Archive for the Operations Category
Many businesses and nonprofits face ongoing cash constraints. They are not hiring staff or consultants. The business growth is stagnant and owners/CEOs are making decisions in isolation. In this post I will compare ways a limited budget can be optimized to get the business owner or CEO help.
The Assumption: The company has a $25,000 budget.
The Options:
- Hire a staff person
- Engage a consultant
- Establish an advisory board
Analysis of what each option “buys” the business:
Option #1-Staff: At $25,000 the business may not get an employee with much depth of experience. Also, there are the payroll taxes and related insurances that need to go along with the hire. These will either cause the expense to exceed the budget or further reduce the amount available for salary.
Option #2-Consultant: When you engage a consultant there is a chance the project can not be completed for the amount of budget available. The consultant will want to propose a follow-on project. This leaves the business with only a partial solution and no one to assist the business owner or CEO if the solution doesn’t work.
Option #3-Advisory Board:
- If the business or nonprofit decides to establish an advisory board, here is how the $25,000 might be used:
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- $3,000-$5,000 to cover set-up expenses, i.e. meeting with prospective advisors, creation of briefing books, rental of meeting space, and meeting food costs.
- $3,000-$5,000 for facilitator or lead advisor fees assuming quarterly meetings. If the CEO leads the meeting (not recommended) this amount could be saved.
- $15,000-18,000 to cover advisor fees. If you pick 5 advisors and have quarterly meetings each advisor is paid $750-900 per meeting. Advisors may be willing to serve for a smaller or no fee leaving the business with cash reserve.
- Establishing the advisory board provides the business with experienced individuals who both collectively and individually can be called upon to help the owner/CEO address issues facing the company.
- Each advisor will provide an outside perspective that may be missing presently in the organization.
Depending on the needs of the organization any one of the above are viable options. How would you want to spend the $25,000?
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- Who’s advising your startup? Insights on the value and significance of having strategic advisors early on (tech.mn)
- How To Build The Best Advisory Board For Your Company (businessinsider.com)
- Small Business Strategy – Setting Up a Dynamic, Triple Bottom Line Advisory Board (triplepundit.com)
You can have an advisory board up and running in 90-120 days. Find out what steps to follow…go to the Advisory Board Kit: A Comprehensive Guide to Establishing an Advisory Board.
Too many business owners wait to evaluate their operating and financial results until the after the year is over. I was often hired as a contract CFO when the business owner finally realized that many changes or course corrections needed to occur throughout the year. I find organizations that have advisory boards understand the need for reviewing results more frequently than once a year and in fact generally do so at every meeting.
Here are ten questions to consider when doing a mid-year or more frequent review:
- What’s keeping the CEO up at night? Do the financial results support the lack of sleep or is he worrying needlessly? Alternatively, what should he be worrying about?
- Where is the current year revenue level compared to the budget and last year? What’s in store for the next six months, higher or lower? This is important to know as it impacts expense levels and capital spending.
- Where are the current year expense levels compared to budget and last year? Have there been any surprises? What’s anticipated for the second half of the year?
- What are the hiring plans? Is the present staffing level sufficient to manage any upswing in the business now that recovery has started? Can this be done without burning out current staff that may already be overworked? What are the signs more staff is needed?
- What are the plans for purchasing equipment and facility upgrades? Does the company need to own or would they considered leasing?
- What needs to be changed in the marketing plan based on the results for the first half? How will changes impact expense levels?
- What do the accounts receivable and payable aging reports look like? How are customers paying? How are vendors being paid? How old are the oldest receivables? The older they get, the harder they are to collect.
- Will there be any bonus payout? About mid-year employees start to think about and even inquire about their bonus. Will the payout be delayed in order to preserve cash? What will be the message to those employees who will be affected? After all it could be the second or third year of no bonus and perhaps no wage increase.
- How are you taking advantage of the recovery? Are you developing new products or services? What are your competitors doing?
- Lastly, what gets you up in the morning about your business? Where is the excitement and enjoyment? If there isn’t much of either, perhaps it’s time to reevaluate what you are doing.
Many of us have ventured into very different and sometimes new territory as a result of the recession. The guides we previously relied upon may no longer exist. The only way to develop new ones is to take an active approach to reviewing your operating and financial results. Don’t wait…do it now!
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