CategoryFamily Business and Succession Archives — C. Lynn Northrup, CPA, CPIM
Change starts with a sense of true urgency and in most cases needs to be created to make things happen. The enemy of urgency is complacency. Complacent people don’t look for new opportunities and they pay more attention to their internal feelings than external feelings. They tend to move slow when they need to move fast. What ever worked in the past is what guides them.
While anxiety and fear can drive behavior that might be mistaken for urgency, the resulting actions tend to be non-productive. This is called false urgency resulting from failure. The thought process from a sense of false urgency usually is not productive and proactive. It typically is mindless wheel spinning that creates no positive results.
A true sense of urgency is created and recreated by communicating the existence of great opportunities together with the existing hazards and roadblocks. People engaged in a true sense of urgency exhibit a strong need to move and win, now. The biggest challenge about creating a sense of urgency is taking the first step in initiating the action needed to succeed in a changing world. Real urgency isn’t a natural state of affairs because it needs to continually be created to get change initiatives moving and in the right direction. In a constantly changing world, the good news is that there are an over abundant number of opportunities that can be utilized to create true urgencies.
A true sense of urgency evolves from a set of feelings that creates a compulsive determination to move right now. True urgency is a process of winning the hearts and minds of the people needed to make change happen. Mindless emotion doesn’t get the job done. Winning change strategies utilize sound, ambitious, but logical goals using methods allowing people to experience the feelings that embrace the determination needed to make things happen.
The strategy for producing a true sense of urgency focuses on creating very alert, visibly oriented action, aimed at winning with daily progress toward achieving the vision and goals targeted at core emotional feelings. Here are the four tactics needed to make this strategy successful:
- Reconnect internal reality with external opportunities and obstacles using data, people, video, and other media.
- Avoid acting anxious or angry and always effectively demonstrate your own sense of urgency in meetings, one-on-one interactions and other communication with the people engaged in the change process.
- Take the opportunity to determine if crises can be used to your advantage and always proceed with caution.
- Remove the negative and urgency skeptics and keep the group complacent to avoid destructive negative urgency.
In addition to these four tactics is the necessity of keeping up the pressure to maintain a sense of continued urgency. The trap that can occur is achieving success and then losing your momentum of continuous improvement. Short-term success does not always translate to long-term results.
Here are some thoughts on maintaining urgency after making a successful change. Always be on the alert for potential declines in the sense of urgency. Realize that complacency can set in so be ready with backup solutions to maintain momentum. Take advantage of new developments to apply to change initiatives and improvements. Essentially, building a culture acting with a high sense of urgency will focus on the strategy for producing a true sense of urgency and application of the four tactics that are needed to make a positive change become a constant.
Changing demographics created by baby boomers represent big opportunities for CPAs. There are 10,000 boomers hitting retirement age each day and they need help in a lot of areas. While financial planning is usually the focus, there is an abundance of practice development opportunities.
Here are some shocking statistics. Over 13% of the population in the United States will be 65 by 2020 and more than 16% will be in excess of 65. By 2030, most baby boomers will have hit their 65th birthday. This means that more than one in five Americans will be 65 or older and about 10 million of them will be over age 85.
Money tops the list of problems since boomers haven’t saved enough to retire and survive through their later years. They also aren’t prepared to deal with declining health. Plus, they may have to contend with elder care either for parents or themselves. Combine these challenges with social security, Medicare, Medicaid, and estate planning there are lots of possibilities for added value business. There are a lot more people with questions, no answers, and the need for guidance.
CPAs can help retirees and elders on a wide range of areas. Typically, seniors turn to attorney’s for guidance which makes sense in many areas. However, CPAs educated on the needs of baby boomers and elders can become valuable and needed advisors to a huge segment of the population.
The first step for CPAs is getting up to speed on the issues. The next step is letting people know how you can help them. In addition to CPE programs there are a lot of resources to gain knowledge about elder issues. A good place to start is by gaining expertise on social security, Medicare, and Medicaid.
One of the opportunities for CPAs to help baby boomers is with basic budgeting and cash management. Boomers try to do their own planning and budgeting when objective input from a CPA would be a better option. Most boomers haven’t planned very well. Many will need to, or want to, pursue a business. Helping these boomers get started on the right foot can translate into added value revenue.
A simple budget spread sheet can be a useful tool for CPAs to assist boomers create an understanding of their situation and develop a plan for the future. Consider all possible income streams such as social security, pensions, plus any other sources of revenue. Expenditures should include housing, travel, medical, automobile, and all living expenses that boomers will incur. Most boomers think expenditures will be reduced in retirement. This often is not the case. A good analysis can become the basis for projecting into the future and providing boomers with guidance on possible options.
The budgeting exercise helps provide an independent sense of reality on retirement finances. Most boomers have lived week to week and haven’t saved for retirement. Now they will need advice on how to make it through their aging years. CPAs are a logical source to provide much needed advice on how these seniors can manage their future.
Having additional knowledge to help seniors gives CPAs an edge in developing an elder practice. Here are some thoughts on how to gain the needed knowledge and information. Take CPE on estate planning tools. This will give you a foundation on the basics of wills, trusts, and powers of attorney. You can use these tools to help these seniors manage their affairs. You need to have signed powers of attorney for business and medical reasons in case these people can’t manage their own affairs. If you are advising boomers on carrying for elder parents, having these documents in place is essential and critical.
Most boomers don’t think about elder care and what it entails. CPAs who understand the complexities of assisted living facilities and nursing homes can provide much needed support to seniors. Take the time to learn about assisted living facilities, nursing homes, and other senior housing possibilities. I learned about these issues because of the need to deal with aging parents and in-laws. Usually these areas aren’t addressed in depth until it becomes a necessity.
Many boomers who are suddenly faced with caring for aging parents have lots of questions and need assistance. CPAs can provide useful guidance by being knowledgeable on the various facets of senior housing and care. There are a variety of options for seniors, including ways to keep them in their home as long as possible. By understanding the array of possibilities will put you in position to offer solid guidance.
Most of the questions raised by boomers will be directed to assisted living facilities and nursing homes. I think the best way to gain knowledge about them is to visit and take a tour. These organizations will inform you on their billing structure and other financial information. During your tour make an effort to observe the quality of the staff, the rooms, and the food. Another consideration is the capability of the medical staff. Finally, take note of the variety of activities and transportation options available to residents.
When visiting nursing homes it is essential to realize that they provide skilled care which is a big difference from assisted living facilities. Also, determine if they accepts Medicaid since not all of them provide this option. This can become a big issue when elders run out of money and need to be moved. Most assisted living facilities have special areas to care for dementia and Alzheimer residents called memory care units allowing residents to stay until the end.
Gaining knowledge of senior housing facilities can also become a great networking and marketing opportunity as these organizations are happy to know of available resources for their residents. CPAs who understand elder care and associated issues represent a valuable and needed resource.
CPAs who understand the shifting demographics can position themselves to provide significant added value assistance to a segment of the population that needs all the help it can get. While it will take some time to gain the necessary knowledge and market it, I encourage CPAs to step up and fill the need. Seniors need your help.
There are five key things that seniors need to know as they prepare for their retirement and the later phases of their life. The problem is they may think about these issues but fail to get the help they need as they approach their 65th birthday. My e-book Navigating Retirement and the Challenges of Aging provides these answers:
- What am I going to do and where?
- Social Security?
- Health Care?
- Caring for Elders?
These critical issues need to be addressed well before reaching the age of 65 and should become part of a regular planning effort. Dealing with these issues head on is essential because delaying just makes things more difficult.
Everyone needs to understand where the money will come from and think about what could happen if it isn’t enough. Itemize your assets and liabilities then determine the cash inflows and the cash outflow. It is pretty tough to plan until you get these answers. If you don’t like the answers, you need to come up with a plan on how to make things work.
What and Where
The next question deals with what are you going to do after you stop working. Depending on your retirement vision (or reality), you need to decide where you will live. These are big questions and will require change and adjustments.
So you will be eligible for social security. When do you start drawing it and are there ways you can maximize your benefit? Navigating Retirement has an entire chapter devoted to the best strategies for getting the most out of your social security.
Maintaining good health as you age is critical and having good health insurance is essential. Medicare kicks in at age 65 and but it doesn’t cover everything. It is essential to register for coverage with Social Security three month before you turn 65. Failure to do so could result in penalties. Navigating Retirement explains what you need to do, when, and health care coverage options. The book also explains typical health issues that seniors encounter.
Caring for Elders
What if suddenly you need to help care for one of your parents, your spouse, or another loved one? This is an area where seniors are not well prepared. However, caring for a loved one can suddenly become a reality. Again, Navigating Retirement provides you with the essential information to address these questions. More and more seniors are coping with the challenge of caring for a loved especially as Alzheimer’s and dementia strike our loved ones.
These are only five of many issues and questions that senior are facing. They need answers and my goal with Navigating Retirement and the Challenges of Aging was to provide them with simple and straight forward guidance.
Ask and Listen
A key tool in assessing a business is diagnostic interviewing. This is a process of asking questions and then carefully listening to the answers. W. Edwards Deming, the man who helped the Japanese recover from World War II, always said, “Ask the people who are closest to the action to find out what was really happening.” This advice has never failed me.
Diagnostic interviewing provides indications and clues as to problems. It is a technique I have used to conduct assessments in countless organizations. Getting business owners and management to open the lines of communication can be difficult, but it’s worth the effort. Employees might be reluctant to open up and provide the “unvarnished truth.” It is essential for management to make it clear that they want the truth and the facts. Tell me like it is.
The real key to success is listening and hearing what people are telling you. Frequently, what people say with body language is more revealing than the words that are spoken.
A business assessment involves more than just looking at financial data. Take time to step back and thoroughly evaluate the business. Find out what hurts and locate the source of the pain.
Assessments should encompass the entire state of the business from every aspect and all points of view. Get an effective understanding of what is happening in the industry and in the business. Get the big picture as fast as possible.
Analysis is performed in order to prioritize problems. Examine problems and then break them into their component parts. Conclusions then can be developed to fit the problem. This is when symptoms are distinguished from problems.
Analysis depends on the specific problems under consideration. Here is my three phase approach:
1. Sort out the facts,
2. Applying analytical techniques, and
3. Use judgment to draw conclusions from the analytical process.
Sorting out the facts is a process of categorizing all the information collected during the assessment. The facts should be sorted based on the assessment parameters. There will be a lot of data to match up including the information gathered from the interviews. Take time with this process and avoid jumping to premature conclusions.
Once the facts are sorted, then start applying analytical techniques. There is both qualitative and quantitative analysis. Qualitative techniques are used to analyze factors which can’t be measured in numerical terms. Examples of qualitative techniques include the development of matrices, asking fundamental questions, and searching for patterns. Additional examples include comparison of events for the purpose of identifying both differences and similarities. Qualitative techniques also include development of flowcharts and fish bone diagrams. Applying analytical techniques is very important so think carefully about the potential range of possibilities.
I developed a Self-Assessment Toolkit for use in my consulting work. You don’t need to use it but the checklists and questionnaires it offers provides a good roadmap. Another component of the toolkit is a team survey to gain feedback regarding employee opinions about the organization.
The 10 Step Process
To get things on a profitable footing I created the 10 Step Process to Building Business Value:
1. Identify and locate the pain.
2. Establish the parameters on what needs to be done.
3. Evaluate your market, products, and services – are they right for your business?
4. Right size the business.
5. Financing the business.
6. Maximize asset utilization and returns.
7. Improve employee productivity.
8. Conduct product and customer analysis.
9. Improve business processes.
10. Measure and monitor performance.
These 10 steps represent the essential components of what every business needs to do to maximize profitability and build the value of their organization. These steps represent a long-term no nonsense approach to value based management that produces results.
This methodology works because I have used it to produce results in a number of businesses. When businesses apply the tools and employ them consistently over a period of time, the benefits are record growth in sales and profitability.
These concepts are not silver bullet fixes. They represent a common sense application of tried and true methodologies that can make the difference between survival and failure.
What is a mission or vision statement? In brief terms, a mission statement is a description of how an organization defines success and where it is headed going down the road. In order to be successful, a mission statement needs to be more than just words or phrases. An effective mission statement needs to be a living document that provides the necessary focus for all levels of the organization.Despite the importance of defining a mission, there have been a lot of failures to create any change in organizational performance or in what people are doing to accomplish results. One of the big problems is that mission statements fail to effectively communicate to employees on where the company is headed. Mission statements also fall short on linking strategic direction with specific goals and objectives at all levels of the organization.
It is critical for organizations to define their future business direction so employees clearly understand where they are going and how they will get there. From this platform, organizations need to develop a definition of success and a process for setting goals and objectives. Together with these steps, it is critical for the entire organization to have clarity on its sources of strength and competitive advantage.
Once organizations get these step right, they need to move forward to clarify “the what, where, and how” of competitive success. This message then needs to be effectively communicated to employees and other people who have a stake in its success. A process of setting goals and objectives at all levels of the organization needs to be complete so everyone is on the same page in order to achieve a successful execution of the mission.
In many instances I think the objective setting process can be simplified. It doesn’t need to be complicated, but there needs to be buy in at all levels and everyone needs to know their role and how they fit into the plan. Defining an effective set of objectives might sound easy, but it is a tough job and is critical to achieving success.
The key to a successful mission or vision statement boils down to the following three steps:
1. Where is our business going?
2. What are our objectives?
3. How will we accomplish our objectives?
After these three questions have been answered, the key to success is to effectively convert the answers into performance objectives for employees at all levels of the organization. Organizations that commit to this process with focus and determination will be the winners.
In the current economic environment there are lots of business owners struggling to deal with issues and problems and no idea on where and how to get help. Likewise there are CPAs who are asked by their clients for assistance in areas where they lack the knowledge and experience to provide support. It is a perception that help has to be geographically accessible. The reality in many situations is that there are virtual means of accessing the necessary experience and assistance.Many services, including training, can be provided virtually using the telephone, e-mail, and conferencing tools. I selected the areas of my expertise that could be delivered virtually. It is possible to review strategy and operational situations by using my questionnaires and experience in effective ways. Another situation faced by many companies is that they lack the financial expertise to provide the financial and controllership skills required to survive the current difficult economic environment. Virtual tools are available to share financial information and in many instances an experienced financial manager can provide the needed suggestions that can make the difference between success and failure.
Internal controls represent an area where CPAs need some assistance so they can avoid reinventing the wheel. In many instances I can provide instant answers to questions and provide suggested solutions that could otherwise take hours to solve. Based on working with the COSO internal control framework and assessing audit risk, I can provide direction and advice to practitioners and even help them review their work papers to minimize their risk.
My dealings with family-owned businesses have provided me with firsthand experience in working with succession and planning issues including estate and trust planning tools. It is like having someone working in your CPA practice where you can discuss and review a problem for potential solutions.
Some other areas where virtual assistance is available are cost management, operations and supply chain management. Why struggle with these areas when help is a phone call away. I can also provide assistance with strategic planning and share checklist and questionnaires that will allow you to facilitate development of strategic thinking with your clients. If you are a business looking for assistance, I can provide virtual support and training in these and other specialized areas.
You may not have given thought to using virtual support or training, but it available and utilized all the time. It is a cost effective way to receive the assistance you need. Give me a call to discuss ways that I might be of assistance.
Why not virtual consulting and business support? Since I have always performed consulting services at client’s sites, this represents an interesting question. In the current economic environment when every dollar counts it occurred to me that I could provide companies with excellent support and advice they might not be able to access in their geographic region. I teach on-line courses for Villanova University in conjunction with Bisk Education where I facilitate live discussion session with students every week. If I could teach on line then why not consult on line?After pondering the topic and the question, the answer seems pretty straight forward. Clients could really benefit from such an approach. In one of my recent live discussion sessions we had an extensive dialogue on the transformation of communication. Virtual communication is what has evolved in today’s world. Since we communicate virtually, then consulting and business advisory support represents a logical approach.
Telephone and e-mail are logical tools that most clients understand. The part which is a mystery to them is realizing that we can conduct an on-line dialog over the internet utilizing voice in addition to sharing of presentations and other analytical tools. It isn’t quite the same as face to face communication, but it works pretty well and is a lot cheaper and more time effective. It is an approach that works well enough to help a large number of clients. Virtual consulting can save time and reduce costs so traveling to client sites is limited only to the bare essentials.
In addition to reducing costs and improving efficiency, this approach saves a lot of wear and tear and allows me to reach out to a greater audience and expand my market reach. I can now help more people access my knowledge and expertise. I think this is a good way to work especially in a tough economic environment.
Deciding on what product and or service attributes will provide the best chance to win a competitive edge strikes to the very heart of how to develop an effective strategy. There are a number of approaches that can be used to craft a winning strategy. In this post we will identify some of the more common techniques that can be deployed.One approach many companies use, especially during difficult economic conditions, is a low-cost and low price approach. An alternative approach is one of differentiation and selection of a specific market niche. Differentiation can represent a more profitable option.
During a turbulent economy you will see a number of companies making moves in response to the rapidly changing industry conditions and other factors that develop in the external environment. This is one of the reasons adopting and maintaining a strategic focus is so essential when times are tough and competition heats up. Many of your strategic choices will go beyond just pure survival; they will be to secure a competitive advantage.
Another element of strategy relates to geographic market coverage and the extent of penetration in the market. Companies who got stretched with excessive capacity will have to consider adopting this approach to secure markets and customers to consume this capacity. One approach that some businesses have followed is deciding to pursue vertical integration to enable more sales to existing customers.
There are a number of different financial value propositions that are used by companies as a component of their strategy. Additional choices include the application of human resources, research and development, technology, and a variety of marketing promotions. Linked to these options will be manufacturing and operational approaches that fit with these choices.
A unique approach to strategy as we proceed into the 21st century is collaborative partnerships and strategic alliances. This seems to be a growing trend since it is difficult to be all things to all people making this a choice of necessity.
Strategic choices require developing skills, expertise, and competitive capabilities that set the business apart from rivals. The goal is to insulate your business as much as possible from the effects of competition. From this step you need to perform an analysis of the strategic variables and match them with your capabilities as well as your competitors. Strategic and competitive analysis is a critical component of crafting a winning and sustainable strategy.
You need to carefully think about your point of view relative to the future and assess how it stacks up against your competitors. Are you a risk-taker or just a rule maker? Another question that begs answering is what percentage of your effort is focused on catching up to competitors versus building business advantages that will take your business successfully into the future. It is critical to evaluate your agenda and determine whether you are setting it or if it is being driven by the competition.
While times are tough and success doesn’t come easily, it is imperative to think into the future and set the course for where you plan to be in five to ten years.
My recent post Strategies for Recession implies that everyone understands strategy. The truth is that strategy isn’t well understood and means many things to different people. One of my students in a recent session indicated she had worked on strategy development project for a large unnamed company and the executives didn’t have a clue as to what strategy is and how to utilize it. Hopefully, we’ll shed some light on strategy and how it is crafted.I think competitive strategy is about being different and deliberately making choices relative to activities that will provide a unique value proposition to customers. One contradiction is that operational effectiveness is strategy. This is what every organization should be doing to remain competitive. Strategy is about making tough choices needed to maintain a competitive advantage. These are choices to change the rules so they work in your favor.
Having the right goals is a critical component of having a sound strategy. Setting goals and objectives represent components of effective strategies. Strategy needs to have continuity and isn’t something that can be constantly reinvented. It boils down to the basic value proposition you are trying to deliver to customers.
A good strategy includes simple consistency between all the functional activities and the overall strategy. The strategic fit drives competitive advantage and sustainability and occurs when the activities are reinforcing thus achieving optimization of effort. Competitive strategy grows out of the entire system of activities.
Thompson and Strickland in their book Crafting and Implementing Strategy define five primary tasks:
1. Formulating a strategic vision of the company’s future business composition and the direction where the entity is headed.
2. Setting objectives.
3. Crafting a strategy to achieve the desired outcomes.
4. Implementing and executing the selected strategy efficiently and effectively.
5. Evaluating organizational performance and making appropriate corrective adjustment wherever necessary.
These five primary tasks become a continuous loop whereby you are observing, orienting, deciding, and acting on necessary adjustments as needed. In the current economic environment, organizations need to be agile and quick in making these decisions.
I will provide additional insight on strategy and how to apply it effectively in the future. In the meantime some strategic terminology might be helpful. Here are some definitions that will help to remove some of the mystery.
Strategic Vision is a view of the organization’s future direction and business makeup. The organization’s mission is defining it’s the business purpose and what the business is trying to accomplish on behalf of its customers. Strategic objectives represent the targets management establishes for strengthening the organization’s overall business position and competitive vitality. So strategy represents the actions and approaches that are implemented to satisfy customers and the strategic plan is a statement outlining the mission, performance targets and strategy.
This should provide some clarity and eliminate confusion related to strategy. Hopefully this will help you navigate turbulent waters and craft your strategies for survival.
Take a lesson from the pilot of US Airways flight 1549 who was forced to land his Airbus in the Hudson River with all the 155 people on board surviving. I think this is a critical lesson when trying to survive in a recession. This is the time to keep your wits about you and keep a level head.
Develop a Plan and a Budget
In uncertain economic times there is no way of knowing what’s going to happen or how bad things might get. In these situations I tell clients to develop a worst case scenario budget. This budget should be a rolling forecast so you are continually projecting your best estimate of what you think will happen and develop. Be conservative on your estimate of sales and revenue and hold the line on expenses. It is critical to monitor and measure your financial performance in all categories, especially cash flow.
Evaluate all opportunities to tighten your level of expenses. I developed a Recession Survival Toolkit that contains extensive information and tips on cost reduction to managing cash flow and obtaining credit. While most businesses are laser focused on controlling payroll, they do this through layoffs. There are multiple ways of containing payroll other than terminating employees. These steps include salary cuts, reduced hours, and vacations without pay to list a few ideas.
Strategic Planning and Thinking
A recession is the time to establishing a strategic plan. I urge clients to create a clear vision of the future realizing there is a lot of uncertainty. It is imperative to be agile and ready to move in different directions with your response to changing conditions. You need to have a number of options so you are not locked in to a narrow strategy. In fact I like clients to have a reasonable range of options because it allows you more flexibility.
Selling and Marketing
I think a number of people fail to think proactively about sales and marketing opportunities during a recession. Managing risk is as much about identifying opportunities as it about looking for things that might produce a negative impact on the company. Companies need to be aggressive with their sales effort because the psychology of recession is taking buyers out of the market. When there are fewer customers it is critical to aggressively pursue maintaining or increasing market share. However, this should not be achieved at the expense of giving up your profit margins. This is when I apply profit focused accounting to match costs with selling price to maximize profit margins. I see too many executives cutting price just to gain volume in contrast to employing all the necessary tools to maintain profitability.
Cash is King
In a recession, cash is king. It is critical to maintain lines of credit and have them available just in case. The key is to maximize your cash conversion efficiency. This concept is focused on turning accounts receivable into cash as quickly as possible and at the same time reducing your investment in inventory. The other component is stretching accounts payable as much as practical without losing discounts or damaging your credit worthiness.
Building Business Value is our approach to building value using proven management methods that preserve shareholder value. A recession is exactly the time to stay with proven management techniques and methodologies. One of my suggestions in this regard is to make sure you have the right people on the bus and in the right seats. Good execution of management fundamentals should be the objective. My final thought is to utilize my change management concepts to make sure you don’t get lock into doing things just because of your pre-recession comfort zone.
When all else fails, do as Debbie Reslock suggested in yesterday’s Denver Post. “Bid in the dark and shoot the moon because through it all, I still have faith. With out looking at the cards, I’m betting on all of us.” I am betting on Debbie’s hand, I think she’s got a winner.