Decisions, Decisions, Decisions

Regardless of the degree of success our business has achieved, every day is about decisions.  If things are going well and money is "readily" available, then we make decisions on how to use that money to get the best return. If things are not going well, then our decisions are about how to turn things around, improve performance, or even about whether to close the business.

This month's issue of the FOCUS Newsletter is about decisions and information important to sound decisions. This issue includes a review of the new bankruptcy law going into effect on October 17 and the potential impact on small businesses, as well as perspectives on "decision methodology", the things that impact how, when, and why you make a decision.

Strategic Business Workshops return to top

Every business succeeds based upon strategic and tactical actions.  When those actions are made according to a plan and the results are analyzed and measured, the business is able to be more effective and hone the tools the business uses to create more success.

In October FOCUS Resources in conjunction with other business leaders will launch a workshop series focused on strategic business issues and actions.  These workshops each stand-alone, but they also act as building blocks for organizations seeking to improve competitiveness and financial results. 

Included in the series:

• What is strategy? Why is it important?
• The why and how of strategic planning
• Budgets, forecasts, and other financial tools
• Strategic visibility
• Strategic structure
• Strategic leadership
• Many more topics

If you are interested in more information on these workshops (and are prepared to WORK and IMPLEMENT), then contact Lea Strickland, President/CEO of FOCUS Resources at 919.234.3960 or Lea@focusresourcesinc.com for more information.

There are still sponsorship opportunities available.  If your company would like to get involved.  Please give Lea a call.

The full workshop schedule will be announced in September, with the first workshop taking place in October.  The workshop schedule will run from October 2005 through December 2006.  CPE credits will be available.

The New Bankruptcy Law and Small Business return to top

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was signed into law on April 20, 2005 with an effective date of October 17, 2005 for most provisions.  This law affects individuals (consumers), small businesses, and businesses in general with its many changes to existing bankruptcy laws.

A “small business” for the purposes of this legislation and Chapter 11 filing is a business debtor which is engaged in commercial or business activities (not related to property ownership or activities incidental to property ownership) and has a total non-contingent liquidated debt of not more than $2 million dollars as of the date of the filing for relief.  The debt total excludes debts owed to affiliates or insiders.

A small business may be excluded from this category of bankruptcy filings if it has established a creditors’ committee that is active and representative of the creditors of the business and that committee provides oversight on the operations of the business.  This committee may be formed after the initial bankruptcy filing and classification as a small business.  If such a committee is formed subsequent to the filing, the business may be reclassified outside of the small business category.

Why does it matter if you are a “small business” or a “large business”?  The major reason is that small businesses are given only six months to file a reorganization plan, while large businesses are given 18 months.  The six-month time restriction, if not met, moves a small business from reorganization (Chapter 11) to liquidation (Chapter 7). So understanding that the clock is ticking and that a plan needs to be developed and filed is critical to a small business’ viability.

Small business debtors (Chapter 11) are required (effective date of requirement is to be determined) to file periodic financial statements and other reports regarding:

• Profitability (the amount of money that has been earned or lost during the current and recent fiscal periods
• Forecasts or reasonable approximations of projected cash flows over a “reasonable” period
• Comparative reports on actual cash flow versus projected cash flows
• Statements/verification as to whether the debtor is in compliance with all post-petition requirements, including timely filing of tax returns and other governmental filings, as well as payment of taxes and other administrative expenses

In instances where the debtor is not in compliance, an explanation of why, how, and at what cost the debtor intends to remedy the situation.

As part of Chapter 11 the debtor files a reorganization plan (and possibly other disclosure statements) that is expected to provide adequate information on how business will be done and how each debt holder claim or interest will be handled.  The court must approve this plan.  The plan is expected to achieve a balance between the interests and needs of:

• The court
• The United States Trustees
• Creditors
• Other parties with interest in the information
• The Small Business Debtor

At this time, no agency has been designated to ensure the “adequacy” of information requirement is met.

The Small Business Debtors (or an appointed trustee) are expected to perform certain duties in a small business case:

1. Provide the most recent set of complete financial statements, income tax returns, or a statement that no such documents have been prepared or filed
2. Attend meetings scheduled by the court and the US Trustee (this requirement may be waived under extraordinary and compelling circumstances)
3. Make timely filings of schedules and statements related to financial affairs
4. File all post-petition financial and other reports
5. Maintain insurance
6. File timely tax returns and payments
7. Allow inspection of books and records upon receipt of reasonable notice by the United States Trustee or designated representative

The information above is just a small part of the changes and requirements that small businesses face if they find it necessary to apply for reorganization or liquidation bankruptcy.  Many attorneys and business advisors have recommended that any business contemplating bankruptcy of any type should consider making those filings before October 17, 2005 if it is an “inevitable” event.

What all businesses need to keep in mind is that most creditors would prefer that the customer contact them to negotiate new terms if the financial situation is at a critical point.  Creditors prefer receiving all of the money owed over a longer period of time rather than the possibility of getting little or no money.

This new legislation has proponents and opponents with both sides saying why it is good or bad for business (and individuals).  That is true of any legislation, and once it is passed, we must live with it.

For instance, current bankruptcy laws allowed the courts to go back to vendors and creditors who had been paid in the 90 day period prior to bankruptcy filing to “reclaim” the funds paid.  These funds were often viewed as “preference” payments.  As such the vendor who was conducting business as usual suddenly finds the account that was current is now unpaid and they have to get in line with the other creditors in the bankruptcy proceeding.

If your business (large or small) or you as an individual have been contemplating a bankruptcy filing, the best strategy may be to set up appointments with tax advisors, attorneys, and accountants to get a clear picture of your situation today versus what happens after October 17, 2005.  Understanding the options and timing could be critical to how successfully you can address your financial situation.

Desperate Decisions return to top

Desperate decisions occur when entrepreneurs have to make choices about business and/or personal actions with insufficient available funds.  This precarious financial status can lead to decisions as desperate as not paying vendors for services or products or accepting deposits and not delivering services or products to customers.

What are some of the causes of this desperation?

• Underfunding of the business
• Delayed results - timing differences between the profitability you thought the business would have versus what it has achieved at this point
• Expecting cash flow to equate to profits
• Failure to consider personal financial needs in planning the total "budget" of starting a business
• Higher than anticipated operating costs

In planning for the start and operation of your business, it is necessary to consider your personal financial needs - the mortgage, car payment, tuition, and so on – as well as the needs of the business.  You must have a plan to sustain you personally while the business is established and growing.  Having a plan to handle personal needs will reduce the "desperation" factor when business doesn't go as planned.

Once the business is started, lines need to be drawn between the personal factors and the business factors used to make decisions. Many businesses succumb to the effects of cash withdrawals by the owners.  Owners often fail to recognize the need to continue "investment" in the business during the first few years.  Large salaries and "image" expenditures erode the business successes.

A real life example is a company which invested in marketing - public relations, advertising, and website development - to improve visibility and build the "brand".  After investing a significant amount of funds on a public relations campaign, sponsorships, advertising in major publications, and a knock-your-socks-off marvel of technology and bells-and-whistles website, the company experienced a phenomenal increase in prospect contacts - website hits, phone calls, and walk-ins.  With new prospects contacting them every day, this company STOPPED all marketing activity.

The revenues were coming in and the owners felt they had arrived.  The money spent on marketing was shifted to new offices, office furniture, and cash in the owners' pockets.  Six months later business began to slow as the projects were completed.  No new prospects were coming in the door, the phone had grown silent, the website looked the same, and the "brand" had faded.  They hadn't sustained the momentum developed in the market.  They failed to reinvest even part of the success in the business.

The owners’ decisions with regard to the business were made based on personal perspectives.  They felt that they had sacrificed and sweated long enough and that the payoff had arrived.  They didn't consider the need to make sure the company could sustain the success.

They didn't understand that business success isn't the result of a single act or campaign, but the result of a series of successes and campaigns which must be supported and sustained at some level.  That level depends upon the nature of the business and the targeted results.  Their reality was that some level of marketing activity needed to continue to "maintain" the "brand" and visibility.  Without maintenance expenditures on strategic and tactical activities, the original investment in marketing doesn't payoff.

Another major factor in business success is separating the business from the personal.  Make decisions based on what is best for the business first, then address how they impact the personal – the entrepreneur's financial position.

Many entrepreneurs maintain the view that they are the business and what is good for the owner is good for the business.  Often the opposite is true, especially in start-ups and early stage companies when cash is king.  Every dollar the business brings in is most often “best” used as further investment in the business.

What does this mean to the business owner?  It usually means sacrificing a steady paycheck (or any paycheck) in order to establish, stabilize, and grow the business into a sustainable, viable commercial entity.

When individuals make the decision to start a business and estimates the amount of money needed to start the business, they often look at only the resources needed to invest in the setup and running of the business initially.  They fail to consider and capture the financial demands from the personal side - if it takes three years for the business to hit breakeven, positive cash flow, and/or profitability, then what will the business owner live on?  The living expenses for the owners must be included when determining the amount of financial resources the owner(s) need to start and grow the business while keeping hearth and home in tact.

The more intense the pressure on personal financial issues, the lower the critical decision-making ability seems to go.  The business has an opportunity to reach an important market segment and get in front of potential buyers.  It costs $2000 to do that - marketing materials, travel costs, and so on.  On the personal side, the kids want to go on a school trip with their friends or some other personal “need” arises at the same time.  Often entrepreneurs use that money for the personal need because it is more visible or has greater pain associated with saying no.

Entrepreneurs need to understand that in order to establish and grow a successful business, these difficult steps are required:

1. Determining what resources are needed to satisfy the business needs
2. Making decisions based first and foremost on what the business needs
3. Allocating resources in a manner which enables the business to focus on executing a limited number of projects or alternatives to ensure that stretching resources too thinly doesn't result in failure from

Success requires that the personal needs of the entrepreneur are subordinated to the needs of the business in the decision-making process.  Once a business decision is reached, then the impact personally on the entrepreneur is evaluated.  For instance:

• Are there sufficient resources for funds to be allocated to the entrepreneur?
• If there are insufficient funds for both the entrepreneur and the business, does that mean the entrepreneur is not sustained?  Would that lack of support ultimately result in a direct impact on the business - i.e. the entrepreneur cannot make mortgage payments and equity in the house is collateral for a loan used in the business

For many businesses personal assets are pledged as security for business loans, regardless of the type of legal entity.  In addition, entrepreneurs also use their personal credit cards to make purchases of supplies and assets for the business.  This increased connection further blurs the distinction between the owner/entrepreneur and the business.

Doing the following will minimize the "desperate" decision process:

• Plan for  personal as well as business financial needs
• Include in your plan "what-ifs" - what if the timing for success is off, what if additional funds are needed, what if some major unexpected personal expenditure is required
• Garner resources and options before you start
  • Refinance loans to lower rates
  • Establish personal lines of credit
  • Pay off credit cards
  • Set aside living expenses for your personal needs
  • Reduce the demands on personal assets by eliminating "extras"
  • Live on one income (if you are a two income household) before and during the time you are starting your business

The best way to avoid "desperate" decisions is to have a plan and be aware of the issues.  The plan must include timing and risks.

Business Russian Roulette return to top

It may not be a pretty picture or politically correct, but the analogy that comes to mind as I come in contact with many businesses is that they are playing "Russian Roulette".  If you don't know what this term refers to, it is the "game" of taking a pistol, a revolver, that normally holds six bullets and putting a single bullet in the cylinder.  You then spin the cylinder and put the gun to your head and pull the trigger.  If you are lucky you landed on an empty chamber; if you landed on the bullet your choice no longer matters.  Some businesses seem to be loading five chambers and pulling the trigger.

Not all opportunities are created equal.  Taking gambles on "opportunities" that don't reward the degree of risk is playing Russian roulette with five chambers loaded and only one empty.  When the odds are against you, you need to do something to change the odds.

To change the odds you must change some factor that goes into calculating the odds.  The place to start making changes is where you have control (at least to some degree) inside your business.  Here are some areas of potential change:

• How you are doing business
• How you are marketing your business
• How you are selling to customers
• How you are developing business opportunities
• Who you are doing business with
• Who you are marketing to
• What you are selling to your customers
• What type of business opportunities you are pursuing
• Where you do business
• Where you market your business
• Where you look for customers
• Where you develop business opportunities
• Who you view as competition
• Who you view as a prospect
•  Who you do business with (vendors, strategic alliances, etc.)

Before you make the first change, you have to know the answers to the above questions as of today.  What are you doing right now that is working?  Why is it working?  What have you done that hasn’t worked?  Do you know why it didn’t work?

Making changes of any size or type without knowing your starting point means that you won’t be able to measure the impact of the change.  When this occurs, change isn’t a tool of success, but another round of Business Russian Roulette or Craps.  Change without an ability to understand the impact, measure the result, or at least “eyeball” the difference is crossing your fingers and hoping it works.  But then you may never know if it does or could work, because you aren’t doing a controlled change, you are acting blindly and hoping it has a good result.

Many times businesses make a good change, but it is done in isolation.  Only one thing changes and because the surrounding variables and systems aren’t changed to support the “good change”, the business fails to see a positive result.

Businesses are comprised of multidimensional systems, processes, and factors.  They each impact the other – they magnify success and they magnify failure.  They can also prevent success and ensure failure.  To stop the game of Russian Roulette, it is important that your business

• Get a complete picture of all activity and processes
• Understand what is and isn’t working
• See the interconnectivity between the various components of the business
• Capture the “big picture” and the “details” of how the business interfaces with its environment – competitors, vendors, customers, prospects, the business community, etc.
• Draw the “big picture” you want to see
• Understand what it will take to achieve the desired big picture state
• Analyze and identify the gaps between today’s picture and the desired state
• Address the gaps
• Develop a strategic plan
• Establish milestones and performance criteria
• Align operations and activities toward the objectives
• Execute, execute, execute planned changes with specific outcomes targeted

It is time to improve the odds of organizational success.  No more Russian Roulette.  Next time you pull the trigger have the gun pointed at the target and ready, aim, succeed!

The Business Entity return to top

As business owners, founders, or leaders of an organization, we often let the lines blur between what is the "business" and what constitutes "us".  For many of us, we are the business whether we are the sole owner or not.  We make no distinction between what is good for us personally and what is good for the business.  This can be a fatal flaw.

You may be your business.  You may be a solo-practitioner, providing your skill set for hire.  But the business is not you.

When making decisions about what activities a business engages in, where to put the investment, what will give the best return, it is important to separate the personal from the business.  The decision criteria for determining what is good for the business come first.  After you have a business decision, then you consider the personal implications and whether or not you can execute the best business decision.

As uncomfortable as it is, business is business, then the personal impact comes into play.  Here's an example:

Several years ago I was working with a technology growth company in which the CEO, who wasn't the founder or even a majority stockholder, made decisions and commitments based on a "this is my company" perspective.  Everything from hiring decisions to business alliances were made and formed based on his whim of the moment.

Everything was evaluated (consciously or unconsciously) on how it would make him look and how "big" he could make the company he was running.  The "E" in CEO stood for ego, not executive.

Unfortunately for the company and its employees, anyone in a position to rein him in "liked" him or was a "friend".  No one wanted the hard job of making sure that the company’s activities were based upon business criteria.

Regardless of size of the business, the impact on the business ultimately becomes the same.  What differs are the scale and the degree of impact on the ability of the organization to recover.

The world has been witness to the "ego" effect in Fortune 500 and Global 100 companies.  When the importance of being viewed as "the big man (or woman)" - running the biggest company -is the underlying motivation, then decisions lead to wrong steps at best and complete meltdown for the company at worst.  Some businesses can recover, others don't.

Several years ago a major Fortune 500 company selected as CEO a man of significant ego.  Yes, most CEOs have significant egos, but they are healthy egos - about confidence.  The CEO selected was about the ego of "self".  With the stated objective of running the "biggest" company in that industry and on the Fortune 500, he proceeded to spend the resources of the corporation to grow.  Growth was through acquisition and not limited to the core businesses that the company knew how to do.  Furthermore, the acquisitions were portrayed as "diversification" of interests, but were in industries that ran on the same business cycles and economic indicators as the core business.  As the financial fortunes of the company drained the cash reserves, the board allowed things to proceed.  In part because they didn't want to lose "face" about having made a poor selection.  Those same face-saving motivations also didn't allow them to reign in the CEO.

Eventually the choice came down to which would have the worst market effect – the replacement of a free-spending CEO who was generating negative returns or putting someone else in the role.  By the time the board took action, the market had reduced the value of the business - stock price, bond rating. When the "shake up" at the top finally occurred the only direction for value was up and the business began its recovery.

Whether your company is a Fortune 500 or small business, the impact of making business decisions can't be over emphasized.  Business decisions make the business stronger.  Ego decisions ultimately place the business in a precarious position of being under funded in the important places.

One example is the tremendous amount of money some companies spend on public relations, sales, business development, and marketing, while spending little to no money (comparatively) on customer services and operations.  The disproportionate expenditures bring the customers in only to have them lost to poor service and delivery.

What is business and what is personal when making decisions? Here is another example:

The business is a government contractor required to have strong financial and accounting systems.  The business is using a $100 off-the-shelf accounting package and has no policies, procedures, or other controls.  The owner wants to pull out $10,000 per month in salary.  The business would need to spend at least $10,000 to acquire and implement a better (not the best) accounting system.  The owner decides not to put in the accounting system because he wants the salary.

The company is audited, forfeits its government contractor status, and must pay fines for failure to comply.  The company’s only client was the federal government.  They now are without a client and without a business.

The business decision would have been to implement the necessary systems to ensure the business was able to pass an audit and keep the federal government as a client.  The personal decision was to pay the owner the $10,000 that month.  The owner now makes no money and is in court resolving the legal and financial issues related to violating government contracting rules and dealing with bankruptcy.

You may not be a government contractor.  That example was chosen because it presents in a fairly clear cut manner what was expected of the business.  Here are some other areas in which businesses may experience issues:

• Travel expenses
• Company vehicle purchases
• Raises and merit increases
• Equipment purchases
• Staffing decisions
• Office space acquisition

Take time to review the decision criteria used in your organization to establish priorities and measure results.  Make a connection between expenditure/investment decisions and the return you want to generate.  In the long run, sound business decisions translate into higher quality personal returns.

Career Network Magazine return to top

Lea Strickland, President/CEO of FOCUS Resources and author of Out of the Cubicle and Into Business was asked by Career Network Magazine publisher, Sheila Robinson, the feature article for the August 2005 Inaugural issue on newsstands August 10. Ms. Strickland targets the “how to go into business” from the perspective of the first time entrepreneur that has exited from the “corporate world” voluntarily or involuntarily.  Ms. Strickland provides insights on the pros and cons of five ways to go into business for Entrepreneur Magazines Be Your Own Boss Special Issue on newsstands September 6.

Lea Strickland, MBA CMA CFM CBM, is a nationally recognized expert on entrepreneurial and strategic business issues with specific emphasis on financial performance and business models.  She is the founder and principal of FOCUS Resources a business consulting firm that works with emerging and growth stage businesses on strategic business issues from start-up to funding.  Ms. Strickland co-hosts the VIP (Vision, Innovation, and Performance) Series that provides Spotlight Events for emerging and growth stage businesses to gain visibility in the business and investment community. Ms. Strickland can be reached at lea@focusresourcesinc.com or 919.234.3960. For information on seminars, workshops, and services go to www.focusresourcesinc.com.

Career Network Magazine is a publication that provides business professionals ideas, solutions and resources in all stages of their career development, whether they are established in their careers, climbing the corporate ladder, recent college graduates, or in career transition. For more information log on to www.careernetworkmag.com or email editor@careernetworkmag.com

Visibility for Your Business return to top

Every business desires visibility in the market.  They need customers, alliances, vendors, employee, and investors.  Visibility makes finding those necessary business stakeholders easier.

Many businesses in our area are all about innovation.  They are either seeking answers to complex problems, refining the answers that they have discovered, or ready to take the answer to market.  These companies include biotechnology, technology, software, agribusinesses, and "traditional" manufacturing and other industries.

Regardless of the industry a business is in, every business has more opportunities when they are highly visible and can get their "story" or "message" heard.  The more people that hear it, the more people there are to create a buzz and spread the word.

If you are a business looking for a platform to promote your products, services, technology, and/or story, then you will want to know more about the new business forum being launched this fall.  The Vision, Innovation, and Promise (V.I.P.) Series is coming to Raleigh in September.  For more information, please give Lea Strickland a call (919) 234-3960.  There are opportunities for businesses to present and to sponsor this event.

Copyright © 2005 F.O.C.U.S. Resource, Inc.