Finance for Non-Financial Managers

Happy Holidays

Wishing you, your families, and your employees all the best this Holiday Season.

We all faced a challenging year in 2009.  I hope that you, like me, are looking forward to a better and brighter 2010. I believe the second half of next year will demonstrate to all the naysayers that the recovery has reached all segments of the economy - when housing, financial services and consumer spending have all turned for the better.

Whether your company is participating is up to you.  Increasing profitability and maintaining your company's strategic position in the market are important things to concentrate on as we come out of this recession.  Learn the do's and don'ts.  There are proven steps that will guide you through the process to a healthier bottom line.  If you would like to learn more, contact Gene via e-mail at Gene@CFOforRent.com.  
 
 
Best wishes,
 
Gene

David Weidner, writing for MarketWatch.com had this great quote today:
"...bankers without a lust for power are like politicians unwilling to lie: neither gets very far."
Don't you love it?

The Labor Secretary speaks. Management should probably listen.

Today's Wall Street Journal reported an announcement by Labor Secretary Hilda Solis that her agency will work next year to enact a laundry list of new rules to protect workers from unfair employers. While it's clear that some, perhaps most, of these rules are designed to aid the Obama administration's labor union allies, one phrase caught my eye. The Journal reported some of these rules will require employers to "increase disclosure to workers on how their pay is computed."

I don't know about you, but that sounds pretty basic to me, and it doesn't sound like something we need a national labor law to achieve. Why would any employer be unwilling to share that kind of information with the affected employees? I can't imagine an employer not being willing to tell an employee how they determined the wage they propose to pay (or are paying, for that matter). Either the reporter got their facts twisted around, or there is more to this part of the story than meets the eye. Am I being naive here? I know some business owners are sometimes less than straightforward with their workers, but there has to be a point to it, after all. Building mistrust without any return seems like a fool's path indeed.

Perhaps we'll hear more as this story develops.

As always, I welcome your comments.

Cost cutting strategy? Follow Hollywood's lead.

OK, maybe not ALL Hollywood is cutting costs, and maybe it's not the film industry but the TV production business, and maybe it's not everyone but just one studio. But it's a trend that bears watching, and perhaps emulating in other businesses, like yours.

The Los Angeles Times ran a story today about News Corp.'s Fox Television Studios's successful efforts to reduce costs and risks connected with new scripted shows, driven by rising production costs, increasing fragmentation of audiences caused by the Internet and the economy. It's pretty clear that competition from low cost reality shows was a factor as well, although no one said so. Still, a major move to lower costs in the notoriously spendthrift entertainment world is news, and Fox is demonstrating its intentions with lower pay for actors and writers, shorter production schedules and fewer costly digital effects, among other things.

What's in this for the small business CEO? A wake-up call if you haven't already had one. Even a successful business in a profitable industry needs to read the tea leaves and acknowledge the possibility that the old way of doing business is no longer safe. If economic swings are to continue to be short and severe, the potential damage can be too great to recover from with the resources your company typically has in reserve. You need to either (1) build more reserves - meaning less take-home pay for you, or (2) take more measured chances with new initiatives - a potential growth inhibitor but also a risk management device.

Or, you could actually do some serious long range planning. You know, the kind of planning you talk about doing but never quite have time for, or the plans you draft and then put on the shelf until the next planning session. Looking ahead is not an attempt to accurately predict the future; it's an attempt to realistically assess the range of possibilities, from very good to very bad, and to have some contingency actions laid out for either extreme. That's just good business, even if you have to redirect some management time to get it done. The alternative is either "it's so good we can't go wrong" or "Holy Moley! How did this crash happen so fast?" Both indicate potentially fatal short-sightedness.

Feel lucky?

As always I welcome your comments.

Should the foundations do more?

In a well written article published today in the Wall Street Journal is this quote: "Several academics have estimated that not more than 3% to 5% of all foundation money goes to organizations serving the poor, people of color, women and children at risk, gays/lesbians, disabled and troubled youth—almost 50% of the American population."

The article is titled "What's Wrong With Charitable Giving—and How to Fix It," and every board member or staff member of a nonprofit organization should read this and form your own opinion about it. The premise is that nine changes in the way foundations operate could make a huge difference in today's challenging environmentfor nonprofits. For example, the author suggests that government can best help troubled nonprofits by simply raising the minimum level of distributions that foundations must distribute every year from 5% to 6%, freeing up perhaps $10 billion a year in additional grants. Some of the other ideas include changes in the process of awarding grants, precipitated by the contention that today the vast majority of grants go to universities and colleges, medical organizations, and arts and cultural institutions, Whether you believe the premise of this piece or not, this is "must read" stuff in my view.

And after reading it you should want to write to someone and express your opinions about it. That's what I plan to do. How about you?

As always, your thoughts and feedback are appreciated.

My new book is available for pre-publication ordering!

My new book, "Financial Mastery for the Career Teacher" is in production, but the publisher has just announced its availability for pre-publication ordering for those who want to make sure they get one of the first copies off the press. Due out in April, this will be a great gift for your teacher friends as they wrap up the school year. To buy your copy or that gift, go to the Corwin Press website with your credit card. Here's the link:

http://www.google.com/url?sa=X&q=http://www.corwinpress.com/authorDetails.nav%3FcontribId%3D644469&ct=ga&cd=QAz4i4QzZzs&usg=AFQjCNEXBsvS4BPHD0NFgBoymhGQadLG1Q

As always, your comments are welcome.

Tax planning time - again???

We get asked on occasion by new clients to help with their taxes. We tell them we are good at calling in their CPAs to talk about taxes, and that's who they should turn to for help. We get funny looks sometimes, but it doesn't change our (lack of) interest in doing tax returns. We keep a carefully selected database of good CPA firms for that purpose. For example...

I just received a very good newsletter outlining some excellent points for this year's tax planning, based on a host of new rules, some of which are intended to help taxpayers pay less tax. Best of all it's written in English instead of accountant-ese. Called "Tax Planning Letter 2009" it's a publication of Gerber & Co., Inc., a Los Angeles CPA firm. I bet if you dropped a note to Selwyn Gerber, Managing Partner, he'd send you one. Write him at sg@gerberco.com and tell him it's my fault. But you'll appreciate the good advice in the letter, so it's worth the effort.

As always I welcome your comments.

Should your company consider bankruptcy?

That's a scary thought for any entrepreneur or business owner.

But there are good bankruptcies and bad bankruptcies, or rather companies that should consider filing and companies that would not be improved by filing. What's the difference? According to a study completed early this year by University of Utah researchers based on the study of over 500 actual bankruptcies, telling the difference is not hard.

Good bankruptcies are those that can rehabilitate a company by removing leverage from their balance sheet. In other words, if the company would be profitable without the demands of servicing debt, removing that debt can make the company whole again. The researchers called these companies "financially distressed." By contrast, a company that would still be losing money even without the leverage is still a loser, and a fundamental revision of its operating model is needed before removing debt will restore its viability. These companies were labelled "economically distressed." Not surprisingly, the study found that economically distressed companies lose about half of their assets in the bankruptcy process, are three times more likely to file again within three years and six times more likely to liquidate. Speaks volumes about cleaning up the shop before you clean up the debt. Also about hope for companies that are sound but deeply in debt.

Our own statistics tell us the highest bankruptcy statistics are yet to come for this recession, with more companies failing as the economy recovers and their competitors use dry powder to steal market share. It's safe to say those historically valid statistics are populated with companies the Utah researchers would label "economically distressed."

Have you taken a look around your company lately? Do you see dry powder or empty guns?

As always, your comments are welcome.

Watch out for Dun & Bradstreet sales tactics!

With the financial meltdown and its impact on financial institutions across the land, financial services companies are trying hard to boost revenues. Banks raised credit card rates and fees before the new law to remove abuses, and now we have the venerable credit ratings agency D&B looking to sell more of their services to the little people.

 

So, what do you do when a credit reporting agency like D&B calls you for information to “update your file?” If you’re like most small business executives, you talk to them because you want their report of your business to their subscribers to be accurate and favorable. Helps them and helps you. What if their inquiry methods include a subtle pitch for a product you don’t want to buy but don’t recognize right away that it’s part of the “update” package? If you’re like us you contact them as soon as you realize what has happened, preferably the next day, to inform them that you didn’t want to buy anything, you were simply providing information, and please cancel any order that D&B thinks they received.

 

Well, we did that, couldn’t get to a real person so we left a detailed message at the appropriate number. We got no call back and apparently no action taken in response to our call. Several more tries with the same result. Now we’re getting collection letters from the credit reporting agency for a service we don’t want or need. And when we finally saw their report it had material inaccuracies in it! What would you do? Ignore them and risk angering the reporting gods? Pay the bill to get them off your back, having gotten nothing of value in return?

 

As always, your comments are welcome.”

Advertising in a recession - save your money?

Short post - two parts actually. The first a quotation from some dead guy by the name of Henry Ford:

"One who stops

advertising to save money

would stop a clock to save time."

The second is from someone who's still very much alive, me. We did a study more than a decade ago about business bankruptcies and the economy. The study revealed that more businesses failed after a recession has bottomed out than during the decline. My experience tells me that part is true. But why? Here's what I see:

When the economy is tanking, every company is conserving cash because they don't know how long it will last or how bad it will be. Solid companies and weak companies look alike to the casual observer (witness the recent collapse of the stock price of companies like GE and Caterpillar). However when the collapse has run its course and the economy begins to recover, the strong companies flex their economic muscles, begin using their cash reserves, and assert themselves at the expense of the weaker companies that have no cash reserves with which to compete. That's when you can tell the difference between strong companies and weak companies - by how they act coming out of a downturn. And one of the primary ways strong companies show their strength is by - you guessed it - advertising that strength. With new products, new marketing initiatives, new services, and new visibility.

So, the question you have to ask yourself is this: do you want to be the taker or giver of market share?

As always, I welcome your comments.