What do You Fear the Most?

I am a CFO consultant, and as such, I have spoken with business owners from many different industries. To get to the heart of what the business owner truly needs and wants is my goal. To become an expert on the needs and wants of the business owner, I need to focus in on what they think they need and want—not what I need and want, or what I think they need and want. When talking to a business owner, I find it to be extremely helpful to write down their exact words when:

  • They explicitly state a need or want,
  • They describe a specific problem or ,
  • They express a specific pain point

It keeps the business owner focused by enabling me to repeat their exact words back to them, and when the business owner is focused, it makes getting to the wants and needs that are my number one priority much easier.
Twenty eight years of business ownership, research, and how clients throughout the years have answered the questions: “What do you fear the most about running your business?” and “What frustrates you the most about running a business?” have brought me to the conclusion that 90% of the time, the wants and needs of the business owner fall into one or more of these five categories (not in any order of priority):
“I can’t even tell if I’m making money or not.”
From a statement like that we can typically infer that the basic want (and really, for a good business, need) here is to have accurate financial statements in a timely manner. After all, how can the business owner make accurate business decisions in a timely manner, without the help of the same caliber of financial statements?  Also keep in mind that accurate and timely financial statements act as a sort of scoreboard, helping the business owner keep track of what is actually going on in their business at any given time.  A business owner running a business without receiving periodic financial statements is like a fan attending a sporting event with no scoreboard.  There is no way to keep track and be absolutely certain of how much money you’re making without your balance sheet, P&L, and your Cash Flow Statement, just as a fan at a sporting event would never feel fully secure in their knowledge of how the game is going without a scoreboard.
“My accurate and timely financials tell me I made $150 grand. It’s not in my bank account, so where is it?!”
I’d say what the business owner needs and wants here is simply to know where their cash is going, and that want  is certainly justified. Cash is the blood that flows through the veins of every business. Without cash the business dies. Now, much to the panic-inducing frustration of business owners everywhere, cash often ends up hiding places. For example, a few weeks ago one of my clients had this same “missing money” that was actually just “hiding money” problem.  Their cash was tied up in Accounts Receivable, excess Inventory, and Equipment.  They were also paying their bills too quickly without the benefit of purchase discounts. Yes, even something seemingly efficient like paying your bills quickly will impact your cash flow if you’re too quick. However, the important thing in the end is that now my client understands where their cash is hiding and has since started using the strategies we came up with together to free up each problem area, and lessen the chances that their money will be hiding there again.
“Running my business can be overwhelming at times!”
Usually this indicates that the business owner needs a strategic plan.  The direction of the business, the key drivers of the business, and the proper allocation of company resources to ultimately achieve the goals and objectives of the business owner are all identified and defined in a strategic plan.   The business owner who has no strategic plan is aimless and blustering, stuck solving problems as they come up with no way to predict them. With so much energy focused  on just maintaining, the business owner is absolutely unable to move their business forward.  The strategic plan is an unquestioned necessity to the business owner, and they not only need to create one, but truly dedicate themselves to setting it into motion and then continually enforcing it. If a business owner doesn’t follow the strategic plan they set up, it’s as bad as not having one at all!
“I don’t have the time to work on sales!”
What the business owner needs to do here is let go of working “in” their business and start working “on” their business.  It’s the business owner’s job to be the face of the company and represent what their company is to the rest of the world (like a sort of ambassador).   The business owner brings business into the company while simultaneously maintaining the existing customer base.  That means the business owner puts out a nice public face and keeps abreast of their existing customers (who will hopefully also pull in new ones if the business owner can keep them engaged and satisfied).  If instead I find business owners doing administrative functions, or tinkering in the mechanics of their business, then it doesn’t surprise me when I then find that their sales are choppy. Choppy sales are a sure sign of someone who works “in” their business when they should be working “on” it.  When business owners work “on” their company instead of “in” it, they see more consistent sales, a growth in sales, a growth in profits, and a more valuable, more marketable business.

“My employees just cannot do anything right.”
The business owner who says this probably needs to start holding people accountable in their organization.  People throughout an organization need to be accountable for what they do in order for the organization to be successful.  It seems obvious that people should be responsible for their actions, so why is it that business owners don’t do this often enough that it is on a list of problems that cause common fears and frustrations? Funnily enough the inability to hold employees accountable is usually a result of every other problem on this list. If a business owner doesn’t have accurate financial statements they cannot develop metrics to evaluate the performance and productivity of their business, and therefore cannot make their employees accountable for those metrics.  If a business owner believes their cash is missing or non-existent when it’s really just hiding/tied up in places they’re not looking, they’re not going to think they even have the resources needed to put the right employees in the right places or to do the training that makes those employees accountable. If a business owner does not have a strategic plan then they won’t really know what the key drivers of the business are, and neither will anyone else, therefore people cannot be made accountable for those key drivers. If a business owner is tinkering “in” their business instead of working “on” it and being its ambassador, then they’re not delegating responsibilities that make people accountable. Really this last common problem is one of many smaller problems caused by the other four problems on this list, and to avoid it, business owners should make sure they have solved the first four problems.

When even one of these problems goes unresolved, a business owner can feel like they’re carrying the weight of the world, and the weight only gets heavier.  If instead of solving the problem (or problems) the business owner remains ignorant to them or just decides to ignore them and throw themselves into longer, harder hours of work, not only will their work be unpleasant, but the effect on their personal life can also be extremely negative, even detrimental.  If someone’s getting burned out at work, they might go home and fight with a spouse, family members, or roommates.  Eventually, especially if it is taking such a toll on their personal life, a business owner may come to resent those they work with and those who work for them, culminating in hating their business altogether.  If the business owner has reached the point where they hate their business, things are obviously going to fall apart from there.  That, naturally, is the endgame business owners fear the most, but to overcome these fears and avoid them all together can be as simple as sitting down and just focusing on what you really want and what you really need to make your business a success.  I think you’ll find the answers to those questions will also be the solution to your problems.

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On Cleaning Up Your Balance Sheet

I’m a part time CFO who’s always striving for a clean balance sheet for my clients, particularly my start up clients who are seeking second round financing.

It’s a good idea for entrepreneurs looking for outside investment capital to try and clean up their balance sheet. If an entrepreneur’s current stockholders put money into the company as debt, they should ask those stockholders if they’re willing to convert the debt to equity. Contemplating investors want to know their money will go into something that will move the business they’re investing in forward (ie machinery and equipment or research and development). Paying off or otherwise servicing existing stockholder debt is the last thing they want their money going towards. If they even think their money is just going to pay off stockholder debt, investors will immediately back away from the situation.

So as you may have already concluded, asking your existing stockholders to convert existing debt to equity is not easy. I know from experience, having done it myself before. You’re asking people who have already taken great risks for you to increase their risk again. Even worse, the stockholder probably had good reason to put money in as debt in the first place that converting that money might mess up. Still the fact remains that in order to go to the next level (or, depending on your circumstances, to survive), your company probably needs the new money, and cleaning up the balance sheet will help. A really good incentive for your stockholder to convert their debt to equity is if you do indeed need that new money in your company just to survive. Either way, if your stockholders do not convert and your balance sheet remains unattractive, it’s highly unlikely that your company will get its much needed investment capital, and highly likely the stockholder won’t be getting their debt instrument paid.

It’s true; a stockholder increases their risk by converting the debt to equity. But it’s also true that by converting the debt to equity, the stock holder potentially increases the value of their stock and gets the best chance of seeing the dream they originally put money towards your company for realized: your company going to the next level.

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