How to salvage a half-baked turkey!

Launching a new product is for some like birthing a baby. For others it’s more like cooking a bird you’ve never prepared before. Something can and probably will go wrong. The question is how easy will it be to fix it. But let’s suppose your new product turns out to be a real turkey, and you have a warehouse full of half-cooked birds that aren’t going to sell at anywhere near list price. What do you do? How do you maximize your profit or at least minimize your loss?

We discussed this topic today in a management seminar I was leading, and I’ll share with you the same ideas that I gave them: Today is a new beginning. Incremental profit from today on is the only meaningful measure of success going forward. Later on you can berate the poor soul who made the decision to take the product on, but today it’s about making a good decision to optimize profits from a bad situation.

So consider this: Everything you have spent through today is sunk cost. It’s gone. You can’t change your mind and unwind it, or return your new product and start over. But what you spend from today on, and what you sell from today on, and what you earn from today on, is all that matters. This is a useful application of the concept of Contribution Profit, which is Net Sales less all variable costs of getting and fulfilling the sale. From today on, every dollar you can produce in Contribution Profit from your turkey will add directly to your bottom line. It may not produce the profit you once envisioned, but it will reduce your loss or produce a bottom line that is improved over where you are today.

And that sounds like a good management decision to me.

As always, I welcome your comments.

The best book in print on simplified finance!

OK, maybe those weren’t words from an independent source exactly. But my book is still a best seller for good reason. Finance for Non-Financial Managers, published by McGraw-Hill, is truly finance in plain English for those who are averse to learning about finance and accounting reports and all that stuff. It’s used in classrooms and corporate offices, by big company executives and startup entrepreneurs. Why this book? Because you can understand it!

And if you buy it from us you also get the right to email me any questions that come up in your reading. And I’ll sign it for you besides. Is that a blatant pitch for your money? Yup! Go to http://www.amazon.com/Finance-Non-Financial-Managers-Briefcase-Books/dp/0071413774/ref=sr_1_1?ie=UTF8&s=books&qid=1213433046&sr=8-1 on Amazon.com and read the many reviews from delighted readers. Then you can either buy the book from Amazon for a few dollars off the cover price, or come to us and get the autographed book and the email rights for $14.95 plus shipping. It’s a steal! Go to http://www.executivefinancecoach.com/finance_book.html and get yours while they last. OK, that last part is puffery. We’ve got lots of them. But they’re not helping you while they’re sitting on our shelf. Use your PayPal account or your credit card and get your copy now.

Procurement software? Bah, Humbug!

The Wall Street Journal carried an article this week discussing web spending tools, that is to say software that helps businesses control costs by telling them where they’re spending their money. It’s called procurement software and it sells for big bucks to big companies. Most companies are not big companies, and most of them can get the same results by learning how to read their own financial reports, IF they also learn how to ask for the information they don’t see in the standard forms their software spits out every month.

Too many managers are frustrated because they don’t see what they need or they don’t understand what they see and they don’t know what to do about it. They don’t understand what is possible and reasonable to expect from their financial departments, so they accept that it’s a different language and they lower their expectations. With all due respect to their skills, I call this Financial Illiteracy.

Some of the most creative CEOs I’ve known keep numbers on the back of an envelope – or the equivalent – because it’s the only think they understand. How sad is that? If you know anyone in that state of affairs, do them a huge favor. Tell them to call me.

As always, I welcome your comments.

Incentives work – for everyone!

Good workers are hard to find, many CEOs report. Despite an economy that some feel is in recession – don’t you believe that part – unemployment statistics across the country are just shy of levels traditionally thought of by economists as full employment. That means you work harder to hire good people and then you have to keep working to keep them, because someone across town is willing to pay them more than you are to induce them to come to work for them. How do you cope? You can count on the familiarity of your company being an advantage vs. an unknown new situation. Unless your business is a sweat shop that should be a positive. But what about the pay issue?

I strongly believe customized incentive programs are a powerful glue to keep good people fastened to your payroll. Let me give you an example: a long-time client of mine is in a manufacturing business that requires highly skilled workers, and everyone wants them. Because their industry is booming, they were working all the overtime they could get from their people just to keep up with the orders. And they weren’t keeping up well enough, in the eyes of several of their key customers. Enter the simple bonus/profit sharing plan.

We installed a quarterly bonus plan that applied to everyone on the payroll, down to the shipping clerk. It’s funded from a percentage of profits and allocated to each worker based on their evaluated performance. To keep it simple the evaluation is a short check list of critical activities that are deemed directly supportive of timely and accurate delivery of goods to their customers. Every quarter each employee gets an additional amount in their paycheck or, at their option, added to their 401(k) account. A typical bonus can add $2-3 an hour or more to everyone’s paycheck for the entire quarter, all in one chunk of cash. The program has been in place for about 18 months now. The results:

With no major additions to equipment or plant layout changes, the company is now shipping roughly 15% more in sales than they were 2 years ago, with higher quality and better on-time delivery. And overtime has been reduced by 75%! As a result, profit margins have soared and morale has rarely been higher.

Your comments are welcome.

Accounting recruiters nightmare

With the current shortage of good accounting staff now approaching epidemic proportions, companies are looking to recent graduates for talent that is both current on technology tools and still affordable. But there’s a big caveat to that strategy, ably demonstrated by a recent Robert Half International survey published in CFO Magazine. They surveyed these “millennials” to find out what they most valued on the job. The top ranked results on a scale of 1 to 10 are shown in the graph below.
They don't need explanation, although the writer had a one-liner to add, hinting at a backlash against companies' declining sense of loyalty to their employees over the past generation.

"If you want loyalty, get a dog."

I welcome your comments.

Internal Audit and the CFO - inherent conflict of interest?

I was reading an interview with the WorldCom whistle blower, once the vice president in charge of internal audit at WorldCom. She made a comment that every CEO whose company has an internal audit function should read. She said having that function report to the CFO, a common situation because of the kind of work internal auditors do, is an inherent conflict of interest for the CFO. The conflict is that much of the work done by internal auditors involves reviewing the work performed by people who work for the CFO. The likelihood of internal auditors reporting problems in their boss's organization seems somewhat problematic, if you think about it.

Her point was that the internal audit team should report to the audit committee of the board of directors, and I agree. Lacking that, such as in a privately owned company that doesn't have an audit committee, that reporting relationship should be to the CEO. The problem: the CEO probably doesn't want the direct responsibility of managing a function whose activities are so foreign to what he/she feels comfortable with. My message to the CEO: get over it! These people can keep you out of trouble and make your company run better.

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If you don't like the sound of "internal controls" then how about "integrity and efficiency controls?" Learn what it takes to oversee these mechanisms in your company, and that includes internal audit. And if your company is over $50 million or so in sales and you don't have a separate internal audit function, you should be worried. If you don't know why you should be worried, call me to talk about a coaching relationship.

I welcome your comments.

Don't take them for granted!

I'm teaching finance for non-financial managers to the management team of a company whose CEO believed they didn't have enough appreciation for the financial side of their business. It's a command performance, in effect, as all managers are required to attend.

You'd expect a "show me" attitude, wouldn't you? Glum faces, resistance to participation, and doing only what is required. Well, you'd be wrong!

These folks are anxious to learn more about finance, and they particularly want to learn more about the financial affairs of their own company. They want to understand things like working capital, ROI, contribution margin, and debt management. Their participation is eager, sincere, and apparently driven by a genuine desire to get better at this foreign language called finance.

If your managers are unaware of the power of financial concepts and practices to improve profits and careers, and you wonder if closing that education gap could help your company, we should talk. I can practically guarantee you'll like the results. Visit us at http://www.executivefinancecoach.com/ or http://www.genesiciliano.com/ to learn more about educational programs that can deliver an amazing return on investment, aka ROI.

And if any new readers know a good resource to get this kind of customized training, I'd like to know about it. Your comments are encouraged.