The Key to Effective Delegation: Clear Communication

Male and female coworkers discuss work over a laptop.

Delegating effectively can lift the performance of both you and your company. Strong delegation skills are a vital tool, offering benefits for both the person who delegates and the team member delegated to. However, not all delegation is effective. Here are the common traps and how to avoid them.

Dear CFO,
I keep trying to delegate work to my staff, but they either do it so poorly that it’s easier to do it myself or they ask so many questions that I can’t get anything else done anyway. How can I use better communication for more effective delegation?
– Overwhelmed by Workload in Washington D.C.

Build Your Effective Delegation Skills to Avoid Delegation Traps

It’s easy to fall into what I like to call delegation traps. You may think you’re handing off work with clear instructions, but it’s easy to miscommunicate. Clear communication is the key to avoiding delegation roadblocks. Remember, not all delegation is effective delegation. Part of building your delegation skills is learning how to give clear, concise instructions that set your team members up for success.

Not sure if you need to work on your effective delegation skills? Check out these common delegation traps and see if you’re falling into them.

The Most Common Delegation Traps: Communication Roadblocks

Woman standing in front of her team, moving post-it notes around on a meeting board.

1. Failure to define the project in terms of the SMART goal.

  • The problem: Instructions given are inadequate to complete the project and will likely result in lost time and energy as the project is fixed along the way. This leads to frustration for both parties.  It’s not patronizing to lay out the instructions clearly and if they aren’t clear, it should be no surprise when the team member has additional questions. A negative response from the delegator, in this case, is both demoralizing and unproductive for the team.
  • The fix: Lay out the requirements for the project in a SMART goal format. Follow up with the specifics on responsibilities, levels of authority, reporting and monitoring requirements. Engage the team member in the process and follow through for more effective delegation.

2. Only the dirty jobs get delegated.

  • The problem: You only delegate tedious jobs which are low visibility or just plain boring. The team member may get the impression you perceive these tasks as below you, leading to low morale.
  • The fix: Show the team you are not above any work by completing some of your own tedious tasks. For those delegated, explain the value of each task and recognize although it may not bring a Disney theme park ride to mind, it’s important. This will make the task more palatable for the team member. Effective delegation skills also include recognizing a job well done, team members are more likely to pitch in willingly when they perceive the value to them.

3. Conflicting priorities.

  • The problem: A critical, high visibility project just came up and you need to delegate. Your top team member is best for the job (this, and many others) and you shuffle their pet project to someone else.  In fact, you are always shuffling tasks around; this is damaging the attitude and productivity of your best team members.
  • The fix: Stop doing this! (Just kidding.) Make sure you establish open communication with your employees, encouraging them to bring conflicting priorities to your attention without retribution. When working as an acting Controller in a manufacturing company, I had a very good and hard-working team member who would always get the job done. I wasn’t always aware of what was on her list of priorities, so whenever I assigned or delegated a new project to her, she would simply ask what tasks on her list could get a new priority.  I accepted her process and we worked together to refine priorities and shift tasks.

Blank post-it notes on a board and a woman's hand moving one note.

4. Too little delegation.

  • The problem: You do not know what to delegate or maybe how to delegate effectively, so you keep doing tasks yourself that really should be delegated. Effective delegation skills are good for many reasons: the growth of your team, freeing up your time to help the business grow, and increasing the effectiveness and efficiency of the team by finding the best person for each project.
  • The fix: Make delegation an acceptable management objective by encouraging delegation at all levels of the organization. Train everyone on best practices to develop a set of strong delegation skills in each team member. Enable teams to focus on the higher priorities with regular communication of those priorities.

5. Lack of consistent policies, procedures, and training

  • The problem: Only one person knows how to do it–whatever “it” is. Delegating is hard, even in a growth mode, if you need to start from scratch on the process each time. Up until now, all of the information related to delegation was for a specific outcome such as a project or a report. While several of the traps apply in this scenario, there is a more basic issue in the day-to-day delegation which must be addressed: How can someone step in for your Controller while she takes a vacation if there are no policies to follow? How can you shift work from your accounts payable clerk when you need her on a short project if there are no procedures for his job, nor anyone trained to do it?
  • The fix: Effective delegation skills rely on cultivating flexibility in your team culture as well as following good delegation processes. Cross-train your team members. Setting policies to allow distributed decision making will benefit the entire team.  In the company I ran, the dispatcher had the opportunity to collect past due rents before sending service. We defined what her operating perimeters (delegation) for settling accounts was and I was involved if the customer would not comply.  It eliminated a bottleneck and increased cash flow. Document procedures to assure consistent job performance, accountability and cross-training is beneficial for all jobs. 

6. Forgetting you are accountable too.

  • The problem: Team members think they can use delegation to abdicate responsibility for various policies, procedures, projects, etc. Or, you may be pursuing a big customer and lose track of the day-to-day tasks. Well-trained team members will operate efficiently and, in most cases, get the job completed.  But, it’s important to remember, you can’t delegate accountability.
  • The fix: Team members need to keep you informed whether you like it or not. Your team needs to know you require active approval of the biggest projects, significant changes in policies (those which change a risk scenario), watch financial and operational metrics and schedule regular status meetings to keep a pulse on the business.

Remember, effective delegation skills are a useful tool to strengthen any team. Building on existing skills and helping develop new ones is the key.  Delegation works best in an environment of open and clear communication where team members can give feedback, ask questions and contribute to the final results.  When delegating, remember it is a learning experience and takes practice to implement.

If you happen to fall into any of the traps, you aren’t alone. Tomorrow is a new day and the perfect time to use these tips to improve upon your delegation skills and foster a better, more productive work environment.


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
Image via Burst

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
Image via Burst

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.

Acquisition Strategy: How To Prepare Acquisition Negotiations

To acquire or not acquire, that is the question. Before you set your acquisition strategy, you need to explore the reasons and benefits.

Companies seek acquisitions for many reasons, some of the most common reasons for acquisition are:

  • Geographic expansion in the same line of business
  • Consolidation of competition in the industry
  • Acquire R&D or other intellectual capital
  • Streamline operating costs by plant, people, and/or technology consolidations
  • Gain economies of scale in purchasing power, distribution channels, and/or market
  • Improve competitive advantage against larger players
  • Obtain a niche synergistic or complementary product
  • Customer acquisition

For smaller companies, facing a decline in organic growth often opens the conversation of an acquisition. Even if an acquisition opportunity drops in your lap, setting a solid acquisition strategy is important. Start the process by exploring questions on the “why” and the “what” of the acquisition. Lastly, exploring the “how” the acquisition will result in a better outcome for your company and employees, no matter how good the acquisition deal looks on the surface.

Exploring the Why and What of Company Acquisitions

Acquisitions are costly and often fail to meet expectations. They aren’t always the best answer for the company, so it is a good idea to thoroughly explore any alternatives available before you take the plunge. Examine the driver behind your desire for the acquisition. Have you considered lower-risk, alternative paths to achieving your goal without acquiring a company?

Some reasons for acquiring a company and questions to explore before choosing acquisition:

  • Slowing organic growth – Can you extend your own product line into new markets, new geography, or open to new customers? Can you buy a complimentary product line or open a new distribution channel? Can you cross-sell your other products in your existing markets?
  • Industry consolidation is making competition more difficult – Can you acquire, or can your company be acquired at a favorable price? Can you narrow your niche? Could you amend your product to address an additional niche?
  • Government regulations are creating higher cost burdens – Can compliance be outsourced to keep individual costs down?

Asking strategic questions will help you gain a new perspective. Analyzing why you want to acquire versus the alternatives will force a clearer picture of what you are really trying to accomplish. This exploration will help you to set parameters and define an ideal candidate for acquisition. This exercise will also help you avoid excess costs by eliminating those candidates that weren’t really a good fit to start.

In clarifying the “why” behind the acquisition, the definition of the “what” becomes clearer. The process of defining the “why” and “what” is often assisted by a business broker, lawyer, or other M&A professional. These professionals know the market, pricing, available deals, and businesses to approach and they can greatly assist in defining potential targets.

As you outline your acquisition strategy, it’s important to define what metrics will determine if the acquisition is a success. ROI is one measure, but not the only factor to examine. Consider other metrics that relate to the reason why. Did we succeed in accomplishing the why? Did it result in sales increases, overhead reduction, monetizing intellectual property, or was product line extension successful?

Setting Up Your Acquisition Strategy: Understanding the How of Acquisition


After hiring a team of advisors, including an experienced attorney and business broker or M&A Specialist (usually dependent on the size of the deal), the process of identifying candidates that fit your criteria begins. These may or may not be companies that are for sale. The formal search might include competitors, existing or potential partners, and those companies presented by brokers. The advisors help define candidates that meet your criteria and assist in pricing evaluation.

Letter of Intent (LOI)

A businessman signs a letter of intent, which is an important part of an acquisition strategy
Image via Pxhere

After identifying a candidate and assessing their interest in a transaction, the LOI defines the basics of the transaction, stating the legal names of both parties and the intent or purpose of the transaction. It will include the stated intent (purchase the business), a purchase price, closing date, and specifics of price adjustments. It should also outline any special circumstances of the deal as negotiated. This is a legal document and should be drafted by an experienced transaction attorney.

Once the LOI is signed, both sides should be biased toward closing, not looking for ways out of the deal. There will be emotions and plenty of surprises during due diligence – not all of which should cause the buyer and/or the seller to walk. If you’re looking for the perfect deal, it doesn’t exist.

Due Diligence

Due diligence is designed to verify the investment thesis for the acquisition and in so doing, to drive the integration checklist. Depending on the size of the deal, due diligence may be carried out by outside advisor’s team or by the internal team, if they are qualified.

Acquisition Negotiations

Before starting the process, keep in mind that there are many concerns that may arise as your company prepares to make an acquisition. The negotiating process is the time to hash out these concerns. It’s important to keep in mind that negotiations are often broader than simply agreeing on the financial aspects of acquisition. Concerns that arise during the acquisition strategy and discussion may include:

  • Due diligence – extent, timing, data room availability, and control. Access to customers and vendors, employee involvement needed.
  • Personnel-related – position eliminations, benefits (insurance, PTO, sabbaticals, leaves of absence, etc.), golden parachutes, termination payouts, rewards for completing the transition.
  • Physical-related – closing or consolidating locations, inventory changes (obsolete, excess).
  • Assignments of contracts – leases, purchase orders, sales orders, software licenses.
  • Timing and type of notifications – press releases and their approval, employee, customer, and vendor notices, cash commitments, and delivery.

As I often say, an acquisition isn’t a DIY project. Having professional support drafting letters of intent, arranging due diligence, and negotiating deal points will ease the initial burden of acquisition.

Good representation and advice in the negotiation is critical to your overall acquisition strategy. Your advisors bring experience to the table. They’ve seen many deals and thereby understand the parameters. They’ll use their experience to help prevent mistakes and improve your negotiating position. A well-negotiated deal and professionally drafted documents assure that both parties are on the same page and agree on the specifics of the acquisition.

Having fair and knowledgeable representation during acquisition negotiations is an important part of a solid acquisition strategy
Image via Pxhere

In my personal experience, I worked on an acquisition with my boss, another owner, and their CFO in a small conference room. During the negotiations, the CFO and I both heard the same “yes” to a high-level point, but it was our responsibility to work with the lawyers to get the deal into the legal documents (as the bosses went to dinner). When we began to discuss the point, we realized we each heard a different “yes” based on the myriad of conversations with our respective bosses. In this case, “yes” didn’t mean the same thing, and we both had different interpretations of what each owner meant.

The lesson from this acquisition negotiation aided me greatly in future negotiations. It’s important to remember that agreements between the two parties need to be extremely clear. Outline the points, ask questions, reiterate for clarification. Do the detail work and get down to the nitty-gritty, rather than relying on generalizations. Extra diligence in the acquisition strategy and negotiation phase will help you avoid expensive renegotiation and redrafting down the road.

Your advisors will also have input on the types of clauses that are standard in acquisition and transactions. They will share where they saw pitfalls in the past, evaluation of pricing, as well as assistance in structuring debt and/or seller financing (if you don’t have as much cash sitting around as Apple). You just don’t know what you don’t know! Therefore, trusted advisors are vital to acquisition strategy.

In one of my acquisitions, the seller, a large local company, issued a press release stating we were closing the location. This statement was false, and I spent the first day post-acquisition on damage control. It is very important all key players are part of the acquisition strategy and negotiation. Again, your advisors offer transaction experience to avoid missing important transition items. Advisors will also typically suggest that you include a catchall clause in the contract to allow cleanup for insignificant items.

Building Trust and a Shared Vision

The details of the aforementioned acquisition strategy and negotiations will go much smoother if the seller and buyer can agree on a shared vision. The vision varies, whether it is a portfolio company, stand-alone add-on, or a fully integrated strategic combination. This sets the stage for a cooperative rather than adversarial relationship.

Combining two organizations is a complex process with many moving parts. In many ways, it’s not unlike a second marriage where the family grows well beyond the couple themselves (blood relatives, exes, steps, in-laws, etc.). If both parties focus on the success and benefit of the new organization, expected outcomes drive negotiations. Honesty and transparency lead to trust, which bodes well for the consummation of the deal.

Pitfalls to Avoid During Acquisition Strategy and Negotiations

There are many pitfalls, both legal and logistical, to avoid as you work through your acquisition strategy. Possibly the biggest pitfall isn’t due to a failure to plan out the moving pieces. One of the major stumbling blocks of an acquisition comes from a failure to consider the human and emotional side of the negotiation process.

People feel passionate about their livelihoods, especially when facing change. There’s often a great deal at stake for both parties. Beware of buyers and sellers falling into emotionally driven acquisition negotiations; these can happen in a few ways, but two of the most common are when:

  • The buyer often “falls in love” with the acquisition, thereby creating many blind spots in the evaluation of the potential acquisition risks. In this case, it’s the advisors’ role to keep the desired outcomes as defined in the why and what in the forefront of the conversation. It’s your role as CEO to listen to your advisors.
  • The seller, especially if an entrepreneur or founder, created the business from nothing, developed, and grew the business with years of blood, sweat, and tears. The sale of their business feels like they are selling a piece of themselves–their child. Deals fall apart if the seller did not thoroughly examine the “why” and “what” before they get to the negotiating table. Again, an advisor will help you navigate through these waters.

There are other pitfalls as well. Beware of poorly represented sellers who hire their “every day” advisors to work on a transaction that requires specific deal experience. Without knowing the standard and customary clauses and expectations, attorneys can derail a deal with unrealistic expectations. Even experienced attorneys can fall into the trap of forcing the abdication of a business deal point rather than protecting the point legally.

Beware of “fast-tracking.” If someone is in too much of hurry to close a deal, this should be a red flag. Consider a higher level of due diligence before the negotiations start. A party that is moving too slow is also a warning sign.

Setting up a strong acquisition strategy will lead to a successful deal for all parties. It’s important to the long-term health and well-being of your company that you maintain your reputation for fairness, honesty, and transparency throughout the acquisition.

Bring on trusted advisors to help steer you in the right direction with their insight and experience as you navigate the acquisition strategy and negotiation process. As a CEO, it’s your job to listen to your advisors and carry out a strong plan for the future of your business.

Featured image via Pxhere. All images licensed for use via Pxhere.

Understanding The Difference Between Debt and Equity

Dear CFO,
The business I run needs an infusion of cash. I asked my controller to analyze the best way to obtain it and he referred me to you. I run a growing small business and in my budget for next year, I am projecting a need for capital to support sales growth and product development. 
Growing too fast for cash flow, Minot, ND

As you’re finding out, growth can be expensive. It does sound like you are at least ahead of the curve by thinking about it now. For a small business, resources for capital are typically limited to debt and equity. Larger companies may also fund capital needs with hybrid forms or venture capital.

Before deciding on the capital infusion, look at your business and decide if you would prefer to slow growth and development for now, so you can bootstrap without the capital infusion.

If you decide you’d prefer not to hinder your growth or lose momentum, weigh the two options of debt and equity and decide which to choose.

Debt Financing for Your Company

If you choose taking on debt to increase your cash flow, you’ll be in the company of 87% of small businesses. Some sources of financing for small businesses include leases, lines of credit, credit cards, term loans, and “Vinnie”-type loan sharks. (A word of advice: Don’t use Vinnie because there are so many ways that borrowing from disreputable sources will get you in trouble.)


Collateral – Generally, the lending institution will require that you pledge something of value (usually business assets) as security for the repayment of the loan. If the loan is not repaid, the lender can sell the assets to recoup the money loaned.

Covenants – Included in the financing documents are typically covenants that require the company to meet certain performance requirements. This might include monthly financial statements, borrowing base certificates, and certain ratio requirements (debt to equity, interest coverage, net income, or others) and other reporting requirements.

Personal Guarantees – In a smaller business or those with a questionable credit history, the owner may have to pledge personal assets (usually a home) directly or as part of a personal guarantee. Avoid personal guarantees if you can.

Advantages of Debt Financing

The pros and cons of debt and equity to help your business are worth considering when making this important business decision
Image via Pxhere

Lower Cost – Except for credit cards, debt financing is typically at a lower interest rate than the return expectations of an outside investor.

No Loss of Equity – The bank or leasing company does not want to run your business. You have full control and don’t need to seek input on business decisions. That is, so long as the decisions don’t lead to violations of covenants.

Matching – You can match the type of debt to the project: a lease to finance new equipment, a line of credit for a short-term shortfall (ex.a large project that has upfront costs), or a term loan to support hiring the new employees to support the growth.

Available to Virtually Any Business with Assets – Since the bank usually seeks collateral for loans, service businesses might need to personally guarantee or pledge other assets as collateral.

Improvement of Business Credit Scores – Similar to building personal credit, timely and consistent payment leads to better credit scores.

Disadvantages of Debt Financing

Disciplined Repayments – A term loan will require that you make the required payment on time each month. A line of credit requires a pay down if the collateral decreases (for example, you are borrowing 80% of receivables under 90 days and that balance decreases).

One-Year Term – Most banks renew the term loans and lines of credit annually, even when amortizing over a longer term.

Higher Interest Rates – A bad personal or business credit history or other influences may keep bank rates high.

Equity Financing For Your Company

Equity financing means that you give up some piece of the ownership to your equity investor. If you are in the friends and family stage, equity financing may be less strident but should still involve paperwork to document the agreement. The amount given up in a non-public company is often determined by a valuation and in a small business or start-up, by the negotiating skills of the parties involved. That may sound facetious, but ultimately equity financing is about what each party believes is the opportunity; we’ve all seen examples of this on Shark Tank.


Sales PitchIt is up to you to identify and sell the opportunity to the potential investor, supporting your ask with historical numbers and/or projections. The numbers should be achievable.

Board or Oversight – If the investment is large enough in the eyes of the investor, they may require a position on your Board or an oversight role in the case of non-performance.

Performance Clauses and Other Requirements – Again, depending on the size of the investment, the investor may include performance clauses for certain margins, growth, income, etc.

Advantages of Equity Financing

Added Input in The Business – Partnership offers many advantages, so be sure to consider the positive benefits of taking on a business partner.

The Value of Your Investment GrowsIf the investment makes a substantial improvement in your growth and profitability, the company gets stronger and the value of your interest grows.

Cash Flow – The cash comes in without immediate repayment terms. An investor usually has a longer time horizon than a bank.

Equity financing might lock you into a business deal that might not be the best choice for your business
Image via Pxhere

Disadvantages of Equity Financing

Loss of Control – Even a minority shareholder can burden your control of the company.

Higher CostThe investor is taking more risk and therefore requires a higher rate of return, which may be in the form of dividends when meeting milestones or with the sale of the business at some point in the future.

Factors to Weigh When Deciding on Debt and Equity

If you’re measuring the pros and cons of debt and equity, here are some questions to help guide you through your decision:

  • How important is the full control of your business compared to the benefits of growth and product development?
  • Can you qualify for debt financing based on your credit history, business history, and/or are you willing to provide additional personal guarantees or collateral?
  • Will there be immediate cash returns from the growth and product development that will enable you to meet the debt repayment schedules?
  • Does your customer base pay consistently and reliably enough to allow you to predict cash flow?
  • Where are you in the business life cycle? Are you in the predictable place of a mature business or the risky place of a start-up?
  • Are you already highly leveraged and additional debt is not available?

In most cases, after weighing the questions of debt and equity, most businesses opt for debt if they can get it. Debt is relatively inexpensive comparatively and equity can introduce a completely new paradigm into running the business. If you’re faced with this decision, remember to consider this caveat: don’t pass up equity automatically. Rather, evaluate equity against your own long-term objectives, your capabilities for growing the business, and the potential it offers. There are plenty of ways to mitigate a cash flow crisis or help your business during a crunch. Consider the merits of both debt and equity as you make your choice.

Featured image and all post images licensed via Pxhere.

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
Image via Pxhere

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
Image via Pxhere

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.

Featured image via Pxhere. All images licensed for use via Pxhere Licensing.

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?
Image via Burst

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.

Let’s Talk KPI Basics (Key Performance Indicators)

Trying to understand the basics of key performance indicators? KPIs are a powerful tool to help your company set goals, track and monitor performance, resulting in stronger outcomes.
There is much discussion of key performance indicators: what are KPIs? How to set KPIs? How to organize your dashboard? Let’s clear up some of the confusion as to what KPI means as well as discuss how to choose YOUR key performance indicators for YOUR dashboard.

Key Performance Indicators, or KPIs, are a powerful tool to motivate and measure success. Typically, KPIs are used in business as benchmarks. But the concept of KPIs can be confusing and vague. Today we’ll clear up the confusion and discuss what separates the good KPIs from the bad and the ugly.

KPIs are indicators of performance across your company and are helpful when displayed as reports and graphs to determine if your goals are being met
Image via Pixabay

Let’s start with a definition of Key Performance Indicators: KPIs measure performance success against a goal. Success is typically defined as the achievement of a specific long-term goal, or simply the repetition of a period’s achievement of an operational goal.

So, choosing the KPI that best represents the desired objective requires a deep knowledge of the business and the objectives. A quick report of the status of KPIs is called a dashboard.

Often, dashboards use short-cut visuals to hone in on performance. For example, in a typical dashboard, red might represent a KPI behind by at least 10%; yellow, one falling behind, and green meaning KPI is on/above the target. In sales, individual goal achievement might be visually represented by racehorses (or another icon) staggered, based on the percentage of goal achieved or sales dollars produced.

What Are Good KPI Examples?

Common attributes of a good KPI include:

  • Well-defined, measurable information that is readily available or can be cost-effectively obtained,
  • The KPI measures a factor that has a direct impact on a specific goal or long-term performance,
  • The KPI is effectively communicated throughout the company, cascaded to responsible departments, and
  • You can act on the indicator, holding team members accountable, when performance digresses from the goal

Measure KPIs in context and by that, I mean: define “compared to what?” If the KPI supports a strategic objective or specific goal, how does the KPI compare to that goal? For example, an internal goal of maintaining all accounts receivable under 90 days would then compare the receivables over 90 aging to the goal. Or, if the goal is to increase sales by 10%, then the monthly goals of calls, quotes, and orders expected as compared actual performance would be reflected on the dashboard.

Defining Good Key Performance Indicators

A recent visit I had with the commercial lenders at a local bank underscored the same dilemma I faced when I was running a business. What is a good KPI? With limited resources, how do I identify and track the best KPIs?

In my opinion, every company should track basic metrics:

  • Margin (preferably by product line or in construction, by job) is sales less related costs of goods sold. Measure margin against an industry standard, historical performance or other similar benchmarks. Trends or performance against the industry metrics may indicate pricing or performance issues which need to be addressed.
  • Pipeline means the sales you expect to close. Typically, measure the pipeline against history using the sales funnel (the percentage of quotes that convert to orders). Trends in the pipeline foreshadow future sales.
  • Backlog indicates how many incomplete orders you have now compared to your normal level of outstanding orders. This trend may show future customer discontent or a slowing/improving of your sales.
  • Lead Time is defined as how long it takes to get the customer the product from the time of the order. Compare to historical levels, industry standards, and competitor information.
  • Financial Performance & Ratios Include a series of pertinent financial data and ratios as part of the financial review process. Simply adding a couple of formulas to the monthly financials provides the information. These indicators fall into categories of liquidity, activity, leverage, operating and asset productivity. Measured against industry and historical standards, trends are often the harbingers of what’s to come.

As you establish the Key Performance Indicators, keep in mind when measuring departmental or any other performance, the company must still function as a whole.

Mapping out KPIs with your team can help manage and track team performance and determine how and why goals are or are not being achieved
Image via Pixabay

Incentives and performance integrate across the entire company. If the warehouse manager’s KPI to increase inventory turns results in production shut downs due to lack of materials, you created what’s called a perverse incentive. This could also indicate your warehouse manager is very bad at the job or the tools aren’t in place to manage the inventory properly. In all cases, the KPI gives you an area to address – the incentive; the inventory management; the tools available to measure and manage; and possibly a production issue.

How to Select KPIs for Your Business

KPIs come in all sizes and types and there are hundreds, perhaps thousands of them. How to choose?

Guide your decision by keeping in mind: the availability of data, team member workload, internal dependencies and costs to help focus on the most important tasks at hand. Depending on what fits best with your business, there are several approaches:

  • Simply start with the Company KPI measurements described above to get your feet wet on data collection, reporting, accountability, and response.
  • Select what you believe is your biggest performance issue and look at what drives it. For example, if you decide revenues are too low or falling, contributing factors could be the volume of sales, pricing of sales, ticket size, lack of upselling/cross-selling, customer selection, number of SKUs, the conversion rate of quotes, number of sales calls…and the list goes on. Since you know your business intimately, you can probably select the top one or two items that might move your revenue number, such as, revenue generated by day per construction worker as a benchmark. Decide on and set the realistic goal (historical company information is useful, if available) – another not-so-easy task. Once the goal is set, assign responsibility and start measuring the driver against the goal.
  • Get your CFO or Controller to analyze existing data over time. This data may include trends in margins, revenue per person, or other readily available financial measures to help identify any negative trends. Then select what you believe is the most impactful – similar to above– and address it.
  • If you have an annual plan and/or budget, break down the objectives in the plan into daily, weekly, or monthly goals cascading into the departments that contribute to the success of hitting the target objectives.

Establishing a KPI Dashboard

establish a KPI dashboard to keep clear track of your KPIs and track your progress towards new and better goals
Image via Pixabay

After selecting your KPIs, consolidate them into a dashboard. A dashboard sounds complicated, but it’s simply the place where you put the KPI objectives along with the actual performance. This may be tracked in a physical location or tracked as part of a shared software program used by everyone in the company.

Each level of the organization that has accountability will have a different dashboard with the highest consolidation at the Company level. For example, the sales department will have a dashboard possibly detailing performance by the individual, whereas management will have sales at a summary level that evaluates all of sales performance against the total objectives.

At any time, your dashboard should give you a full picture of where the company stands and where each department is performing based on their goals. The dashboard changes in real time, with regular updates to track performance. It’s important to delegate and assign the responsibility to department heads or other parties to ensure KPIs are regularly monitored, tracked, and reported on the dashboard.

Establishing the RIGHT KPIs is no easy task. It’s important to adjust as you go and select indicators relevant to your company. If you’d like to learn more about KPIs, you can even become KPI certified.

While implementing a KPI system may seem intimidating, it’s best to simply pick an indicator or data point and start. Starting is daunting, but as you get used to the process and your data collection becomes more meaningful, you can refine your business measures. When done correctly KPIs are a powerful tool in your management arsenal and can help you succeed in setting greater goals for your company.

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

Employee Onboarding & Orientation: How To Prepare Your New Hire for Success

Employee onboarding is an important aspect of running a business. Here's how to have a successful employee onboarding process.
In today’s tight labor market, employee onboarding has never been more important. It’s often challenging to find and hire the right people for your company.  When you finally hire, it’s essential to have processes in place to help him or her succeed. 

So, you’ve hired the perfect (or near-perfect) employee and they’re ready to start their new and exciting position with your company. Now what happens? Effective employee onboarding is critical to seamlessly integrating new hires into everyday operations and company culture.

If you’re wondering just how important employee onboarding is, put yourself in the mindset of a new employee:

Don't leave your new employee feeling like everyone forgot it was their first day. Make sure to have an employee onboarding process in place for new hires.
Image via Burst

On a typical first day, you show up and show up are greeted by a busy receptionist who says, “Oh, you’re here. I’ll take you down to HR.”

After a deluge of paperwork, HR escorts you to a supervisor who says, “I’ll see where your desk is,” only to end up plopping you into an empty cubicle, noting that your computer should arrive in a day or so. For now, well…. “Here, just sit tight, and I’ll check back with HR.”

As the new employee, you’re probably thinking “What did I get myself into? Did they forget I was starting today? And where is all the excitement they expressed about bringing me in as part of the team?!”

Always remember, for new employees the first day on a new job is exactly like any other first impression – and first impressions matter the most.

When I began a new job in 1982 at Aqua-Chem, I was greeted warmly and welcomed into a fully stocked office with my very own business cards, printed and ready to go. Introductions to my team members were a success and I had a pleasant conversation in the Controller’s office where my expectations were set. To this day I still remember how truly welcomed I felt. My amazing experience is how I knew I had made a great decision and was working for the right company.

Guidelines for Great Employee Onboarding

With varying opinions out there about what qualifies as a positive hiring experience, it seems tough to find clear employee onboarding guidelines.

In the book “You’re Not the Person I Hired! A CEO’s Survival Guide to Hiring Top Talent,” authors Barry Deutsch, Brad Remillard, and Janet Boydell provide useful guidelines for helping new team members feel welcome. This book is an excellent resource. I’ve personally used this book as a guide to establish my own company’s orientation manual and I’ve seen the amazing results throughout my career. The authors recommend a standard orientation process and a straightforward manual as the two key parts to success in the employee onboarding process.

Develop (and Adhere to) a Standard Orientation Process

Orientation is an important piece of successful new employee onboarding. The orientation process should be well documented and available to everyone in the organization. A smart place to store this information is in the company handbook. This establishes the importance of the process and makes the information accessible to anyone in the company. Although the handbook and process outline should be available for all employees, who is involved in the orientation process itself will depend on the size of your company. For a small company it may involve everyone but, for a larger business, it may only include one specific department.

Develop an Orientation Procedure and Manual

This is a one-time investment that will pay big dividends. Effective employee onboarding relies largely on a well put together orientation procedure and manual. After the candidate accepts the job offer, recognize the internal questions they will likely ask themselves: Will this really be right for me? Is leaving my current job a good thing? etc. This is the perfect time to confirm they’ve made a great choice to work for you.

I would encourage your company to create a standard orientation process as well as a personalized manual and procedures right away. Each part should include important steps as well as clear and easy-to-follow guidelines. This should be done before your new team member begins.

How to Prepare BEFORE Your New Team Member Starts

1. Send a Gift

Shortly after the acceptance of your job offer, send a gift to the new employee’s family and/or spouse re-confirming how excited you are to bring them on board. (Define this process for your company and assign responsibility within the procedure.)

2. Craft a Memo for Current Employees

Draft a memo to introduce the team member to existing staff. The employee onboarding process is sometimes tricky and navigating the best ways to ensure both the new and existing employees are happy is no easy task. Consider the expectations of current team members and proceed with caution not to oversell.

An employee onboarding memo might include:

  • Special qualities of the new team member and why they were chosen to fulfill the role.
  • Some interesting outstanding qualities and characteristics of the new team member.
  • The “stats” and how they will contribute to the team.
  • Reasons management likes him/her.

3. Prepare their Workspace with Necessities

Workspace essentials like a tablet, notebook, pen, paper clips, and a cup of coffee.
Image via Burst

Prepare their workstation with all the needed supplies, keys, security cards, and business supplies they may need. Don’t forget to add a touch of CELEBRATION to the space as well! Whether it’s a balloon, a banner, or a small gift, good employee onboarding should help the new hire feel special. A list of team members in the department, as well as those they might work with in other parts of the company, along with a brief description of their roles/responsibilities and types of questions they might answer, should also be included.

4. Schedule Time for Paperwork

Arrange a separate time and place for the overview of benefits and completion of new hire forms (the more general paperwork should be completed online prior to start). Typically, employees will need to provide copies of their identification and bank information (for direct deposit). It’s always helpful to request this ahead of time, so they can be processed with HR before their first day. You may want to offer them access to the copier, so they can copy and scan the materials they need for employment.

5. Define Clear Responsibilities

Remember to delegate tasks and define responsibility (generally the direct supervisor) for preparing for the very important discussion with the new team member by:

  • Reviewing and updating the job requirements and work rules.
  • Developing a draft of the training plan based on the job requirements, previous experience, and any strengths or weaknesses revealed in testing, if applicable.
  • Preparing for a specific discussion for work standards, responsibilities, authority, reporting, and expectations.
  • Other information that the new team member may need such as product, customer, role etc.

6. Define Expectations for Existing Hires

Define the expectations for the current members of your team like determining any expected interactions the new hire may experience with certain employees as well as preparing existing staff members to understand their role in the employee onboarding process/how they ‘re expected to help.

Remember: You should do all of this is BEFORE the new team member arrives!

How to Give Your New Team Member a Great First Day!

Once your team member arrives, it’s important to welcome them and set them up for success. This portion of the employee onboarding process sets out the general objectives of the orientation program and establishes the timeline for accomplishing them. Depending on the scope of influence of the new team member and the size of the company, this may take anywhere from 1 to 3 days.

Set specific objectives for each day as well as a detailed agenda to follow the flow of the day and topics each person will cover. (Check out this sample orientation guide attached here.) A few of my recommendations for the team member welcome phase are:

1. Implement Employee Onboarding Immediately.

Okay, this one may sound obvious but it’s important to remember the process you need to complete to successfully accomplish your goal of bringing on a new employee. The actual start of work is exciting for everyone but can also be disrupting for the team.

Keep in mind, you’re not only making a good impression on the person starting, but you’re also reinforcing your cultural mores, confirming expectations and revisiting what it means to be part of the team for existing employees. Keeping the excitement and interest up for everyone is key. Following the orientation guide will assist with keeping things on the correct employee onboarding track.

2. Start on a Wednesday

Maybe it’s been some time since you started a new job, but trust me when I tell you, it’s hard work! The first week is extremely overwhelming and starting on a Wednesday allows recovery time for the employee. They’re given the weekend to take in all the new information they’ve recently learned. Time to settle in is one of the key concepts of employee onboarding and new job training.

3. Begin the Day with a Tour

Whether it’s the Supervisor or CEO, the person responsible for giving the tour must convey the history and culture of the company. The tour should involve brief introductions as well as cover the physical locations of important areas like the lunchroom and other facilities.

4. Encourage Team Building

New employees meeting their team for the first time is an important step in a new hire feeling welcomed into the workplace.
Image via Burst

New job, new people, new everything. Helping the new team member to feel welcome while engaging the current team to help in doing so is important. Fun yet focused introductions will make the new team member feel included as well as encourage participation by everyone.

My choice was to bring in lunch for everyone and give each person a chance to introduce themselves (new person last) while also sharing something personal (i.e. they have four dogs, or they go to Mexico every February). I wasn’t the leader who organized a cool scavenger hunt, BUT I understood the importance of engaging the new team member to meet and get to know their peers across the company.

Team building exercises and sharing fun facts are entertaining ways to help new employees get familiar with the faces of the building and get a first-hand look at the culture of the company through finding the answers to questions like which employee’s spouse is a stand-up comic? (No one in Wisconsin would use Who is a Green Bay Packer fan?)

5. Set Clear Expectations from the Beginning

Provide a tailored 90-day performance plan with weekly (at the beginning) and then monthly milestones allowing the supervisor to track progress and recognize training needs. The new team member should have clear objectives and, depending on the uniqueness of your business or product, there may be a bit of initial training as well.

6. Every Little Part Matters

Remember it’s all about how you make them feel and if a quantitative person like me buys into it, you know it must be true. Strong employee onboarding processes will help new hires feel welcome, appreciated and engaged from the beginning which sets the stage for job satisfaction.

Remember: Employee Onboarding is Only the Beginning

Getting the new team member started on the right foot is just the beginning. Orientation is only one part of achieving the employee onboarding process. Do research and take a look at other, more out of the box and creative ways to conduct employee onboarding and don’t forget, keeping an entire team engaged and motivated is even more work, so plan ahead and get ready!

Featured image and all post images licensed via Burst.



How Can a CFO Establish Formal Closing Procedures? | RMR Analysts

Implementing formal closing procedures keeps your business running smoothly - no more missing data, reports, or extra time wasted.

Dear CFO,

I am the CFO of a mid-sized manufacturing company with three divisions. I am required to have “final” numbers to Senior Management by the 5th workday. It’s like pulling teeth to get the required information from everyone involved. I’m the one who looks bad when the numbers are late. How do I get the accountability without much authority?

Tired of the battle, Scarsdale, New York

I can empathize, having been in a similar situation. In my case, I was at Corporate and the division accounting people reported up through the division presidents; therefore, I had no direct authority to address the problems. Our issues included those stated in your question, as well as having to correct the poorly made journal entries (this was before the existence of auto-balancing and account verification within systems). That being said, the underlying problems were the same–all the accountability and none of the authority. This is a common delegation trap: where someone is given responsibility without the tools to complete it properly.

In my case, with the approval of the CEO, I took two actions to solve the problems (as I’ll outline below).

If you notice issues in the closing procedures, you may need to get involved with higher management to implement more effective procedures.
Image via Pixabay

Why should you get management involved and why should they care? While a CFO or Controller may drive the closing procedure and checklist, it’s done on the basis of establishing complete and accurate financial statements for all upper management decisions. The responsibility, as well as the need for accurate numbers, is companywide.

Good data (financial and other) is costly to accumulate and verify, but even more costly to correct; not to mention the cost of making a bad decision. Let’s say it costs your staff 10 hours to validate the KPI’s and financial data and the average pay is $40/hour, so the validation costs $400/month or $4,800/year.

Correcting that same data costs $48,000 and a single (just one!) corrective action is $480,000 under a data quality 1-10-100 rule first proposed by George Labovitz and Yu Sang Chang in the 90’s. Whether this rule holds or not, you can see bad data is very expensive and avoiding errors important.

Establishing Formal Closing Procedures and Checklists

After discussing our late closing issues with the division heads, I found they were having the same problems within the division. Information they needed wasn’t submitted in a timely manner and occasionally, it was also submitted inaccurately. They too suffered from facing responsibility without having enough authority. Oh… What to do?

A root cause of the problem was a lack of clear definitions of who was responsible for what task and in what timeframe. They needed a clear checklist and outlined formal closing procedure. It had to be written out and easy to follow, reference, and understand. While the initial process of establishing the formal closing procedures and checklist might seem tedious, the speed and accuracy of the monthly financials improves dramatically once the procedures are implemented.

Establishing a clear list of requirements, timeframes, and most importantly, responsibility cures the problem and eliminates finger-pointing. The checklist should include not only the process of the close but also the needed reports (exception reports) that identify where to look for problems. Each department in the company typically has some responsibility for “close” data, even sales. While there is a presumption all data is entered in a timely fashion (and we know that doesn’t always happen), implementing a clear formal closing procedure for the month’s end assures information needed for management decisions is complete, timely, and accurate.

The key to eliminating delay and implementing a successful formal closing procedure and checklist free of inaccuracies is getting buy-in from those in authority. Management must agree that the people identified are responsible and held accountable for accurate information submitted by the due dates established.

Setting Up the Formal Closing Procedures and Checklists

To set up the closing checklist, begin by thinking of all the roles in the company that affect the financial statements. The objective of the closing checklist is to collect complete information timely and accurately. Another benefit of the closing checklist is the opportunity for confirming internal controls (more about that subject in a future blog). The point is: think broadly.

  • Do sales reports reflect quotes that convert to invoices? Who does the conversion and how do they know that it’s time to invoice? What must happen to make sure these invoices are complete?
  • Are materials ordered directly by production or purchasing? How do you know if the orders are received and/or if the expenses are properly applied to jobs?
  • Does the warehouse record inventory ins and outs, as well as the counts accurately? How can you validate that the counts? Do you see any negative balances? Is the amount of the count out of line with previous adjustments?
  • Was all cash properly applied to accounts receivable? Are the number of credit memos appropriate? Has aging changed?
Here is a sample closing checklist.


Establish Needed Reporting and Analysis

Once formal closing procedures are established and reports begin to flow in more accurately, analysis is needed to determine the effectiveness of your new procedures.
Image via Pixabay

Once you’ve thought of the actions that feed the financial statements, identify the reports that would quickly identify issues. Exception reports identify variances from expected outcomes. There’s no need to identify and review every transaction. Identify how exceptions occur and then look for them. For example, unconverted orders over 30 days may flag a missed billing. However, in a company with manufacturing lead times of 6 weeks, the criteria may be orders over 45 days.

There is analysis and evaluation associated with reports, of course. The person analyzing the report should be the person closest to and/or responsible for the information. Measuring against benchmarks (KPIs) identifies issues and measures performance. For example, if the unconverted order is 60 days past due, the production manager may be aware of a problem obtaining special materials. (This should raise other questions on management broader than this blog.)

Assign a Due Date on All Information

Due dates are dependent on two factors: when information is available (or estimated) and the due dates of the subsequent reports. Often calculating the dates is a matter of backtracking the “need” for financials. I believe the objective should be to get the financial statements as soon as possible, preferably within 2 to 3 business days. While many modern accounting systems seemingly calculate in real time, the reality of the business process still requires some, albeit not significant manual intervention. Due dates usually reflect workdays.

Assign Responsibility for the Closing Checklist

Responsibility is NOT generalized at the department level – it’s assigned to a specific PERSON. This assignment of responsibility and accountability is part of establishing a strong, positive company culture. As Harry Truman said, “the buck stops here.” Or the more modern, “if it is everyone’s job, it is no one’s job.”

If the VP of Purchasing knows the most, then that is the person on the closing checklist. Always assign the person closest to the project as the responsible party for formal closing procedures.

Consequences Should Fall on Those Who Don’t Perform

Are your employees not performing their duties? Consequences should fall on those who don't perform - make sure your employees understand their responsibilities so that all tasks are covered.
Image via Pixabay

As I mentioned above, I had a similar problem with getting information for my company’s month-end closing. My department, as the last step in the process, was typically staying late every month attempting to correct and gather data not properly submitted. We were visible to senior management and had responsibility for corporate reporting.

It didn’t take long for me to realize, one of the reasons for non-performance was that all the consequences were on my department. The employees who submitted poor information were gone at 5 o’clock, while we stayed late to pick up the pieces. After attempting (and failing) several times to resolve the issues and encourage proper information, I had to take drastic action. Again, with the approval of the CEO and the Controller, we decided to let the chips fall where they may.

The result was chaos, but only once! When the division financials came out none of them bore any resemblance to reality… and then the phone calls started. I had a call from each of the division presidents within 10 or 15 minutes of issuance. I calmly explained I had processed the information their division submitted. Suddenly the lights went on! With clear, formal closing procedures implemented, everyone was held responsible for their department’s missing information and the gaps became clear.

As a result, the presidents started taking ownership of their individual divisions. And yes, when the division leadership started to hold their teams accountable our lives became easier (even if we still didn’t leave at 5pm, especially at the end of the month).

Implementing these formal closing procedures and the checklists will not only improve the experience of your team, but will provide consistent, accurate financials enabling timely decisions and accurate trending for decision making. Come month’s end, you won’t be pulling teeth to get the numbers you need to close your reports.

Featured image and post images licensed for use via Pixabay.