Lessons Learned from the Best: Are You Certain That Your Business Won’t Be Facing Tough Times Soon?

By Fred Leeb, Leeb Partners, LLC, November 15, 2017

What will happen to your business if some or all of the following come true:

1) Interest rates increase more than expected because the Fed continues to increase the Fed Funds rate and continues to tighten the money supply by $100’s of billions while faith in the dollar falls.

2) The federal deficit continues to spike in the trillions due to even larger budget deficits from defense and entitlement spending while tax cuts are implemented.

3) Domestic car sales decline due to production problems caused by changes in NAFTA, market saturation, higher interest rates, and the shift to longer-running electric vehicles.

4) The stock market declines from its all-time high and oil prices increase due to overoptimistic assumptions and heightened fears of either conventional or cyber war regarding Iraq, Afghanistan, Iran, Russia, North Korea, Venezuela, Pakistan, Ukraine, Saudi Arabia, Yemen or China.

5) Growth in China and/or India continues to decelerate due to domestic political unrest, protectionism or growth pangs causing lower purchases of commodities from the U.S. and other western countries and less favorable performance for U.S. subsidiaries located in those countries.

6) Housing purchases in the U.S. are depressed due to greater uncertainty in the national economy and locally because of potential declines in the auto industry.

7) Capital investment is deferred because of higher political risk regarding trade, income taxes, health care, criminal investigations and overall political gridlock.

8) Wages and salaries finally go up and finding good workers becomes more difficult because the U.S. already is at full employment and immigration is cut back further.

We have found that the best possible time to prepare for unexpected events is now. These efforts will improve your performance even if none of the above issues occur. Your organization will be much more organized, your strategies will be clearer to everyone and your performance will be stronger.

We have seen that the best decisions will be made after being able to answer questions such as the following:

1. Could cash flow still be adequate under realistic circumstances but woefully inadequate if even a few contingencies come true?

2. Are each of the managers fully confident that they have verified the key assumptions and are they ready to be held accountable for either success or failure?

3. Are mid-level managers already operating as if they are overwhelmed and without a sense of urgency and commitment? If so, how can this be corrected right away?

6. Is there a spirit of teamwork throughout the organization where everyone is pulling together in the same direction or is there a culture of individuals or groups stepping on others to go up the corporate ladder?

7. Will succession issues, family rivalries or management infighting make success more difficult?

8. Do the budget, the strategic plan and the financial projection tie together to enable success?

We have found that answering these questions could double net cash flow, identify upsides, examine risks, generate reliable information, and build solid teamwork. In the meantime, we will work with you to identify cash leaks and unrealistic budgets, find overhead imbalances and capacity constraints, and point out the most urgent action steps required.

We work cooperatively with you and your other professionals in a proactive manner to operate as a highly-effective team. Under your direction, this process often can work to break a logjam and be a catalyst for many positive changes. The time to start the process is now.

If you would like your business issues addressed by an experienced, unbiased outside expert, call Fred Leeb at Leeb Partners, LLC now at 248-514-3262 for a free initial meeting to identify the issues and begin to implement the necessary changes. The meeting will be completely confidential and without further obligation.

Lessons Learned from the Best: 6 Management Styles to Emulate

By Fred Leeb, Leeb Partners, LLC, October 3, 2017

1) Harness your passion: remember the adage—“Do what you love and you’ll never work another day in your life.” You will need all the energy you can muster to make your business successful. On the other hand, you can’t just rely on your own personal creativity, being smarter than all your competitors repeatedly or being lucky. It takes a lot of hard work, stamina, self-discipline and teamwork. Remember that you also will be setting an example for everyone else (e.g., your employees, customers, vendors, lenders, etc.). But, if you cross the line to fanaticism, you will lose your ability to make prudent decisions, your credibility, and, eventually, your position of leadership.

2) Encourage input from everyone around you and actually implement the best ideas that they develop. If you bottle up your problems, rely only on your own solutions and just keep slamming into a wall without succeeding, you may end up blaming everyone around you for failure. But that would be your fault, not theirs. This is because you wouldn’t be taking advantage of their knowledge and expertise. You wouldn’t be spreading the decision-making burden so it is not all on your shoulders. In reality, asking for help is a sign of confidence, not weakness. Asking for help will strengthen morale, improve your work environment and cause people to work harder. Everyone will know they are part of team where each person is committed to each other’s success. But, remember that actions always speak much louder than words—you must demonstrate your respect for others’ opinions by fostering openness, leaving room for mistakes, and actually implementing their recommendations.

3) Remain calm and clear-headed in high-pressure situations. Every business has its ups and downs but successful leaders must have the clarity to make the correct decisions under any circumstances. There could be tremendous stress, a lack of the important facts on which to make a wise decision, huge consequences, and an impossibly short deadline. A leader must remain cool, confident and decisive to put together the facts, analyze practical options and instill trust and support in others. Leaders who are either euphoric in good times or hysterical in bad times will not last long.

4) Embrace change. Analyze and learn from your competitors, invest in education and training for yourself and your employees, bring in people from other organizations, and apply/modify successful concepts taken from other industries to improve your own business. Avoid having an inbred organization where everyone agrees, has the same set of experiences and solutions, and is satisfied with the status quo. Living in the past, using only the solutions that have worked in the past, eventually will cause your business to be in the past. Understand that change will only get faster and the good old days will never come back.

5) Strengthen others and encourage them to overachieve. Utilize cross-training, rotational assignments, consultants, outside seminars and other methods to cause people to grow and progress in the organization. This will improve operations throughout the organization by enabling people to understand how the pieces fit together. In addition, it will protect the successful organization from failure due to a lack of competent managers or a succession plan that works on paper but can’t be implemented due to a lack of managerial training. Family businesses, as a critical element of this process, should institute open and honest decision-making and planning regarding managerial promotions for family members. The organization should address whether family members should be in line for top management without regard to merit or demonstrated success. Nobody will benefit if the business dies due to emotional family squabbles, an exodus of capable employees who have hit a management ceiling, and untrained family members who may be set up to fail.

6) Identify the critical measures of success, track the relevant data elements often and recognize the importance of continuous improvement. Work with your managers to develop practical financial and operational data to measure success. Cause everyone to commit to the achievement of these goals that have been built by consensus. Publish the results regularly to foster clarity and understanding throughout the organization. Utilize one-on-one meetings, however, to understand underlying issues and verify your assumptions. Revise the goals as necessary to improve quality continuously. Welcome constructive criticism and open communication without being personally offended or overly sensitive.

If you would like your business issues addressed by an experienced, unbiased outside expert, call Fred Leeb at Leeb Partners, LLC now at 248-514-3262 for a free initial meeting to identify the issues and to implement the necessary changes. The meeting will be completely confidential and without further obligation.

Are the Three Little Pigs Guarding the Henhouse? Are the Three Credit Bureaus Part of the Problem or Part of the Solution?

Eric T. Schneiderman, New York’s attorney general, on Wednesday. He has opened an investigation into the large-scale data breach disclosed by Equifax on Thursday. Credit: Drew Angerer/Getty Images.

 

By Fred Leeb, Leeb Partners, LLC, September 11, 2017

Will the hack of Equifax be the first of many similar cyber attacks? Should we assume that any personal data isn’t safe anymore even if it is held by the largest and supposedly most secure company? Are the three major credit bureaus (Equifax, TransUnion and Experian) just going to behave like the three little pigs, trying vainly to protect themselves from future cyber hacking bullies? Will they just squeal and be part of the cyber threat problem (trying to minimize their own liabilities) or will they be transparent, follow their own advice about safeguarding information properly and be willing to be held accountable?

Equifax announced on September 7th that 143 million social security numbers and other critical personal data (including dates of birth and driver license numbers) were stolen.  Equifax, just like the other two major credit bureaus, ironically has claimed in the past to be the best at protecting our most trusted information.

In addition to failing its mission, Equifax also has admitted now that three of their executives sold some of their stock on August 3rd, three days after the company learned about the hack.  Then the company waited about five weeks before reporting the massive data breach to the public. Was this because the company wanted to wait until hurricane IRMA flooded all the news coverage so as to downplay their own disaster? What was their level of concern for the 143 million people that had their most sensitive personal information at risk for that lengthy period? Didn’t they care that the importance of this hack cannot be overemphasized and is a serious threat to the very fabric of our economy?  Didn’t they realize that it throws into doubt all of our future transactions, credit reports and credit scores, loans, bank and investment accounts, and personal credibility?

If we take a step back to see the bigger picture, when is the country going to wake up to the huge magnitude of the cyber threat facing all aspects of our society? The Equifax breach is just the most recent and most far-reaching blow of many more that are likely to be on the way in the near future. The key issues are:

  • Will anything be done to block the wide range of future cyber threats that could cripple the U.S.?
  • Will the government assist corporate America to protect our society?
  • Will the three credit reporting agencies comprise just another industry that is too big to fail? Do the rules that apply to small businesses and individuals not apply to them?
  • Will this be another example of senior executives not being penalized for selling off some of their stock holdings before announcing the bad news to the public?
  • Will anyone at Equifax be punished personally for the tremendous liabilities that could result?

The next few months should provide answers to these questions but the initial indicators are not good.

Please see the following for links to two important articles on this subject. The first is from the New York Times (Equifax Hack Exposes Regulatory Gaps, Leaving Consumers Vulnerable) by TARA SIEGEL BERNARD and STACY COWLEYpublished on SEPT. 8, 2017. The second is from TechCrunch (Equifax execs dumped stock before the hack news went public) by Taylor Hatmaker (@tayhatmaker), John Mannes (@JohnMannes) posted Sep 7, 2017.

If you would like your business issues addressed by an experienced, unbiased outside expert, call Fred Leeb at Leeb Partners, LLC now at 248-514-3262 for a free initial meeting to identify the issues and to implement the necessary changes.  The meeting will be completely confidential and without further obligation.

Lessons Learned: Bad Things Can Happen When Even the Best CEO’s and Boards Start to Relax and Assume What is on the Surface is also Underneath

Fujifilm Says Losses From Accounting Scandal Bigger Than First Thought

Six members of Fuji Xerox board resign

By Megumi Fujikawa, The Wall Street Journal, June 12, 2017
“…The Japanese camera and copier maker said six board members at its mainstay subsidiary Fuji Xerox would resign to take responsibility for losses that ballooned to ¥37.5 billion ($340 million) between fiscal 2010 and 2015, from ¥22 billion.” [See below for other article excerpts and a link to the entire article.]

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Lessons Learned: Bad Things Can Happen When Even the Best CEO’s and Boards Start to Relax and Assume What is on the Surface is also Underneath

By Fred Leeb, Leeb Partners, LLC

In business after business, whether large or small, I’ve seen CEO’s and boards make assumptions that everything is running fine because the top line and the bottom line are better than they had been before.  But, running without prudent checks and balances is the best way to run amok.  The top five reasons as to why this is so common are as follows:

  1. The old expression that “when the height of the river is high all the rocks are covered” is very true.  It is much easier and more comfortable to assume that all is well when revenue is high and everyone is happy.  But, this is a sure way to build an undisciplined culture.  Once everyone sees that the leaders at the top don’t seem to care, everyone else will be quick to follow suit and emulate them.  In this atmosphere, many months or even years may go by until the level of the “river” falls again and the “rocks” become exposed.  If this happens, it will be too late to recover the huge losses that could have been avoided by asking tough questions much earlier.  “We didn’t nag at Fuji Xerox very much, and that is something we now regret,” stated Kenji Sukeno, Fujifilm’s president and chief operating officer.
  • Key managers and board members are often relatives and long-term friends.  When there are potential conflicts that could occur that could also affect social relationships and even extended family relationships, people will think twice before bringing up a sensitive or potentially embarrassing subject.  For example, they realize that what they say in the office may come up again when they are with their spouses at Thanksgiving dinner.  This means that they may stay as far away as possible from a potential confrontation, causing problems to fester under the surface, have a much greater negative impact, and eventually cause a huge blowup in the future that will be both irreparable and very costly.  On top of large financial losses, the best people in the organization may leave due to the toxic environment that was allowed to develop.
  • Once people recognize that they are in a position where they are able to operate under the radar (particularly when the radar is barely operating anyway), they may become adept at playing the game to build systems and excuses to protect their lack of effort, their uncooperative personalities, their lack of teamwork, and, eventually, they may siphon cash out of the system.  This can be done merely by maintaining a low standard for revenue generation or a higher than necessary cost structure.  It can be much more difficult to know what is correct based on an absolute level of revenue or expense as compared to a relative level.  For example, once months or years have gone by developing a standard of low sales results or expensive travel costs, it will be very difficult to know what should have been generated by a high-performing employee.  Unfortunately, once one person creates their own favored position, others may think they should play the game too and mimic the bad apple, causing the problem to be much worse. Paradoxically, these same people will be very creative and work hard to protect their favored positions.  Another disastrous byproduct of this negative behavior is, once again, the loss of the best employees who will not want to be associated with these bad apples—they know the truth even if top management is happily in the dark.
  • Managers may use high-performance results in one business unit to offset or mask other problems that may be occurring at the same time in other business units.  When one business unit may be experiencing difficulties, managers may do anything to buy time, thinking that the problems will be temporary and will be gone before anyone knows the truth or there will just be a miracle.  They may think it is all under control even though the problems actually could be getting worse.  Without proper oversight and onsite analysis, it can be very easy to produce “sanitized” information that will be plausible and uncontroversial to the leaders at the top.  If the problems are not actually corrected, they could be mushrooming under the surface, causing the necessity for even more obfuscation and increasing problems ever more difficult to resolve.   This may have been one of the problems at Fujifilm because they let the subsidiary, Fuji Xerox, operate with too much leeway (regarding personnel, strategy and capital expenditures) to offset the negative results of Fujifilm, the parent company, while it was going through a difficult transformation.
  • What is “out of sight is often out of mind”.  For example, the problems at Fuji Xerox developed at its New Zealand unit and an Australian sales subsidiary also had inappropriate accounting practices.  It may be that management was too far away and didn’t make the necessary effort to find out, first hand, what was going on because the business units were too far away.  This can happen whether the business unit or individual problem area is 1,000 miles away or just 20 feet away. 

All of the problems listed above can be much easier to resolve by an experienced, unbiased outside expert who knows what to look for, how to find it and how to fix it.  Call Fred Leeb at Leeb Partners, LLC now at 248-514-3262 for a free initial meeting to begin to discuss how to begin to identify these issues and to implement the necessary changes in your organization to maintain your competitive edge.  The meeting will be completely confidential and without further obligation.

 

Other Excerpts from:

Fujifilm Says Losses From Accounting Scandal Bigger Than First Thought

Six members of Fuji Xerox board resign

By Megumi Fujikawa, The Wall Street Journal, June 12, 2017

“The Japanese camera and copier maker said six board members at its mainstay subsidiary Fuji Xerox would resign to take responsibility for losses that ballooned to ¥37.5 billion ($340 million) between fiscal 2010 and 2015, from ¥22 billion. It also docked pay from all the board members at Fuji Xerox and two senior group executives. Only one of the resigning board members will stay with the company.”

“The latest example of Japanese accounting irregularities is likely to add to investors’ concerns over corporate governance at Japan’s companies, after a long-running accounting scandal at Toshiba Corp. and last year’s admission by Mitsubishi Motors Corp. that it falsified fuel-efficiency data for some of its cars….  Too much leeway had been given to Fuji Xerox to follow different practices from its parent company because the unit had helped support Fujifilm’s bottom line as the company tried to reinvent itself in response to the digital revolution, said Kenji Sukeno, Fujifilm’s president and chief operating officer….  “We showed too much respect for Fuji Xerox because it contributed to profits when Fujifilm was reforming itself after its film business peaked in 2000. We didn’t nag at Fuji Xerox very much, and that is something we now regret,” Mr. Sukeno said at a news conference after the release of the company’s delayed earnings for the business year ended March 31.

Fujifilm didn’t apply internal rules for managing its subsidiaries to Fuji Xerox, the company said. Those rules covered areas such as business strategy, personnel changes and capital expenditure.”  [see entire WSJ article]

Your Organization Had Better Be Well Prepared if Ford Already Has Done This in China

Your Organization Had Better Be Well Prepared if Ford Already Has Done This in China

By Fred Leeb, Leeb Partners, LLC 

If you want to know what the future holds for the level of competition in the United States, you must fully comprehend what already is going on in China, the so-called country of unlimited cheap labor.  All you have to do is contrast the video in this article with the other much older picture from my home page of an engine assembly operation (similar to where I started my career). You can easily see how the world has changed radically from one with a significant amount of manual labor to the use of a large number of high-tech robots, even in China.  Ford had to automate in China and rely on technology to reduce labor cost and maintain quality control.

 

If any organization wants to be able to compete, there will be no going back to the good old days here or anywhere else in the world. This is no surprise in the auto industry but it now applies to all types of industries including retail, grocery, fast food, distribution and many others.  Virtually every operation, even service industries, must change dramatically to be able to survive in the future. 

Sarah Li, Guglielmo Mattioli and Veda Shastri of The New York Times provided the fascinating 360 degree video, “Where It’s Made: A Ford Car in China” The video was produced at one of the most automated factories in Hangzhou, China.  With only 1,400 people/shift and 650 robots, this plant manufactures 250,000 cars per year with a starting price of $36,000 per car.  This means that this plant generates revenue of at least $9 billion per year.

 

Click on the video to get an excellent idea of the technology already in use and the relatively small number of factory workers needed.

Call Fred Leeb at Leeb Partners, LLC now at 248-514-3262 for a free initial meeting to begin to discuss how to begin to implement the necessary changes in your organization to maintain your competitive edge.  The meeting will be completely confidential and without further obligation. 

Lessons from the Best: No Shame in Early Succession Planning

Lessons from the Best: No Shame in Early Succession Planning

 

By Fred Leeb, Leeb Partners, LLC

Many CEO’s of family businesses have worked so hard to surmount obstacles and nurture their businesses that they believe that nobody else has their knowledge and expertise. They believe they can’t admit they’re human or ever have any potential weaknesses.  But, this could jeopardize their entire organization and become a self-fulfilling prophecy. If nothing is done, well in advance, to develop a feasible transition process there eventually will be a crisis; the organization will be set up to fail. I have seen many times how a sudden illness, death, cash crunch or buy/sell opportunity can throw the business and all its carefully built-up value into family infighting and chaos.

J.W. Marriott, the Chairman of Marriott International, and Andrew Keyt, a professor at Loyola, have provided a great example of how succession planning should be done in their article “Succession Planning in a Family Firm” in The Wall Street Journal on May 10, 2017.

To paraphrase them, the key points are as follows:

 

  1. Identify top performers and give them enough time to prove themselves in a variety of progressively more challenging situations.
  2. Enable top candidates to gain experience and strengthen themselves in a number of key competencies (e.g., operations, HR, finance, etc.) to enable them to be successful senior managers.
  3. Start family members at the bottom of the organization to know the business and appreciate the skills of others.
  4. Discuss potential career paths with family members to try to come to a consensus on what they would enjoy and commit to.  Allow them to be part of the decision-making process on how to handle the organization and their own futures.
  5. Set expectations with relatives early on so they know that the choice for the next CEO will include non-family members–the goal will be simply to pick the best leader for the organization.
  6. “Many families fail at succession planning because the next generation isn’t prepared. They aren’t qualified because parents don’t make space for them or give them feedback. Families also often fail to develop a pool of talent.  It isn’t about having one possible successor; it’s about having a pool of talent to draw on.”
  7. The best time to start succession planning is today.

 

Click on the following link for the full article from The Wall Street Journal.

Call Fred Leeb at Leeb Partners, LLC now at 248-514-3262 for a free initial meeting to begin to discuss how to implement operational succession planning at your organization.  The meeting will be completely confidential and without further obligation. 

Who Cares About Nonprofit Finances? The Top 12 Reasons Why the Most Vulnerable Are at Risk

By Fred Leeb, originally published in Huffington Post on September 12, 2012

Who is Responsible to Ensure that Nonprofits Operate Most Efficiently?

Everyone and no one. While the great majority of people in the nonprofit world are good people, this doesn’t necessarily mean that the financial system is functioning most effectively. When everyone and no one is responsible, it means that nonprofit clients/customers/patients can easily fall through the cracks because nobody without other vested interests represents them at the table. This is a tremendous flaw in our nonprofit system. The most vulnerable people often have:

  • No voice of their own in the process,
  • No leverage,
  • No significant buying power,
  • No vote,
  • No seat on the board,
  • No direct communication links to decision-makers,
  • No ability to take their business elsewhere, and
  • No substantial access to outside professional help

While there are many stakeholders, auditors, reporting requirements and accreditation organizations, there are no organizations or individuals who are tasked to disrupt the status quo to create positive change. Many different stakeholders could do so but it is much easier and much less risky to just continue business as usual.

Why Would Mergers Be an Effective Strategy?

In my prior article, “Nonprofits are Now Too Critical to Fail,” I noted that, 46.2 million people were in poverty in 2010 according to the U.S. Census Bureau. Of those, 15.7 million were children under 18. Under today’s high-stress, budget-cutting conditions, it is all the more important that nonprofits use each dollar they receive to the maximum by operating most efficiently. But the great majority of nonprofits are very small. Approximately 83 percent (or 304,000) of the registered public charities that filed a tax form had revenue of less than $1 million in 2009, according to the National Center for Charitable Statistics (NCCS). But these small nonprofits had a total of about $60 billion in revenue. One way for these small organizations to operate much more efficiently for the benefit of their constituencies is through mergers, but mergers have been very rare even though they already have swept through the corporate community. This article explains why there often appears to be no sense of urgency amongst nonprofits to accelerate the needed changes to increase efficiency.

Does the nonprofit system incorporate an adequate self-policing mechanism?

For-profit corporations are far from perfect, but they have many more checks and balances to cause them to operate efficiently. The top 12 reasons why nonprofits do not have an adequate self-policing mechanism are as follows:

  1. Board checks and balances: Many of the corporate counterbalances to the CEO do not exist. There are no major stockholders who have their own vested interest in the organization. Many nonprofit board members serve to assist in fundraising and to contribute to the community rather than oversee the CEO or ensure efficient operations. In addition, many board members have been selected because they are friends or family members of the CEO, making it very difficult for them to be objective in decision-making.
  2. Stockholders: Nonprofits do not have voting stockholders and therefore are not motivated by the need to increase shareholder value or dividends.
  3. Operational reporting: The measures of success for a nonprofit are often relatively fuzzy in comparison to a for-profit, which is measured by net income and cash flow. Financials are not paramount. Success is more likely to be measured in outcomes, which may be more qualitative than quantitative, rather than in financial statistics. For example, a soup kitchen generates no revenue or profit from providing its services but is still vitally important to the community. This lack of clarity, however, makes it much more difficult for board members and funding sources to determine whether the nonprofit organization is operating most efficiently.
  4. Executive compensation incentives for change: It is much more difficult to include incentives as a major part of a nonprofit CEO’s compensation. Nonprofits cannot generate increases in their stock price. There often is no mandate to generate surpluses and measures of return on assets or equity are not applicable. Also, CEO’s may have more downside risk than upside opportunity in a merger or acquisition. They may lose their own job if the other CEO takes over and they may find it difficult to measure success even if the merger works as planned. There also is no golden parachute if they leave, as there often is in a for-profit merger.
  5. Grant sources: Grant sources have a substantial amount of leverage and resources but they generally do not use these capabilities to require far-reaching and fundamental changes such as mergers and acquisitions. Their leverage is because they are highly sought after as one of the very few sources of cash that can be used for growth or capacity-building, since their funding may not be restricted to a specific program. The grantors, however, generally believe that getting into the day-to-day management of a grantee is beyond their scope and capability. It also leads to controversy and confrontation that is uncomfortable. Grantors also have not traditionally recommended or required that the grantee hire a consultant to provide new ideas or be an agent for change, as virtually all banks do with their troubled corporate customers. Grantors are commonly set up to do their due diligence prior to approving their grant and in auditing their grantees to see that their funding is being used in accord with the grant.
  6. Fee-paying customers vs. nonprofit clients: Nonprofit clients often have no financial leverage or voice to demand better goods or services and push for change. Many clients, particularly of human service organizations, have no assets, minimal or no income, no access to the media and no relationships with influential individuals or organizations. They also often cannot go elsewhere to obtain their goods or services and are subject to virtual local nonprofit monopolies. There frequently is almost no first-hand relationship between the clients and the board members, funding sources or even executive staff members.
  7. Banking relationships: Banks are much less proactive with their nonprofit customers. Banks are reluctant to become involved with nonprofits in the first place and often have difficulty working with nonprofit financials. Banks are torn between considering a loan to a nonprofit as a business relationship and the bank’s own effort to give back to the community. Banks do not want to turn their charitable efforts into a negative public relations situation where they are considered the evil overbearing financial institution squeezing a helpless nonprofit by threatening foreclosure to obtain its debt service or repayment. Once a loan is made, banks generally will try to maintain a low profile rather than push for change as they would with a corporation. For example, if chronic and severe financial problems arise with a corporation, banks will immediately shift the customer to their workout departments to push hard for improvements. They also may require the customer to operate under a highly restrictive forbearance agreement and hire an experienced turnaround consultant as a change agent.
  8. Outside professionals: Nonprofits have a relatively limited relationship with their outside professionals due to very tight budgets. Nonprofits frequently try to hold spending on outside professionals to an absolute minimum (due to their grantors’ strict mandates to hold down administrative costs) and will often try to use professionals (whether or not they are on the board) on a pro bono or a reduced-fee basis. Professionals will only contribute their services to a limited extent on this basis.
  9. Auditors: Outside auditors generally will not go beyond their well-defined scope of work. Their scope generally does not include pushing management to make major specific operational changes. The auditor’s objective is to obtain reasonable assurance about whether the financial statements are free of material misstatement. Auditors may, on relatively rare occasions, provide a “going concern” disclosure due to recurring losses or other factors raising substantial doubt about the organization’s ability to continue as a going concern.
  10. Accreditation organizations: Many organizations exist to accredit various types of nonprofits but the value of this work is dependent on whether it is actually used by the CEO and the board. Accreditation reviews often are years apart and are viewed by outsiders as a stamp of approval. It is relatively rare for stakeholders to get into what is often voluminous detail on the organization that was reviewed.
  11. Internal financial constraints: Nonprofits must keep staff costs to an absolute minimum. They generally operate on extremely small gross margins because funding sources often allow only 10-15 percent of their grants to cover all the administrative costs of their programs. Nonprofits generally have no cash for growth, reinvestment, training or investigation of a potential merger to increase efficiency. Sometimes the larger nonprofits are able to conduct major capital campaigns but these are generally either to build an endowment or construct a much-needed building. Frequently, the cash in an endowment can be accessed up to a very limited amount per year (often five percent) to prevent the endowment from being depleted rapidly. Nonprofits also have difficulty obtaining a credit line to help even in normal seasonal fluctuations because it is difficult for banks to deal with their receivables as collateral.
  12. Information constraints: Information on other nonprofits as potential merger candidates is difficult to obtain. Nonprofits report annually through their 990 tax returns but these are often available long after the reporting year is over. In addition, there is no tradition of using investment bankers or business brokers to identify, recommend and facilitate nonprofit mergers and acquisitions (due to a lack of financial incentives). This frequently leaves the organization reliant on the CEO to initiate merger and acquisition efforts, though the CEO’s job security may be at stake if he does so.

 

Based on the 12 points listed above, everyone and no one is responsible for nonprofit finances and nonprofits do not have an adequate self-policing mechanism to ensure that they will operate most efficiently. Though the vast majority in the nonprofit world are working very hard and are very good and honest people, the issues listed above represent a tremendous problem enabling the waste of many millions of dollars every year. It is sad that the biggest losers are the most vulnerable who have the least capability to have their voices heard and push for change. Even though there are many instances where the checks and balances that are present in the corporate world have not been adequate, they are still much stronger than those that exist in the nonprofit world.

My opinion is that foundations are the logical candidates to fill the void and take on the responsibility of pushing nonprofits to operate with much greater efficiency and professionalism in the future.

Six Ways to Get Your Top Priority Projects Done Now and Get Higher Returns on Your Hidden Assets

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By Fred Leeb, Leeb Partners, LLC

This is the perfect time to take two very important management actions.  First, focus on your most important, highest return, highest priority projects.  Don’t fall into the procrastination trap of working on your lowest priority projects just to stay in your comfort zone or wait until you clean up all your other loose ends.  Second, take a fresh look and crank up the value of all your assets–bring in new perspectives and get the resources you need to improve your business now.   With proper management, the hidden resources you already have can be the key to getting your highest priority projects done now.

During our 25+ years of consulting with many small, medium and large businesses we have been able to identify and take advantage of many significant hidden opportunities to help CEO’s bring their major projects to fruition.  We are often their turbocharger to get more out of all of their assets to help them realize their goals.  We have often found that many of our clients have unrecognized and underutilized assets that they already have paid for and we help them to increase their returns significantly, as follows:

  1. Fully utilizing your employees’ knowledge:  the employees frequently know more about the business, on a collective basis, than the CEO and are a tremendous source of untapped valuable information.  But it is extremely difficult for a CEO to unlock this goldmine to find out what the employees are really thinking.  Barriers often are built up over the years because of fear and distrust that never can be addressed internally.

 

  • The right outside expert, however, can work to give employees their one-time opportunity to have their cake and eat it too.  Through the consultant, they can have a pipeline to the top and be heard but they also can maintain their confidentiality to be able to speak honestly and forthrightly.
  • By bringing an outside consultant to work on a confidential basis to team up with employees, the CEO is telling the employees that: he/she respects the employees’ expertise, is serious about wanting their input, and that there are new opportunities for employee advancement and visibility (by providing new ideas).  This new communication channel often is the chance the employees have been waiting for and can bring up to the surface years of good ideas that have been pent up.  The employees know this will work for the benefit of the company and themselves.  Tremendous value can be generated in many areas.
  • Employees will provide their knowledge on issues that go far beyond their current role.  For example, they frequently have a storehouse of untapped information from having many face-to-face/first-hand meetings with your customers and vendors.  During these meetings and discussions, they get valuable feedback on product pricing, quality, delivery timing, product features, packaging and potential add-ons.
  • Staff employees, working in well-organized teams, can take some of the burden of innovation and implementation off of the CEO.  They will pull together and commit to achieving success instead of pulling in different directions.
  • Employees don’t like to use a suggestion box.  They want someone to discuss their ideas with them to try to implement them in a practical manner.  With a demonstration from the CEO that each idea will be taken seriously, they will often come forward with great ideas for potential innovations, cost reductions, new efficiencies, decreases in “shrinkage”, better usage of inventory and methods of collecting receivables.

 

  1. Breaking through your managerial constraints: Inadequate middle management resources may be limiting your company now more than a lack of cash.  This is because CEO’s frequently are afraid to give much more responsibility and authority to their management team members.  This is a constraint, however, that often can be broken quickly.

 

  • With the help of an experienced consultant, these managers could succeed more easily and free-up more of the CEO’s management time too.  They will take on more work and help you complete your high-return special projects.
  • This also would cause the rest of the business to be managed much more effectively.  Without this boost, however, it will continue to be very difficult to get more out of your existing management team.

 

  1. Increasing your return on professional expertise: Your company probably already has paid to educate at least four outside advisers about the inner workings of how you do business (your banker, accountant, attorney and insurance broker).  They have gone up the learning curve on the intricacies of your business by working on your transactions and key issues.  After working on your company’s investments, business plans, financial projections, acquisitions, divestitures, real estate, financial statements, tax returns, audits, employee disputes, benefit plans, collections, etc., these professionals are a tremendous storehouse of knowledge and ideas about potential business improvements. 

 

  • With a small amount of guidance and coordination from an experienced management consultant experienced in working with other professionals, a CEO could use these professionals judiciously and much more effectively.  On the other hand, keeping them at bay to reduce cost is often ‘penny wise and pound foolish’.  Prudently involving them could significantly improve your return on your investment in these professionals.  You already have made a major investment in these professionals and they shouldn’t just be your often-overlooked assets. 
  • Not involving them in major decisions is the equivalent of buying a large, expensive and flexible piece of equipment for one application and then purposely trying to never use it again.

 

  1. Strengthening knowledge of your competition:  Salesmen, engineers and others in your company have a substantial body of knowledge about competitors’ product features, pricing and upcoming new developments.  They also have many contacts outside the company through which they could get highly valuable additional information.  If you seek out this intelligence and communicate it across departmental boundaries as an integral part of your business planning process, your management will be much better informed and your investments will generate much greater returns.

 

  1. Tapping your customer and vendor relationships:  CEO’s frequently miss opportunities to gain assistance from two of their most important stakeholder groups, their customers and vendors.  This is because CEO’s jump to the conclusion that customers and vendors will abandon them in a heartbeat at the first hint of trouble.  The reality is that this is not the case–customers and vendors also have developed a strong reliance on you because you, in turn, are one of their stakeholders too.
  • Vendors know that many other customers, particularly in this economy, also go through business cycles and they know that it would be hard for them to replace you.  They also may have tailored their company to meet your needs and it might take a long time before they can substitute another customer, produce the necessary goods or services and then collect.  It often can be much better for them to help you achieve your goals.
  • Your customers also have come to rely on you and trust your processes and quality. Their personnel may have built strong relationships with your employees and they may not want to change to a different vendor.
  • Momentum is on your side with both your customers and vendors.  They generally want to help you.  For example, they can slow their collections of receivables from your company and can speed up payments of payables to your company, etc.  This additional credit may not be available to you anywhere else, particularly with no additional interest expense. But, you must communicate with your customers and vendors properly and build their confidence and trust.  If they think that you are taking advantage of them they will run the other direction as fast as they can.  
  1. Freeing up wasted resources in your underutilized buildings and equipment:  Buildings and equipment often are much larger and more sophisticated than needed now because they were sized and priced based on your previous needs and older technologies.  They are likely to remain too large than needed for years.  This means your sorely needed cash could be trapped in these assets.  Through effective planning and negotiation, you often can eliminate this cause of waste and free up valuable resources.

Now is the perfect time to focus on your most important, highest return, highest priority projects.  Don’t fall into the procrastination trap by staying in your comfort zone.  Second, take a fresh look and work to extract the maximum value from all of your assets.  They must work as hard every day as you do.  By using the six ways described in this article, your business is likely to be much more successful and you could end up with a big bonus for yourself—cash left over even after accomplishing your highest priority goals.

Call Fred Leeb at Leeb Partners, LLC today at 248-514-3262 for a free initial meeting to begin to tailor these methods to your company.  The meeting will be completely confidential and without further obligation.  

Growth Becoming an Issue? The Advantages of an Outside Expert

Is your company or your client’s company going through growth pangs?   Is leadership struggling with larger issues that they don’t have adequate time to address, worried about likely complications that are not yet investigated, or being frustrated by small issues that seem to go unresolved?

Based upon our lessons learned from being a top exec, a consultant at two of the best consulting firms (PwC and AlixPartners) and from working at successful household name businesses over a 40-year career, we believe that there are tremendous advantages in getting an outside expert to assess your opportunities–bringing to the table both a sense of urgency and an unbiased perspective. Using this approach, we have driven multi-billion dollar issues, small family businesses, nonprofits and have even led the turnaround of a city of 66,000 people.  We have generated benefits in excess of hundreds of millions of dollars when working as team members with the client’s staff and their other professionals.

We have found that the best possible decisions will be made after being able to answer questions such as the following: 

1. Could cash flow still be adequate under realistic circumstances but woefully inadequate if even a few contingencies come true? 

2. Are each of the managers fully confident that they have verified the key assumptions and are they ready to be held accountable for either success or failure? 

3. Are mid-level managers already operating as if they are overwhelmed and without a sense of urgency and commitment?  If so, how can this be corrected right away? 

6. Is there a spirit of teamwork throughout the organization where everyone is pulling together in the same direction or is there a culture of individuals or groups stepping on others to go up the corporate ladder?

7. Will succession issues, family rivalries or management infighting make success more difficult? 
 
8.  Do the budget, the strategic plan and the financial projection tie together to enable success?

We have found that answering these questions could double net cash flow, identify upsides, examine risks, generate reliable information, and build solid teamwork.  In the meantime, the best outside experts will identify cash leaks and unrealistic budgets, find overhead imbalances and capacity constraints, and point out the most urgent action steps required.  

The best experts should work cooperatively with management and other professionals in a proactive manner to operate as a highly-effective team.  Under the client’s direction, this process often can work to break a logjam and be a catalyst for many positive changes.  The time to start the process is now.

Growth Becoming an Issue? The Opportunity Audit Solution

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Is your company or your client’s company going through growth pangs?   Is leadership struggling with larger issues that they don’t have adequate time to address, worried about likely complications that are not yet investigated, or being frustrated by small issues that seem to go unresolved?

Our Opportunity Audit can be the solution needed to eliminate these causes of frustration. We are highly experienced, action oriented and extremely trustworthy. We operate in an unobtrusive and confidential manner. We blend expertise and common sense—from being a top exec, a consultant at the best consulting firms (PwC and AlixPartners) and from working at successful household name businesses over a 40-year career. We have driven multi-billion dollar issues, small family businesses, nonprofits and have even led the turnaround of a city of 66,000 people.  We have generated benefits in excess of hundreds of millions of dollars when working as team members with the client’s staff and their other professionals.

With the benefit of an Opportunity Audit, the best possible decisions will be made after being able to answer questions such as the following: 

1. Could cash flow still be adequate under realistic circumstances but woefully inadequate if even a few contingencies come true?

2. Are each of the managers fully confident that they have verified the key assumptions and are they ready to be held accountable for either success or failure?

3. Are mid-level managers already operating as if they are overwhelmed and without a sense of urgency and commitment?  If so, how can this be corrected right away?

6. Is there a spirit of teamwork throughout the organization where everyone is pulling together in the same direction or is there a culture of individuals or groups stepping on others to go up the corporate ladder?

7. Will succession issues, family rivalries or management infighting make success more difficult?

8.  Do the budget, the strategic plan and the financial projection tie together to enable success?

We have found that answering these questions could double net cash flow, identify upsides, examine risks, generate reliable information, and build solid teamwork.  In the meantime, we will identify cash leaks and unrealistic budgets, find overhead imbalances and capacity constraints, and point out the most urgent action steps required.  

Here are just a few examples of what our referral sources have said:

  • We enjoyed working with you!  You asked tough questions sometimes, but when you received a satisfactory answer you moved forward and didn’t look back.  You did a great job for your client.  We hope to have a chance to work with you again, too!
  • My client and I were very impressed with your organization skills, your ability to analyze and resolve complex issues, and most importantly with the integrity that you demonstrated throughout this matter.  We look forward to hiring and working with you in the near future.
  • You have done an excellent job in taking a fresh look at our business.  You have shown us how to learn from our mistakes and have given us creative new ideas to turn our company around and make it successful again.  I only wish that we would have hired you a long time ago.  Shame on us if we don’t follow through now and fully implement these changes.
  • Our clients … have found you to be very hard working, diligent, honest and most importantly, able to have a clear vision of what must be done even in the most difficult and trying circumstances.  We know we can rely on you to do an excellent job for our clients.

With an Opportunity Audit underway, we work cooperatively with management and other professionals in a proactive manner to operate as a highly-effective team.  Under the client’s direction, we often can help to break a logjam and be a catalyst for many positive changes.

Ever since our firm was established in 1994, we’ve been extraordinarily responsive and superb collaborators. I will be working personally on each client, not a faceless army.  My achievements include winning the local Turnaround of the Year Award, being appointed by Governor Granholm to successfully run the City of Pontiac as its first Emergency Financial Manager and an MBA from Wharton.  For more details about my experiences and many testimonials, please see my website and my LinkedIn profile.

The beginning of the year is a great time to get started.  Please call now at 248-514-3262 to set up a telephone call or a confidential meeting (with no cost or obligation) to discuss how we may be able to help make a difference.