rely on file name has cost well-beyond what most small companies are willing to spend.

Featured image via Pixabay. Images licensed for use via Pixabay and Pxhere.