Every not-for-profit board I have been privileged to serve on had term limits in place when I left the board, if not so when I joined. That has been a strong position of mine for many years, and for good reasons, as my own experience amply demonstrated. The last board I led to change their policy in this area had been around for over 50 years, and still had some of the family members who had been instrumental in building the organization many years earlier.
The problem was that after so many years of defining policy and direction for the organization, they often considered their view the correct one and dissenting views as misguided. As they aged so did the vibrancy of the organization. Or, as a consultant quoted in the current issue of Nonprofit Business Advisor put it, “long-standing members are (frequently) too familiar with it and treat it like it’s their organization.” Our CEO maintained a solidly run organization that never ventured far from its roots. Strategic thinking revolved around doing a little more of what we’d been doing for 50 years.
By contrast, a regular requirement to invite new members to the board and make room for them by enacting mandatory exit of the “long-standing members” creates the opportunity for new ideas, new direction, new responses to an ever-changing world, especially when it comes to funding nonprofit services and re-inventing those services for today’s needs. Even if a board has room for new members but doesn’t remove the long-term members, those “old-timers” have great influence with the board and can often override new thinking simply by the influence on decision making that they’ve exercised over the years. In addition, potential directors with new ideas and new approaches will quickly tire of contending with the old guard every time an issue comes up. In my example the bond between the long-time members and the CEO was so strong that once the board transitioned to a more professional board, it was necessary to ask the CEO to retire in order to complete the transition to strategic thinking that ventured outside the box.
Today, according to a survey by accounting firm BDO, 26% of nonprofits with revenues over $25 million have total service durations of 10 or more years, including those with no term limits at all. Happily, only 6% of organizations below $25 million are similarly positioned.
New update on my foundation book, Finance for Nonfinancial Managers, 2nd Edition. A few months ago Amazon ranked it (based on sales on their site alone) among their best sellers on managerial accounting and textbooks on finance and accounting. (It’s used in entrepreneurship courses from Antioch University in Los Angeles to George Washington University in Washington D.C.)
Well, the news keeps getting better! Here are the current Amazon rankings compared to those just a few months ago:
- #7 in Books> Business & Money > Accounting > Managerial (formerly #15)
- #13 in Books> Textbooks > Business & Finance > Finance (formerly #32)
- #22 in Books> Textbooks > Business & Finance > Accounting (formerly #39)
One buyer had this to say about it: “Your book had a tremendous impact on my career.”
My question for you: Got your yet?
I recently saw some statistics on the second quarter 2017 business bankruptcy filings in the United States, by industry and compared to the years since the Great Recession.
The good news: business bankruptcies as a whole are way down, a function of an improving economy, still low interest rates, and hopefully better financial management by CEOs and their teams.
The bad news: Bankruptcies in the healthcare space have dramatically spiked upwards in recent quarters, to record levels by some measures, with no sign of abating. The consultants who authored the survey, Polsinelli, said in part: “The Healthcare Services … Index was 208.33 for the second quarter of 2017. (Ed: large numbers are bad) The Health Care Index increased significantly from last quarter, increasing by nearly 87 points. The index has experienced record or near-record highs in 5 of the last 6 quarters. Compared with the same period one year ago, which was the prior high point of the index since the benchmark of the fourth quarter of 2010, the index has increased by 45 points.”
How come? It certainly can’t be because demand has lessened. With the aging of the population, particularly the large bulge of baby boomers now reaching retirement age and beyond, demand for healthcare services is growing daily. And we can’t blame borrowing costs, as interest rates are low for every company that is bank-worthy, and in fact banks are becoming even more liberal (again) in their desire to put more of their money to work. We could attribute it to more government-mandated healthcare services to those who can’t afford to pay for them, emergency rooms and the like. But do we really think that explains record levels of business failure? Or is there a need for better financial management in the industry?
Your CFO for Rent ® has seasoned expertise in the healthcare industry, including one member of our team with over 25 years of financial and operating management of hospitals and other healthcare providers. Maybe we can help. If you know someone we should talk to, your referral will be appreciated by them and us.
The title of this short piece is the mantra that I always give to our nonprofit clients and to board members of organizations on whose board I’ve been privileged to serve. It is a fact of mission and purpose that a nonprofit organization doesn’t get formed, or operate, with the idea of making a profit. Profits go to supporting the mission (as long as dry spell reserves are built). But it’s also a tenet of existence and survival that a nonprofit operate in a “not for loss” mode, at least not for any extended period of time. Running a nonprofit organization is in many ways like running a business. the big difference is the financial goal. For a for-profit business the goal is, well, a profit. For a nonprofit the goal is not making a profit but focusing all available resources on the mission WHILE ENSURING THE SURVIVAL OF THE ORGANIZATION SO THAT IT CAN CONTINUE TO PURSUE ITS MISSION.
It’s that last part that sometimes gets nonprofit folks stuck. If they can’t raise enough money through services or donations to continue to provide a service, maybe they should not be providing that service. And if the service is of value to the mission, maybe they should help others to offer it instead. Harsh language for some, but we recognize that an organization that cannot balance its finances will never achieve its mission, it will only drain resources from other organizations perhaps better suited to achieve the mission,
Our firm has for the past 30 years helped both for-profit and non-for-profit organizations achieve their mission by providing high value financial guidance to management. Our clients have included these southern California nonprofit organizations, some of which you may recognize:
- Exceptional Children’s Foundation
- Beit T’Shuvah
- California Lutheran University
- Los Angeles Philharmonic Society
- Memorial Hospital of Gardena
- New Horizons
- NTMA Training Centers
- Pediatric Therapy Network
- Southern California Municipal Athletic Foundation
- Westside Children’s Center
If you’d like some assistance in running your organization in a “not for profit, not for loss” manner, we’d welcome your call. 888.788.6534
True Story: A company mailed a check to one of its suppliers in payment for services. The check never arrived. The company placed a stop payment order on the check and issued a new one, which was cashed by the supplier in the normal course. All good? Not quite.
Seven months later the original check was cashed by an unknown person who took it to another bank, scribbled a signature on the back, and collected the face amount of the check. The issuing company saw the check on their bank statement and reported it to their bank, pointing out the stop payment order and the stale date on the check, and requesting reimbursement. The bank advised the company that they have no obligation to check for or honor their own stale dated check policy, but they are scrupulous about honoring the stop payment order expiration (both 6 months in theory). The company agrees to fill out the forms the bank required to document the loss, including a notarized signature. The company is advised they can expect reimbursement in 2-3 weeks.
Six weeks later in a follow up call the company is told the bank employee taking the report checked the wrong box on the form, and a replacement form must be completed before the claim can be processed. The company duly submits the revised form and waits some more, wondering what else can get in the way of getting reimbursed for the bank’s error.
Following up more closely after two more weeks, the company is told that the bank will now also need a form signed by the intended payee – the original supplier – that they didn’t get and cash both checks fraudulently. Upon receiving that form, with notarized signature, they may agree to issue a “provisional credit,” which means the bank will lend the company their own money while they, the bank, attempt to collect from the other bank, who has also implemented their own policies to keep the money they paid out in error.
As it stands today: after several months, the only entity out any money is the only entity that did it all right. Stay tuned to learn what else their bank can come up with to stall their reimbursement obligation. EMAIL Gene@CFOforRent.com TO REQUEST THE NAME OF THE BANK IN QUESTION.
When I wrote my first book, Finance for Non-Financial Managers, it opened with then-current stories of CEOs whose companies had been caught gaming their financial reporting, while the CEOs claimed they didn’t know because they weren’t accountants, or some such excuse. I posited that CEOs could no longer afford to be non-financial, that they could no longer simply say “I didn’t know what was happening.”
Well, Oops! It’s still happening, despite our best efforts to turn the tide. Only now it’s not hitting the news about major companies like Enron, and it’s not even intentional manipulation. It’s happening in smaller, privately owned companies that are the backbone of American business. And most often it’s not that the numbers are bad (we don’t think so, anyway), it’s that the people running the company can’t read them and don’t know how to use them. Many of these companies are run not by their founder, but by a new generation of the founding family, the son or daughter or grandson or someone else who accepted the mantle of management as part of the succession plan of the company’s founders.
And that’s often a big part of the problem. Successor family members are often anxious to keep the business in the family, in part because the income opportunities that the family business presents are often harder to come by elsewhere, where the competition is keener and the advantage of the family name doesn’t exist. All well and good, and some wonderful companies are being run by the second generation, a few even by the third generation. But some of them are slowly running their wonderful companies into the ground without knowing it. They can’t read the financial reports they get each month, and as long as everyone is busy and customers are still coming around they think everything is just fine. Their finance department is underpowered because no one wants to spend precious profits to produce reports on “bean counting;” better to spend it on new products or marketing or management bonuses. No reflection on those perfectly valid choices, of course, unless it’s money that should be spent on financial management or worse, financial education.
Now I hate to beat a dead horse, but apparently some folks are still trying to ride it. If you are in a leadership position in your company, i.e., if it’s YOUR company, you need to KNOW that your numbers are basically sound, AND you need to be able to read and understand them. For yourself, for your banker, for the IRS, or for the investment bankers when you decide it’s time to exit with a handsome profit.
I’m not talking about audit-proof or precise to the penny. But they need to be reasonably close and honestly recorded, and you need to know that. If you’re not sure, please read the first paragraph again. And then consider that our Controller for Rent™ service can help. Better to hear it from people who are on your side of the table, don’t you think?
As always I welcome your comments and feedback.
OK, this is a shameless promotion of a book you should probably already have on your bookshelf. When I wrote the first edition of Finance for Nonfinancial Managers, I was pleased to see it rise to #46 on Amazon’s best seller list for business finance books. That was a few years ago, so when McGraw-Hill asked me to update it a couple years ago, I wrote the second edition. So, you can imagine my delight when I checked our 2nd edition ranking today and found it near the top of Amazon’s best seller list in several categories, namely:
- #39 in textbooks on business accounting,
- #32 in textbooks on business finance, and
- #15 in books on managerial accounting!!!
A ShareVault blog post today quoted a statistic that supports what we’ve been saying about the abundance of money looking for good companies to buy. Their quote:
“According to data provider Preqin, private-equity funds currently have over $1.46 trillion in uninvested capital. That’s up from $1.39 trillion at the end of 2015. And with large public companies looking to grow through acquisitions, many companies have decided that the best exit plan might be a sale.”
A sale today of a company in top notch shape will likely yield a premium price for the seller. Buyers need to put all that money to work or give it back to their investors. The operative words are “in top notch shape” and the trick is getting there and staying there long enough that it’s perceived as part of the culture of the company, i.e. not an accident or momentary event. That means building an infrastructure that supports best-of-breed operating practices and attracting employees who are themselves comfortable in that kind of environment. Our specialty is producing a finance department that matches that description, and helping CEOs learn how to use their financial resources most effectively.
You should call us. We can help. 888.788.6534.
For CEOs of those companies large enough – or wise enough – to have a board of directors or even an advisory board, and for all the nonprofit organizations whose governance requires a board of directors, this question is for you. How have you chosen your directors/advisers? Friends of the organization or the CEO? Friends of other board members? Members of the investor family? Champions of the cause?
All those reasons may be good or bad, depending on the far more important reason: because they bring to your board a level of expertise or knowledge or influence or business contacts that your company needs to achieve its goals. You already know that you can’t have on your payroll every resource that you might need down the road, so you (hopefully) keep contact lists, you network, you listen to webinars and speeches, and more, just to try to keep up on what you don’t know that you might need. Your board is a key resource in that preparedness for what’s ahead, and that means your board should be, as fully as possible, your go-to resource for the needs you already know you have. In order to satisfy that top priority requirement you need to do one thing (or perhaps two) :
- Identify what kinds of expertise/knowledge/influence you need at the board level. Then go down your director list and check off which of your existing directors satisfies each critical need. If a need is not satisfied by anyone on your current board, that’s a red flag – an unfilled need that should be on your shopping list. If your rules allow the expansion of your board beyond its current number, time to go shopping. Find the best people you can who possess that critical expertise and who might be willing to serve on your board and invite one of them to join. Contact CEO acquaintances, consultants, search firms, anyone who is well connected enough to perhaps know a valuable resource in your area of need. However, if your board cannot be expanded, or you don’t want it to be larger, proceed to step 2.
- Take a second look at your existing director list, and this time focus on those directors who didn’t satisfy any of your critical needs based on your Step 1 analysis. If they didn’t get a check mark it may mean they are not providing any of the things your board really needs, and being liked by everyone or the good friend or relative of someone doesn’t count. This is the hard part – one or more of them needs to leave the board to make way for someone who can truly contribute to the organization’s mission. Whether it’s finance, strategy, industry knowledge or regulatory visibility, or fundraising, if you don’t have enough strength within the ranks of your employee base, or if you need someone to raise the tough questions or open the close doors, don’t let friendships get in the way of making progress toward those goals that you value most. Remember, good friends will continue to be good friends, especially if you both realize they are holding your organization back. Find another way for them to contribute, and create that board opening you need. Then go back to step 1.
Anyway, that’s how I feel about it. I welcome your feedback and questions, even if you don’t agree.
Are you sure your shop rate calculation provides adequate margin for your company to be profitable?
Here are 3 tips that may help you ensure your bidding process delivers a profit every time!
|Do you wonder why some of your best work doesn’t produce a profit worthy of the quality that you deliver? Could it be a flawed shop rate? Here are three tips that can help you get the profit your work deserves!
Shop rate is a really important piece of arithmetic. Lay out a template to make sure you recalculate yours the same way every time. That way you will know you’ve covered everything that should be included, and you can compare your newest calculation with the prior ones for variances that may indicate a boost in costs that could hurt your margins if not included in your next bid. And of course if you’re not closely tracking labor costs for everything you produce, the result will be largely meaningless.
2. Don’t forget your non-manufacturing costs
When you use your shop rate for bidding new work, the rate you bid has to cover everything. So your calculation process should include everything as a part of your shop rate. That means not only direct costs of manufacturing, but also overhead, marketing, selling, general and administrative expenses. AND your profit margin! Think of it this way: your shop rate is the price tag on your products, and your customer is going to pay what’s on the price tag. No add-ons or extras. If you don’t build a profit into your price tag, you’re subsidizing your customer’s profits instead of yours.
3. Keep it current
Because costs change and employee productivity goes up and down, you should keep on top of your shop rate to ensure that it’s as current as it can be. I strongly recommend a quarterly review against your actual costs and labor productivity. When your financial books are closed and reports done, this calculation takes only a few minutes to do, and the peace of mind it provides is priceless.
For further assistance with your dynamic business needs, call us today. The number is 888.788.6534.
Gene Siciliano is Your CFO for Rent
– For a few weeks, a few months, or a few years