Tuesday, March 30, 2010

Assess The Situation (March 2010)

I am all for action. Frankly, my bias is toward digging in and starting work rather than developing a detailed action plan of what needs to be done. That being said, in solving any problem you need a general direction of where you are going and the facts about any problem that you are trying to solve.

Some years ago, I saw a technology executive in action during several “moments of crisis”. When all of those around him were scurrying about, he would retreat to his office for some peace and quiet. At first, it appeared that he wasn’t engaged. But quite the opposite was true. He was trying to assess the situation before taking action. Generally, he went through the process of trying to understand: What do we know? What don’t we know? What do we need to know? What facts are available to us that we don’t yet have? What won’t we be able to know no matter how much time we spend trying to find out?

It was with this background that he would develop several theories about what was wrong and what actions he could take to get more information to help him better understand the problem. It was from this that he started to work on solutions.

By comparison, others around him were making assumptions about the cause of the problem and proposing solutions based upon those assumptions. Often the actions they took did nothing to solve the problem and only caused a delay as their “solutions” were implemented. When they failed to solve the problem, it was back to the drawing board (or in this case, guessing board). The end result was that it took longer to solve the problem than it should have.

Whenever you’re dealing with a problem, it’s important to get a handle on the facts. While it might be uncomfortable to stop and assess the problem in the midst of a crisis, it is far more efficient than trying solutions that may or may not be appropriate under the circumstances. That way, you can be sure that your actions are appropriate and are improving the situation – not just providing action for action’s sake!

If your business could benefit from fractional CFO services, I would welcome the chance to speak with you. Please give me a call at (314) 863-6637 or send an email to

your cash is flowing. know where.®

Ken Homza
Copyright @ 2010 Homza Consulting, Inc.

Monday, March 1, 2010

To Whom Are You Accountable (February 2010)

One of the trickier problems for smaller businesses is accountability of “the boss.” Whether it is a sole proprietor, family owned business, or one that is majority controlled with “silent” minority partners, accountability is often a real issue. I’ve found that organizations where there is a strong measure of accountability perform better than those where accountability is weak.

While it might sound great to some to operate in an environment where they are not held accountable to a higher authority, the truth is that accountability drives results. It is easy to allow things to slide or not be as challenging as one should when no one is “looking over your shoulder.” It happens to all but the most driven of us.

I’ve worked (both as an employee and a consultant) for both kinds of organizations. Ultimately, I would much rather deal with the stresses of accountability than those that typically come without it, which is an organization that underperforms.

In any organization, it’s important for the leader to hold his or her direct reports accountable, for them to hold the next level down accountable, and so on down the line. The problem in an organization where the top person isn’t accountable is that it starts to set a precedent. That person doesn’t feel the pressure of accountability to a higher authority and over time this lack of accountability can creep into the organization. Sooner or later, you have an organization where people are showing up, but aren’t necessarily driven to improve performance day in and day out.

So, what should a business owner or manager do if no one is holding them accountable? They need to create accountability. While this can be as formal as having a Board of Directors, it can be as informal as finding trusted advisors or mentors who can provide a level of accountability on a monthly or quarterly basis.

One of the roles that I often play for my clients is to be this accountability factor in organizations. I either do this directly or by ensuring that there is regular reporting and transparency to the Board or other stakeholders.

If you are serious about improving your business, I’d suggest that you create an accountability framework for yourself. If you’re not ready to reach out to others, create a list of “MUST DO” items (not “should”, “want” or “hope” to do but “MUST” do) and hold yourself accountable for the results. I’d be surprised if you don’t see an improvement in your business performance after the first quarter. From there, things should only get better.

If your business could benefit from fractional CFO services, I would welcome the chance to speak with you. Please give me a call at (314) 863-6637 or send an email to

your cash is flowing. know where.®

Ken Homza
Copyright @ 2010 Homza Consulting, Inc.

Water The Plants! (January 2010)

Believe it or not, one of the first things that I look for when I walk into an office is whether anyone waters the plants? While I care about the health and welfare of the plants, what I am really looking for is whether anyone goes above and beyond to take care of little things that are usually not in anyone’s job description. I think it immediately gives one a sense of an organization.

In any company, there are many items which fall outside of job descriptions. No job description anticipates everything that happens (or should happen) every day. And while most job descriptions have an “all other” category, it’s how people actually interpret those catch all statements that determines how an organization functions.

Last month, I wrote about how small mistakes, often at the lowest levels of the organization, can take significant time and energy to fix (and usually at a much higher level in the organization). The same is true not just of mistakes, but of day to day activities that are necessary for an organization to function. Ultimately, it’s people taking care of issues early and preventing them from becoming major problems that allows everyone in the organization to perform at the highest possible level. The further down the organization chart that a necessary activity can occur or a problem solved then the more effectively that organization is able to operate.

Organizational performance is governed by the performance of every individual within it. It doesn’t matter how great a sales superstar you might have in your company, if the people responsible for delivery aren’t doing so effectively, customers will eventually get tired of dealing with the organization’s incompetence and find another source. And if that sales superstar has to step in and “fix problems”, the time spent doing that can’t be devoted to making more sales.

Everyone in the organization only has so much bandwidth. Every time anyone is forced to deal with an issue that could have been handled further down the organization, then they are not operating at their highest and best use. This limits their effectiveness and the company’s ability to achieve its full potential.

As is usually the case, I could cite countless examples of people being forced to dive down into the organization to deal with something that could have (and more importantly, should have) been handled by another resource. As a fractional CFO, my job is to not only to oversee the finance function, but to take things off the plate of the CEO and other executives allowing them to manage items that they are uniquely qualified to handle.

Of course, by this point, it should be obvious that watering the plants is just an example (albeit a visible one) of day to day functions that need to happen smoothly in order for an organization to be achieve its potential. So, when you walk into your office next, do more, so everyone else can too!

If your business could benefit from fractional CFO services, I would welcome the chance to speak with you. Please give me a call at (314) 863-6637 or send an email to

your cash is flowing. know where.®

Ken Homza
Copyright @ 2010 Homza Consulting, Inc.

Strive For Perfection (December 2009)

Everyone makes mistakes. I used to work with someone who said: “Show me a man who doesn’t make mistakes and I’ll show you a man who’s not doing anything.” While, true, this is no reason not to strive for perfection. While some mistakes are harmless and can even go unnoticed (an insignificant typo, for example) others are costly.

If one could take the income statement for a business and capture “mistakes” (just like we capture rent or any other line item), I think everyone would be surprised by the result. Mistakes have a ripple effect almost no matter where they start in the organization. Unless caught immediately, there is often substantially more work involved in fixing the problem than in performing the original task. Furthermore, the resources required to fix the mistake are usually “higher up the food chain” and are therefore more expensive. If we could calculate the cost of mistakes, we could make thoughtful decisions about how much to spend to address the various underlying issues. Unfortunately, unless you are in a manufacturing environment that tracks rework costs, the vast majority of the expense of fixing mistakes is “swept under the rug.”

As you think about improving the effectiveness of your organization, think about the source of mistakes and what you can do to eliminate them. While I’m tempted to cite some examples of costly mistakes I have seen over the years, I certainly wouldn’t want anyone to recognize themselves and take this article as an indictment of their performance. Moreover, I don’t want to give the impression that I’m above a mistake from time to time. No one is.

Since it can take hours to fix a mistake that often could have been prevented with a few extra minutes, it’s almost always worth the time to do some root cause analysis. Once the cause is understood, then “brainstorming” some ways to fix the problem is the next step. Below are some questions which are intended to provide some “food for thought” as you work your way through this process.

o Would a change to procedures help?
o Do mistakes stem from a particular vendor?
o Does a process need to be better documented?
o Does the person making the mistake know about the issue or are they in need of some feedback so that they can be aware of the problem?
o Is there a mechanical or technology fix that would identify the issue sooner or prevent it from occurring?
o Could someone inspect or review the work before it moves along in the process?
o Might a class or some training help the person doing the work?
o Is a change in staff necessary?

Obviously, this list isn’t all inclusive; rather it is intended to stimulate discussion.

I’d encourage every organization to take action to minimize errors in 2010 thereby improving overall business performance. The time and energy spent fixing errors can certainly be more productively deployed growing the business and better serving the customer.

If your business could benefit from fractional CFO services, I would welcome the chance to speak with you. Please give me a call at (314) 863-6637 or send an email to

your cash is flowing. know where.®

Ken Homza
Copyright @ 2009 Homza Consulting, Inc.

Only The First Two Digits Matter (November 2009)

I spend a fair amount of my time developing financial forecasts. As we approach year end, everyone is thinking about 2010. What are expected revenues? What changes will we make in our cost structure (either by necessity or choice)? What will the bottom line look like compared to 2009?

This effort is (or should be) one of collaboration. Generally, the finance person responsible for actually producing the forecast should be receiving input from sales, marketing, service delivery, administration, production, research & development, the executive team and perhaps even the Board of Directors with respect to their thoughts about the upcoming year (or perhaps multiple years). Furthermore, it is best that this input be when “everyone is sitting around the table” as opposed to being sent only to the finance person. This allows everyone the opportunity to challenge each other’s assumption and make sure that they are all on the same page. It’s important that if the plan calls for a ten percent increase in revenue versus the prior year, for example, that everyone is planning their resources accordingly.

As you move through your planning process (either as the person responsible for pulling together the forecast or a participant), it’s important to step back, think strategically and not allow oneself to get mired in the details. Think about what is happening within your company, the competitive environment in your industry, and economic factors generally.

Often, I like to say only the first two digits matter! Why? Because we are dealing with a forecast. By its very definition, it is an estimate and therefore wrong at least to some extent! The question isn’t whether the forecast is wrong, rather it is by how much? I have seen people spend an inordinate amount of time trying to be very precise in their forecast, but miss the big picture. Too often, I’ll see people develop extremely complex formulas to forecast a line item without thinking about the big picture. To develop a forecast without the benefit of the context of historical trends, volume, and “the bigger picture” in mind is a recipe for disaster.

While I don’t mean to suggest one should not “sweat the details”, it’s also important to keep in mind that time is a finite resource and it’s important to focus your efforts where they will have the most value.

If you are forecasting an expense line item of some $50,000, then the digits after the comma are neither material nor predictable. The same is true if you are forecasting a profit picture of $10,500,000 dollars. In this case, even though the potential value of whether that “5” ends up being a 1 or a 9 is significant, one’s ability to forecast it is relatively small. For new businesses, even getting the first digit of the revenue forecast right can be a challenge.

If you are paying attention to how your forecast relates to prior periods, percent to revenue, month to month trends, industry norms and external factors, then you’ll probably end up with a forecast that is reasonable. With these thoughts in mind, I wish you the best of luck in developing your 2010 plans.

If your business could benefit from fractional CFO services, I would welcome the chance to speak with you. Please give me a call at (314) 863-6637 or send an email to

your cash is flowing. know where.®

Ken Homza
Copyright @ 2009 Homza Consulting, Inc.

Too Many Lines (October 2009)

During the last couple of weeks, I’ve had the opportunity to review a few new income statements. What I saw was pretty typical . . . too many lines. Both had over 150 line items. It is clear that the information that I reviewed is not being used to manage the business. There is just no clear organization to the income statement.

The issue is less the actual number of line items than the fact that they are not subtotaled into any logical order. I organized one of these income statements into 23 lines. The largest expense item was for employee costs which accounted for 77% of total expenses (more about that later). My “all other” line item (I almost always have one of these) accounted for only 7% of total costs.

Income statements like the ones I describe often fail to use account numbers. Lacking account numbers, the usual default is that the income statement is organized alphabetically. Just what are the chances that the most important line items in any business start with “A” and the least important ones start with “Z”? Obviously, the answer is “very little”.

Capturing 77% of your costs in one line item provides no detail on the single biggest expenditure of the business. Knowing that 77% of your cost is for payroll doesn’t tell you anything about how those dollars are deployed across departments or activities.

I also see too many line items that just aren’t material to the business. Some are so small that they have only had a few hundred dollars of expenditures in them on an annual basis. As long as you can get to the detail, these should be grouped into a few larger accounts which will likely provide some month to month consistency for forecasting purposes at the same time as well as being easier to review each month.

Hare are a few thoughts about organizing financial information in a way that is meaningful to the reader (usually the executive management team). Ultimately, the goal of these statements is to be a tool. With that in mind, I’d suggest:

o Organize around your most significant costs – use cost centers rather than more line items if you want to understand costs by department.
o Know that you will have some miscellaneous costs, but as long as you can get to the detail, you don’t need a line item for every $200 item.
o Use account numbers to avoid confusion between income and balance sheet items.
o Talk to your accountant about where non-operating costs should be captured. Too often these end up in the middle of the income statement. Typical examples are interest expense and interest income (I frequently see the latter in the revenue category).
o Learn how to properly record payroll expenses; these are usually booked incorrectly every pay period and the outside CPA makes a correcting entry at year end. Why not book them correctly each payroll period?
o Book an estimated depreciation amount every month. Sure, there will be a true-up at year end, but you should know approximately how much fixed asset depreciation you need to cover each month.

If your business could benefit from fractional CFO services, I would welcome the chance to speak with you. Please give me a call at (314) 863-6637 or send an email to

your cash is flowing. know where.®

Ken Homza
Copyright @ 2009 Homza Consulting, Inc.

I Love A Good Audit (September 2009)

Last month, I wrote about the many questions that are part of our business day. To some extent, an audit is all about asking and answering questions about the financials statements of a business and whether or not they accurately reflect the underlying health of that business. The title of this article might surprise many because it actually stems from a comment someone made to me when I mentioned the audit process. They said “that sounds painful”. I suppose some people view the financial audit process as painful and in fact, I suppose that they can be in some cases. But I think there are three important factors to avoid this situation.

First, it’s attitude. One has to review the audit process as an important feedback loop. It’s an opportunity to have an objective review of the financial practices of the business and find opportunities for improvement. If your view is to defend every journal entry you have made throughout the year so that there are no changes, then the process will indeed be painful. If on the other hand, you view it as an opportunity to understand another point of view and reconcile and agree upon any differences, then it becomes about understanding your business better.

Second, it’s important to accept this feedback and work it through your subsequent year’s financial process. It makes no sense to have the auditors provide adjusting journal entries at the end of each year if you continue the same practices as before only to have the auditors make the same adjustments period after period. I recently came across a company that was making payroll entries incorrectly every two weeks. When I questioned this, the person said that the auditors gave them adjusting entries to fix it. I never understand the thinking behind this process. So I asked, “What if we spend thirty minutes and I show you how to do this correctly?” She said, “that would be great, no one’s ever offered to do that for me before!” To me, this makes far more sense. The person doing the work has learned something new and increased their skill set. Management gets a more accurate view of the financial results sooner (rather than waiting for adjustments) and we’ve taken an unnecessary piece of work away from the outside accountants thereby reducing fees.

Third, it’s having the “right” auditors for your company. The firm should be able to give your company the attention that you need and staff it with people who take the time to understand your business and are comfortable dealing with the level of complexity that your business entails. No one audit firm is right for all companies. The big firms tend to be overkill for the small companies and small firms can’t handle the complexity or staff to the needs of Fortune 500 companies.

If your firm isn’t helping you move forward, I’d recommend asking business associates for referrals and interviewing other firms. Many of the companies with whom I work are small to medium sized businesses with a fair degree of complexity and need a firm that will take the time to understand the business, can handle relatively complex issues, work hard to improve the process and are sensitive to costs. I’d be happy to recommend just such a firm to anyone who might be interested.

If your business could benefit from fractional CFO services, I would welcome the chance to speak with you. Please give me a call at (314) 863-6637 or send an email to

your cash is flowing. know where.®

Ken Homza
Copyright @ 2009 Homza Consulting, Inc.

Questions (August 2009)

My work day is filled with questions. Depending upon the day, the client, and the specific role I am playing, determines whether I am the one asking the questions or answering them. But in either case, the underlying motivation is almost always the same. How do we improve the business?

Perhaps every question sent through email, vmail, text message, IM, fax, memo, etc. ought to begin with the phrase “In order to help me better understand and improve the business, would you please . . .” But the truth is that almost none of them begin this way.

As a result, it’s easy for people become offended by some of the questions that are being asked and the implied “tone” in the questions. This happens to all of us, and can often be more frustrating than the question itself. With that in mind, it’s important to take a step back and remind ourselves of the actual motivation . . . to better understand or improve the business.

Most important business decisions are made by getting input from people with various backgrounds. The required expertise may include product, technical, finance, sales, marketing, manufacturing, operations, etc. Even in the same company, and even when that company is small, people from various disciplines often speak “different languages”. Terms, phrases, and abbreviations that may be clear to people who work together all day, may not be clear to people from other departments or to people who operate outside of the company walls (bankers, Board Members, consultants, and the like).

As a result, it’s critical that people do their best to answer questions in a way that is clear to the person doing the asking! This means taking extra time to provide information and detail that may be second nature to the people answering. It may also mean “taking people back” to the last conversation and reminding them of a few of the basic facts and context that they may have forgotten.

For example, I recently got a request to spend $5,000 on capital equipment at one of my clients. While this request was fairly well presented I still went back and asked how it tied to the capital equipment budget we reviewed the week prior before signing off. I wanted to make sure it was for a budgeted item and the amount was in line with our prior discussion.

It’s also important to keep in mind that the answers to questions tend to beget more questions. As people build their understanding of the business, they will continually drill down to the next level of detail. And if a question remains unanswered, it’s a pretty good bet that it will keep coming up until they are ultimately answered.

So, the next time that you are answering a business question (perhaps the same question more than once), remember that it’s probably worth a few extra minutes to provide the context needed so that the person asking clearly understands the answer . . . and even then, be ready for “the follow-up”!

Next month . . . “I Love A Good Audit”!

If your business could benefit from fractional CFO services, I would welcome the chance to speak with you. Please give me a call at (314) 863-6637 or send an email to

your cash is flowing. know where.®

Ken Homza
Copyright @ 2009 Homza Consulting, Inc.

OK to Pay (July 2009)

The normal process of approving accounts payable is for someone who actually received the goods or services to indicate that the invoice is both correct and that the goods or services were appropriately received. Often, this is often indicated by the phrase “OK to Pay” or simply “OK” written on the invoice. But what do these words really mean? I’ve come to learn that it really depends upon whose initials appear beneath the phrase.

In some cases it means “I have reviewed this invoice, it is accurate in terms of what we agreed to pay, the goods or services have been received, are of good quality, and as a responsible member of the company, I approve payment.” Of course, none of those “other words” are actually written on the invoice, they are just implied. When one of these crosses my desk, they are almost always paid within terms.

In other cases, “it means, “I am scribbling my name at the bottom of this invoice to get it off my desk.” Just like in the first case, those words aren’t on the page either, but trust me, they are very much part of the message. These invoices almost always get challenged which delays the payment process.

The trick for the finance professional is to know who provides them with the first answer and who is providing the second. If you are part of the payment chain, from the CFO to the accounts payable staff, it’s your job to figure this out.

Let me give you two examples that actually came across my desk within the last month. The first was lease termination paperwork that offered a buyout price of $5,900. I challenged this number and after one voice mail, I got a message indicating that they could do it at $4,728. This saved my client $1,172. In another case, we were closing out a maintenance contract and being billed for a 30 day notification period. There were some extenuating circumstances, so I asked the person who had indicated that the invoice was “OK to Pay” if he had challenged it. It was pretty clear that he had not. Again, a quick phone call went to the vendor. They agreed to waive the 30 day notification period saving $1,443.

The point of these two examples isn’t to toot my own horn (frankly, reviewing invoices before payment is one of the simplest things that I do). But it is a good illustration how just being “on the ball” can translate into significant savings for the company.

If you’re part of the finance group, learn which people are diligent about approving invoices and which are just going through the motions. And if you’re one of those people responsible for approving invoices, spend a few minutes thinking about the invoice before you initial it for payment. You might be the one able to save your company money.

If your business could benefit from fractional CFO services, I would welcome the chance to speak with you. Please give me a call at (314) 863-6637 or send an email to

your cash is flowing. know where.®

Ken Homza
Copyright @ 2009 Homza Consulting, Inc.

Watch The Stong Links Too . . . (June 2009)

Last month, I wrote about “The Weakest Link” and referred to the old adage “a chain is only as strong as its weakest link”. I made the argument that the same holds true in any organization and that those weak links can become bottlenecks and hold the entire organization back. Within a few hours of publishing that piece, I got an email from one of my readers. It said: “This nails it for me. I get frustrated because I get overloaded and I know others are waiting on me. I used to be able to keep up, but it's just too much any more.” At first, I laughed. But it immediately donned on me that not only can your weakest links be a bottleneck but so can some of your strongest links!

The person who wrote this is clearly a strong link. But the problem with strong links is that over time, too much pressure can be put on “their section of the chain”. Unlike a real chain where every link must support the same load, we all know that certain parts of an organization carry a bigger burden than others. So, while the answer for weak links is generally to get them out of the organization, the answer for strong links is quite different. Usually, it’s finding a way of restructuring their job so that they can add as much value as possible. In other words, they should be performing tasks that they are uniquely qualified to do, not something that could be delegated to others. This of course, assumes that the strong links are willing to delegate; sometimes they are not which can be the reason they are overloaded in the first place. Still, a solution needs to be found that keeps them from being bottlenecks.

More importantly, these people also need sufficient free time to be able to think about ways to improve both their own function as well as the rest of the organization. Generally they can offer helpful feedback to areas outside of their own. When a strong link is so busy that all he or she can do is to “keep up” with the day-to-day demands placed upon them, then they don’t have the free time to be able to contribute in a more meaningful way. The lack of “thought time” (which has become increasingly pervasive in the business world) both limits their contribution to the organization as well as their ability to grow their own career – this serves neither them nor the company well.

So while weak links can clearly limit an organization’s performance, so can over reliance on strong links. If you see someone in your organization that is generally a strong performer but is starting to become a bottleneck, then it is well worth your time to investigate further and understand both the root cause and what can be done to resolve the situation.

If your business could benefit from fractional CFO services, I would welcome the chance to speak with you. Please give me a call at (314) 863-6637 or send an email to

your cash is flowing. know where.®

Ken Homza
Copyright @ 2009 Homza Consulting, Inc.

The Weakest Link (May 2009)

Last month, I talked about the amount of risk that businesses take on through various initiatives. Today, I’d like to address a topic that people usually put into the risk category but which I think goes to the subject of business performance. Often, employers refer to the risks to the business if a certain individual were to leave the company. They’ll openly wonder about what would happen if a certain employee “got hit by a bus”. Well, in all of my years in the work force, I’ve been fortunate enough to never actually know of an employee who got hit by the proverbial bus. Of course, we all know that the real risk people are concerned about is what would happen if this person just “up and quit” one day with little notice. Again, this is something that rarely happens. Most employees are professional enough to give at least two weeks notice. There may be times when they do not want to do so, but they recognize that it is in their long term best interest.

The underlying concern, of course, is that one individual is the only one who knows how to perform certain critical business functions and therefore the organization is held hostage to him or her. These functions are usually not well documented nor understood by others. Unlike employees getting run over by buses, this is a phenomenon that I’ve seen time and again in the business world. And time and again, companies adapt. Usually, there is not so much that is a mystery that others don’t understand and the customary two week notice is sufficient for companies to find a way to fill any gaps. Moreover, it’s often the case that some of those critical, mysterious functions can be performed differently to reach the same end result. Sometimes, they don’t need to be performed at all!

I believe that the real issue with critical functions being understood by only one person is less about that person leaving the organization and more about day to day business performance. Often the person described above is a bottleneck to the rest of the organization. Their lack of action on a particular item can cause the entire company to grind to a halt. Other employees can become unproductive as they enter a “wait state”. More importantly, customers are kept waiting resulting in lost revenue in the short term and lost customers in the long term as they find another company who will provide more timely service. To add insult to injury, it is sometimes the case that the employee who is so critical in one area is an underperformer in others. Overall, the business would benefit if it were no longer held hostage by him or her.

While I have never seen an employee get hit by the proverbial bus, I have seen an employee who is a gating factor in almost every company with which I have ever come in contact. If you look around your organization, chances are that you’ll find an employee who is a bottleneck in a critical area and thereby limiting the performance of the entire organization.

One key to improving company performance is to search out and eliminate underperforming resources. It is an old saying, but “a chain is only as strong as its weakest link”. The same holds true in any organization.

If your business could benefit from fractional CFO services, I would welcome the chance to speak with you. Please give me a call at (314) 863-6637 or send an email to

your cash is flowing. know where.®

Ken Homza
Copyright @ 2009 Homza Consulting, Inc.

Risk (April 2009)

All businesses take some amount of risk. Just opening the doors for the first time involves the risk of capital and labor. From then on, every business decision could be thought of as a risk reward trade-off. For most decisions, we probably don’t take the time to think of them in that light. We go about our day to day activities and accept the risks in our business. But there are certain decisions where one should definitely be thinking about risk and how it affects the overall business.

I believe many businesses become more risky over time. While most small businesses don’t specifically measure investment activities versus their risk adjusted cost of capital, larger businesses (certainly the Fortune 500) do so regularly. But even these businesses are not necessarily good at it. Too often, they tend to assume that all of the projects they undertake have the same risk profile.

For the moment, let’s assume that there are only three risk categories (high, medium and low) and that the business operates in the middle (medium). Let’s also assume that a fair return on those projects is 20% for high risk projects, 15% for medium, and 10% for low. The specific numbers in this case are not meant to suggest that they are the correct return ratios for any particular business, but merely for illustration.

Over time, a business will look at many investment opportunities. If they measure all of them against a medium (15%) investment threshold without considering individual project risk the result will be a shifting of risk over time. Low risk projects won’t meet the medium risk threshold and will get denied (even though one shouldn’t expect them to achieve as high a return because they are safer). The high risk projects will disproportionally exceed the return threshold because they aren’t being held to a high enough standard. More of these projects will get approved (and a higher than anticipated amount will fail). The ultimate result will likely be a business whose risk profile shifts over time.

Think about what has happened in the financial services markets lately. There is a strong argument to be made that there was a lack of understanding of the risk of the underlying investments. Simply put, historical mortgage default rates (and therefore risk) of people who used “traditional” mortgages with 20% down payments is lower than that of highly leveraged “nothing down” borrowers. Using assumptions based upon the former group to underpin investments in the latter group resulted in a mismatch of the risk-return paradigm.

So, how does a small business deal with assessing risk? To start, I would suggest thinking about the risk profile of individual project decisions and ask some questions. Are the assumptions conservative or aggressive? Have we completed a similar project before? What is our confidence that we can achieve the result? Can we accurately measure the results? How have others fared in similar circumstances?

If you conclude that a project is high risk, make sure that you are getting adequately compensated for that risk. On the other hand, if the investment opportunity is low risk, it should not be ignored just because it doesn’t meet a preset threshold that doesn’t consider that fact.

If your business could benefit from fractional CFO services, I would welcome the chance to speak with you. Please give me a call at (314) 863-6637 or send an email to

your cash is flowing. know where.®

Ken Homza
Copyright @ 2009 Homza Consulting, Inc.

Truthful Financial Statements Are A Mirror (March 2009)

Truthful financial statements are a mirror. They are a reflection of what is happening in the business on a day to day basis. They reflect the decisions that management is making and the efficiency (or lack thereof) with which they run their business. Unfortunately, I know of too many operating executives who believe that the financial statements are something that the “accountants do”.

The fact that they feel disconnected between their actions and the financial statements means that something is wrong somewhere. Maybe it’s a lack of communication between operating and financial management. At times, financial results simply aren’t shared and at other times they are not shared with the proper context. Perhaps operating management is insulated by a parent organization from the economic realities of their actions. Or it might be that while short term results appear to be good, the long term consequences of their actions have not yet caught up with them. And then there are times when financial management takes enough actions that they make the sick patient appear relatively healthy (they stretch payables, refinance, provide intercompany loans, or find one-time gains that offset operating losses). Whatever the reason, nothing good can come from this disconnect.

If you’re part of operating management, it’s your responsibility to seek to fully understand the financial results of your organization. If you’re part of financial management, it is your responsibility to do your very best to make sure that operating management understands the financial ramifications of their decisions.

Unfortunately, a lack of understanding of the financial results by operating management is not as rare an occurrence as one might think. I’ve come across a number of companies where this is the case. Often, a finance person gets a call to help when the company is in trouble. When they “dig in”, they find that while the company is financially troubled, the root cause of the problems are sales, operational, quality, service, delivery or some other issue. Although it’s sometimes the case that the finance or accounting staff is incompetent (which means that the debits and credits do not accurately reflect the business operations), this can almost be considered good news as it is the easiest problem to fix.

Notice that I started this newsletter with the word “truthful”. We have all heard of cases where results are not truthful and there is an intentional misstatement of fact. Those misstatements often involve debates around estimates (which are a common part of complex accounting issues). For smaller companies, however, the facts are pretty clear and can be easily interpreted.

Financial statements reflect the operations of the company . . . use them to your advantage.

If your business could benefit from fractional CFO services, I would welcome the chance to speak with you. Please give me a call at (314) 863-6637 or send an email to

your cash is flowing. know where.®

Ken Homza
Copyright @ 2009 Homza Consulting, Inc.

End The Debate . . . Decide! (February 2009)

I think business debate is good. But I am a product of my early career environment. I spent the first ten years of my career at Unisys Corporation. Unisys was (and probably still is) predominantly an engineering company. Open debate was common, vigorous and expected. You could disagree with the CEO as long as it was done respectfully and with the goal of finding the best answer.

After ten years in that environment I moved to LensCrafters. For me, it was culture shock. The style which had earned me promotions and achievement awards at Unisys was neither welcomed nor appreciated. Open debate was frowned upon. The culture respected and expected behind the scenes consensus building. Executive meetings were much more about ratification than vigorous debate.

Which approach is better? They both have their strengths and weaknesses. While the decision making process at LensCrafters tended to be time consuming, once a decision was reached the force of the entire organization was brought to bear against execution. Everyone was committed to the goal and it showed. The company set big goals and generally achieved them. At times, however, the need to satisfy so many constituents meant that the decision was less than optimal. At Unisys decisions were reached more quickly without extended negotiations. That made it easier to set direction. But at times, after the fact negotiations could hamper execution and limit organization effectiveness.

As with many things in life, balance is key. There is room for open debate . . . but only to a point. There are times when it clearly becomes obstructionist and does not further the organization’s goals. At times like this, it is up to leadership to step in and end the debate.

Whether you are in a leadership role or a participant in the debate, ask yourself if it is serving the organization’s goals or whether it is serving some other interest?

Clearly we are in a down economic environment and it is now more important than ever for companies to act clearly and decisively. As you participate in or lead the decision making process at your organization, it’s important to consider how long and hard to debate an issue. Once all opinions are heard, there is a point where the organization is better served by moving forward in a definite direction rather than languishing without a decision.

End The Debate . . . Decide!

If your business could benefit from fractional CFO services, I would welcome the chance to speak with you. Please give me a call at (314) 863-6637 or send an email to

your cash is flowing. know where.®

Ken Homza
Copyright @ 2009 Homza Consulting, Inc.

Don’t Just Survive . . . Thrive! (January 2009)

Most companies have either just completed or are diligently trying to finish their budgets and plans for 2009. Given the tumultuous 2008 and the similar start to 2009, it’s easy to imagine that many companies are thinking about what it will take to survive this year. While it’s obviously critical that you survive, it’s also a good time to think about setting your sights a little higher. Ask yourself, “What will it take to thrive in 2009 and beyond?”

While that might seem like a difficult (if not impossible) notion to contemplate, especially in some industries, difficult times often make for opportunities. During slow economic times, there is normally a shake out of the weakest players in every industry. While that can be unfortunate, it’s also part of the economic reality in which we live. But when the business cycle turns, as it invariably will, there will be more opportunity for those that remain. The question at hand is: What can you do today to position yourself for a stronger tomorrow?

o Is this the time to think about picking up new talent that may now be available?
o Can you use any slowdown in your core business to develop new lines of products or services by deploying people and resources to other areas?
o If your staff is a bit slower than usual, can that time be used for training or to upgrade their skills?
o Are there opportunities to do more for your current customers?
o Might there be some areas where you should increase spending as opposed to only thinking of cutting back?
o Is there an opportunity to purchase a struggling competitor?

I realize that this is somewhat “out-of-the-box” thinking but that is what is required for a company to be successful. 2009 will likely present a number of challenges for both big and small companies. How companies respond to those challenges will be the difference between those that survive 2009 and those that are poised to thrive when the economy improves.

Search for the negatives in your business and eliminate them. Whether it is relationships with underperforming vendors, employees, or even problem customers, now is not the time to be carrying extra baggage. Take corrective action. There are others who would welcome a relationship with your business during difficult times.

Set your sights high. Look for the opportunities that difficult times present and take advantage of them to the greatest extent possible. Search for ways to become a stronger player in your marketplace. Make yourself memorable to your customers and give them a reason to maintain an on-going relationship with you.

If your business could benefit from fractional CFO services, I would welcome the chance to speak with you. Please give me a call at (314) 863-6637 or send an email to

your cash is flowing. know where.®

Ken Homza
Copyright @ 2009 Homza Consulting, Inc.

The Ripple Effect (December 2008)

If there is one thing that causes inefficiency in the work place more than any other, I think it may be ripple effect of missed deadlines. Generally, missed deadlines come in two forms. One is the simple passing of a deadline without it being met. But the other, somewhat more difficult to assess, is when a deadline is met with inadequate information or work product being provided. Whether we are talking about the flow of internal information or the provision of a product or service to a customer, the result is the same. Ultimately, that missed deadline causes a ripple effect throughout the receiving organization and is the cause of substantial inefficiency.

Much like tossing a pebble in a pond, the effect doesn’t stop immediately but continues almost indefinitely. A missed deadline causes others to spend time waiting (never a productive task), changing their work plan (also known as “scrambling”), and going back to ask people when they will provide what they have already failed to deliver (my least favorite activity).

Many times, we don’t know or think of the effect of not delivering on a commitment to someone on the other side. While I have never tried to calculate this cost, I have no doubt it is substantial. Perhaps if we could calculate the cost, and somehow charge it back when someone didn’t deliver as promised, it would solve the problem. While major construction projects often impose penalties when the final deadline is missed, the same doesn’t hold true in most day to day activities.

Think of what happens when someone doesn’t deliver upon a commitment to you. In the best case, that causes increased pressure on you to do your part in a shorter amount of time and still meet your commitments. In the worst case, the ripple in the pond continues to the detriment of companies, departments and people you may have never thought about (or even know about).

Perhaps the worst part of the ripple effect is that it is so very difficult to stop once started. Obviously, there is no way to “unthrow” that stone in the pond. It simply has to run its course (or in the business world, someone has to go to the extra mile to meet their commitments even though they got a late start). Obviously, the best course is to not let the ripples start. Realizing how big a problem can become, we should all take extra care to not be the pebble in the first place; and that starts with all of us meeting our commitments on a daily basis.

While there are many things that businesses need to do to prepare for 2009, clarifying expectations around deadlines is certainly one that will add value throughout the year. Ultimately, it gives everyone the chance to be more productive and that is something that will be appreciated by both your employees and your customers. It might even increase your “top line”!

If your business could benefit from fractional CFO services, I would welcome the chance to speak with you. Please give me a call at (314) 863-6637 or send an email to ken@homza.com

your cash is flowing. know where.

The (Voting) Process (November 2008)

As the 2008 Presidential Elections fade from our collective memory, I’d like to ask you to take a look back and think about the voting process. No, not the two years running up to November 4th, how you selected your candidate, political spending or any of the important things leading up to the selection of our next President. Rather, I’d like to ask you to think about the time from when you got to the polling place until you left. More specifically, think about the process that you went through that day.

Some of us were fortunate enough to go to polling places with short lines but many of us had a bit of a wait (a small price to pay for the right and privilege of voting). But as I stood in line that afternoon, making small talk with the people ahead and behind me in line, I couldn’t help think about the process that was going on in front of me. For the record, my wait was about an hour. During that time, the first thing that I noticed is that there were always at least six voting machines open. Clearly that didn’t seem to be the problem that was holding up the line. Next, I looked at the six stations that were designated for certain letters of the alphabet (A-D, E-H, and so on). These weren’t busy either. Finally, I looked at the first station. There was one person looking at everyone’s voter ID card and handing them a white slip of paper after making a few notations on it. This person wasn’t comparing voter ID cards to any roll or list. There were just looking at the voter ID card and handing out a white slip of paper to be taken to the next station. This was the bottleneck and (at least in my district) the cause of the long line of people waiting to vote. I wondered, what’s the purpose of this task? Is it important to the process? Could it be eliminated? Why couldn’t there be two people performing it? Couldn’t we apply some computer power? How about voter cards with a magnetic strip? In a time when almost every task in our lives has computer processing associated with it (think about how few daily tasks are completely void of computer processing) couldn’t something be done to improve this process?

In any event, the purpose here (despite what it may seem) is not to figure out how to save time at the polls four years from now (although saving a few hours for millions of Americans is probably worth some time and effort). But rather, it is to point out the value of standing back and observing the processes in your business. Too often, we are so busy facing the day-to-day challenges in our businesses that we fail to take the time to stand back and simply observe the process. Given the opportunity, one can often find improvements by asking the simple question: Why?

Force yourself to take some time away from actually working in your business and stand back and observe what happens day-to-day. If you don’t feel you can be objective, ask a trusted friend or colleague to do it for you. I have little doubt that you’ll find opportunities for improvement if you spend the time to look at the process in your business.

If your business could benefit from fractional CFO services, I would welcome the chance to speak with you. Please give me a call at (314) 863-6637 or send an email to

your cash is flowing. know where.

Copyright @ 2008 Homza Consulting, Inc.

Planning In Volatile Times (October 2008)

There is an old saying: “When opportunity knocks, answer the door.” But in these volatile times, it is hard to know whether you are looking at an opportunity or not!? One can get whiplash just watching the stock market with prices up or down 10% in a single day. Take your eye off the ball for even a short period of time and the environment in which you are operating can be different than when you last looked.

During one of my first corporate jobs, I often wondered why the treasurer waited to make decisions. As I got to know both him and the company, I learned that it wasn’t procrastination, but keeping options open. At the time, we had some relatively straight forward financing decisions. It was common practice for us not to “pull the trigger” until the last possible moment. There was a lot of merit to that practice and over the years it added substantial value to the company. I often wonder if those decision makers still operate in the same manner or if they are more opportunistic in their actions. Today, what seems like an opportunity one moment can appear to be an expensive proposition the next.

There is always an opportunity to capitalize on short term market fluctuations. But the key is recognizing that fluctuations (in some cases, bubbles) are short term. People have short memories. In 1999 and early 2000 we thought internet stocks would increase forever (I certainly wish I had sold at the first sign of a downturn). A few years ago, many thought they should buy the biggest house possible (with the minimum down payment) because “everyone knew” housing prices would keep going up at 20% a year and was an easy way to make money. More recently, we had predictions by “the experts” that gas and oil prices would continue to soar after hitting $4.00 per gallon at the pump. After pushing nearly $150 per barrel just a few months ago, oil prices are under $70 per barrel as I write this newsletter.

The lesson to be learned here is that nothing lasts forever. It can’t. The laws of economics dictate that behaviors will change. Those who take advantage of short term market opportunities profit. Those that react to them after the fact will lose. Those that sit tight and place long term bets will likely be okay (in the long run), but it will be a roller coaster ride along the way.

With that in mind, unless your business is taking advantage of a window of opportunity, business decision making should be long term focused. It’s certainly advisable to take advantage of short term opportunities, but it’s important that they are recognized as just that. Extrapolating short term trends into the distant future is often a mistake. Don’t react. Plan.

If your business could benefit from fractional CFO services, I would welcome the chance to speak with you. Please give me a call at (314) 863-6637 or send an email to

your cash is flowing. know where.

Copyright @ 2008 Homza Consulting, Inc.

33.33% of Life Is Just Showing Up! (September 2008)

According to the internet, Woody Allen is responsible for the quote: “90% of Life Is Just Showing Up”. While I’m not sure what the exact percentage should be, I’d argue that it’s no more than one-third. While showing up is necessary, it’s rarely sufficient to accomplishing very much at all.

Amazingly, there are times that people don’t even bother to show up. And I mean this quite literally. I’ve seen people go through the interview process, get the job, and then just not show up on the first day of employment. If I hadn’t seen it more than once, I’d have assumed it was a fluke; but it’s not. I’ve witnessed it twice during the past several quarters and it just makes me wonder what people must be thinking!?

Furthermore, is it really even worth anyone’s time if all that someone does is just show up? Frankly, there is more to it than that. Whatever you are doing, it’s worth doing more than just showing up. You only get out of any endeavor what you put into it. And it takes more than mailing in a performance.

We all have days when it takes everything we have just to show up and get through the task at hand. But on most days, it takes a lot more than just showing up to make anything happen be it in business, sports, personal lives, etc.

So rather than thinking that 90% of it is just showing up, perhaps it’s more reasonable to think that 33.33% of life is showing up, 33.33% of life is preparing, and 33.33% of life is about being in the moment and being fully engaged in the task at hand.

I used to train in karate (I hate saying “used to”). I can assure you that karate is a pursuit where just showing up won’t cut it. It might surprise many to know that when training in karate one never gets hit. Really, it’s true. Rather, one fails to block a punch or kick from an opponent. While the result (ending a class bruised and battered) is the same, the attitude and the discipline that philosophy instills are quite different. It’s not about being there and something happening to you, it’s about being responsible for what happens (whether it’s good or bad).

Business, like life, isn’t about just showing up. It’s a mix of preparation, being in the right position, and execution. As you think about your business, think about the areas where people, departments, divisions, etc. believe that 90% of life is just showing up. These are opportunity areas where you can improve performance. Tell them that you heard only 33.33% of life is just showing up and start to question the other two-thirds of their time (sorry, Woody).

If your business could benefit from fractional CFO services, I would welcome the chance to speak with you. Please give me a call at (314) 863-6637 or send an email to

your cash is flowing. know where.

Copyright @ 2010 Homza Consulting, Inc.

Fix Your Small Problems First! (August 2008)

While I realize that the title of this newsletter might sound counter intuitive, it is a thought worth considering. Fix your small problems first. We all know that many books have been written about prioritization and tackling the A’s before the B’s and C’s. Still, I think there is a certain logic that suggests tackling small problems first might make sense. To be clear, I’m talking about real problems. I am not talking about cleaning your desk and sharpening pencils so that you’ll be ready to tackle the big problems. That kind of activity is procrastination pure and simple. Instead, I’m advocating a strategy of dealing with small issues before they become big problems.

Ask yourself, is it more likely that a small problem will go away or become a big problem later? I think we all know the answer. It is far more likely that left unattended, the small problem will become a bigger problem later. Just in case you need a few examples to get you started, consider these.

• Have you ever seen a minor roof leak go away? Generally, small leaks turn into bigger leaks. For the record, I tried the “hope it will go away” strategy with this problem recently and ended up calling a roofer last week.
• Have you ever seen a problem employee become a solid performer without intervention? Most likely the answer is no. Generally, the problem employee, at best, remains a small problem. At worst, that person infects others in the organization, or does something that seriously endangers the organization’s health or reputation.
• Have you ever had small a problem with a vendor or customer that went unresolved? Perhaps it’s a small billing dispute. As time goes on, it compounds until it becomes a bigger issue. Eventually, solving it involves higher levels of management and possibly consultation with legal counsel.

Hopefully, by now, you can see that the logic in dealing with small problems first is to keep them from becoming big problems later. Fixing problems early usually requires a relatively small (when compared to the amount required to fix it later) amount of time and energy. It’s the difference between putting out a brush fire and putting out a forest fire!

If you feel as if you are constantly dealing with crisis situations, think about whether decisive action early on may have prevented some of these situations from becoming a crisis in the first place. Occasionally, there are some problems that you can “wait out”, but most times the problem only gets worse.

Obviously, I’m not suggesting that anyone ignore big problems in their business, but as we approach the Labor Day weekend, find a few minutes to step back from the day to day issues in your business and consider whether there are some brush fires burning in your business that you can extinguish quickly and easily before they become forest fires!

If your business could benefit from fractional CFO services, I would welcome the chance to speak with you. Please give me a call at (314) 863-6637 or send an email to

your cash is flowing. know where.

Copyright @ 2008 Homza Consulting, Inc.

Step One (July 2008)

With all of the computing power that has been applied to business over the last 30 years, I sometimes wonder if it has produced any better information!? Yes, we have reams of data but there are times when it serves very little purpose because it is not organized into useful information. As I write this, I can think of two recent examples of companies that produce reports that aren’t of much value. In one case, it was (past tense because it is now fixed) an income statement that was poorly organized and couldn’t produce meaningful customer profitability information. In another case it is (current tense because I just read the report this morning) a summary of weekly activity that can’t be reconciled to resources deployed. Even if one understood this report perfectly, it would add little to understanding the business.

From these two examples, comes the title for this newsletter: “Step One” is to develop meaningful reporting for your business. If you do not have information at hand today, I can assure you that this step will not help your business this week (yes, I said “not”). Generally, useful business information is the result of looking at trends over time and developing an understanding of the relationship between key pieces of information. I think it takes half a dozen time periods (6 weeks of activity reporting and 6 months for income statements, for example) to start to draw meaningful conclusions. But I have almost always found that once you start to look at this information you will see trends and ask questions which will lead to ways to improve the business.

In the first case, we started at the beginning of February and reorganized the income statement effective January 1. When we close June, we will have six months of good data. Yes, the first several months were difficult because it felt like we took a step backwards. We had no trend information as compared to bad trend information previously (even that, I would consider an improvement, however). Bad information serves no purpose other than to distract at best and to mislead at worst. In the other case, we started last week. By the end of July, we’ll have enough information that we should be able to affect the business and have a better result (increased profits) in the third quarter.

One of the reasons that I believe that people don’t focus on better reporting is the lack of immediacy of the result. As I mentioned, it is highly unlikely that working on better reporting this week (the first week of July 2008) will solve any problems before we take our 4th of July break. We tend to be so very short term focused that we spend the majority of our time focusing on the problems of the day as opposed activities that will benefit us in the long run. But that doesn’t mean it’s not worth doing!

Given that it is going to take six months for you to develop good income statement reporting, if you start today, you’ll probably start to identify opportunity areas in your business in three months and have good information by year end. That will allow you to enter 2009 with a strong basis of information and to plan to be more profitable in 2009 than 2008.

Every day that you wait is opportunity (and profits) lost. Don’t delay, take “Step One” today!

If your business could benefit from fractional CFO services, I would welcome the chance to speak with you. Please give me a call at (314) 863-6637 or send an email to

your cash is flowing. know where.

Copyright @ 2010 Homza Consulting, Inc.

It's A System . . . (June 2008)

It’s A System . . .

A business is a system. Much like a mechanical system or the human body, if one part is not working it puts pressure on all the others. If you think about your own business this way, I’ll bet you’ll find that it’s true.

As I tend to get calls from businesses that are struggling, I probably see this more than most. The breakdown of a business system shows up in the numbers, but finances are a reflection of the business functioning. Show me a business that functions smoothly and efficiently, and it will likely be profitable. Show me one that struggles with day to day issues and I’ll bet the financial performance will reflect that as well.

While each business is different, most have sales (closing the deal), marketing (getting the word out), customer service (resolving issues or providing support), “product” (those responsible for actually producing a product or delivering a service), accounting/finance (adding up the numbers at its very simplest), information technology (keeping us all connected) and management & administrative (overseeing all of the other functions). Your business might also have R&D (research & development) or some other function(s).

Now, imagine if one of the areas just stopped. If no one delivered a product or service, revenue would dry up pretty quickly. If accounting didn’t send out bills and take payments, then the bank account would soon empty. If the sales department doesn’t close new business, the top-line will drop. Even if building services quits emptying the waste baskets and cleaning the office, the place would soon become a mess and it would impact the entire organization.

The examples stated above are obviously extreme; usually an entire department doesn’t just stop working. However, it’s not so uncommon for departments to be operating at less than full capacity and maybe not even meeting minimum job requirements. When this happens, it puts pressure on every part of the organization.

When the sales department isn’t “making its numbers”, profits drop. This may result in a cutback on resources and make it harder for those delivering products or services to do their jobs. Accounting may stretch payables. This results in calls from unhappy vendors. This takes time and further affects the organizations ability to “get the job done”.

Maybe those delivering the product or service don’t do a good job; as a result, sales suffer. Customers may withhold payment. There will be more complaint calls. Management will step in to deal with the issue of the day rather than planning the future.

The problem can start anywhere. When you see it, it’s not so much about where it started as it is about getting a handle on it and stopping it. That is clearly easier said than done. If you’re fortunate enough to see it starting, nip it in the bud. It doesn’t take long before it will infect the entire organization! If your business is struggling, think of it as a system . . . it might provide a new perspective!

If your business could benefit from fractional CFO services, I would welcome the chance to speak with you. Please give me a call at (314) 863-6637 or send an email to

your cash is flowing. know where.

Copyright @ 2008 Homza Consulting, Inc.

Let's Talk Strategy! (May 2008)

As I look back over the last several newsletters that I have written, it occurred to me that my recent focus has been on “details” . . . spending, cost controls, etc. While this is certainly important, I wanted to spend some time talking about strategy. During May, I had the opportunity to take part in several great strategic discussions. One was presented by the Young Presidents’ Organization (YPO) at Washington University in St. Louis and was lead by Professor Anjan Thakor; the other was a chance meeting during the St. Louis Business Journal Top 150 Awards dinner.

Whatever the forum, you owe it to your business to get away from the day to day issues of running your company and focus on “the bigger picture”. There is an old saying: “Are you working on your business or in your business?” he distinction is important. Too often, business leaders find themselves so enmeshed in daily operations that they are not doing what they are really supposed to be doing . . . guiding the business.

Spending a day (or even better a week or more) focused solely on the strategy of your business can be a rewarding experience. This can be done either exclusively with members of your management team or (even better) during an event like the one I attended at Washington University. The advantage of attending an event is that there is an outside influence and course material that poses questions about various businesses (most of which we have read about) and gives you a chance to ask yourself similar questions about your business.

More importantly, there is likely to be a framework from which to have strategic discussions with your entire team at a later date. The framework presented at Washington University suggested that there are four strategic/cultural platforms. They are listed below along with a few words describing the focus areas for each:

• Collaborative: Integration, Empowerment and Teamwork
• Creative: Change Oriented and Externally Focused.
• Control: Standards and Metrics Based. Focus on Efficiency.
• Competitive: Speed, Financial Returns and Customer Need.

While no organization exclusively expresses only one characteristic (they all have some degrees from each of the four areas), most organizations have a dominant trait. While I can’t do justice to a full day seminar in such a short space, I wanted to present these ideas as “food for thought.”

Regardless of the way in which you choose to frame your strategic discussions, I would encourage every leadership team to invest the time to engage in strategic discussions that provide the opportunity to think differently about the business.

Finally, I want to close with a practical question. Does your finance leader help you think strategically? Rather than providing a page full of numbers, can they offer insightful thoughts about what the numbers mean? More importantly, can they take it to the next level and suggest actions that the company should take to improve its position in the marketplace? Your business both needs and deserves that kind of thinking!

If your business could benefit from fractional CFO services, I would welcome the chance to speak with you. Please give me a call at (314) 863-6637 or send an email to

your cash is flowing. know where.

Copyright @ 2008 Homza Consulting, Inc.

Because It Matters! (April 2008)

When I walk into a new organization I question every cost that crosses my desk. Why? Because it matters! Every dollar matters and experience has taught me there is a lot of waste out there! Obviously, I question the bigger items first, but eventually I question even the small items. Below are a few examples. And please note that I’m intentionally sharing examples of “small stuff” to make a point . . . the bigger stories require a bit more time and space than we have here!

An employee was responsible for ordering some company logo shirts! She said, “I was talking with another employee and we were wondering if we could use company American Express points and get the shirts without spending any cash!” That’s a great idea! These two people were thinking like company owners! While the dollars involved are relatively small, it told senior management that these people both have “their head in the game”. Not only did people take notice of their attitude, but their idea earned them each a $50 American Express gift card as well!

I recently asked about a $78 monthly invoice. It didn’t take long to learn that the cost was supposed to be passed along to a customer two years ago but no one ever took the time to do it (the customer had even agreed)! I instructed that the monthly charge be added to the next invoice and guess what!? The customer paid it! No questions. Let’s think about the “math” on this one. $78 per month for the last two years is $1,872 that just slipped away. Given that the company was paying the bill, any money received from the customer would fall through to the bottom line. Over a five year period (the length of the customer contract), this little $78 expense is worth $4,680. While it’s not enough money to save the world, these things add up over time and it was certainly worth the 20-30 minutes it took me to find the answer!

I saw a line on a lease invoice for storage space. I asked to see the space and found that it was filled mostly with empty cardboard boxes and a never used ping pong table. I checked the lease document and found that it was on a month to month basis. If you have been paying attention, I’m sure you can guess what I did next. I talked to the person responsible for the area and explained the costs. And this wasn’t some $50 per month lease at a public storage facility; this was $577 per month in a downtown building! That’s $6,924 per year. At the same time, the staff who were responsible for this area had just asked to spend $7,000 on new computer equipment. Interesting how those numbers almost match!

If you think these small examples, are interesting, you should ask me about the bigger ones sometime! Some people think that questioning expenditures is the job of finance alone. But I think it is the job of everyone who touches the process of spending money. Ask! It matters!

If you need help with your business, financial plans, or goal setting, please give me a call at (314) 863-6637 or send an email to And, remember . . .
your cash is flowing. know where.

Copyright @ 2008 Homza Consulting, Inc.

Get The Answer You Want (March 2008)

During any given week, I get multiple requests that sound something like this: “Can we spend $2,500 on xyz?” Or, “We need to buy abc and it’s going to cost $12,000.” Well, actually, that last one isn’t technically a request; it’s just a statement begging for an affirmative response.

My reply is almost always the same. What are our options? Is this the best solution given where we are today? Have we gotten other prices? What happens if we don’t spend the money? What’s our return if we do spend the money? Does it help bring in extra revenue? Does the expenditure save other costs? Does it meaningfully improve customer service? Why are you recommending we spend this money?

Often the person asking the question hasn’t given a moment of thought to any of these questions. The most typical and somewhat incredulous reply to my question is “We’ve been doing it this way for years”. For the record, “We’ve been doing it this way for years” is never an acceptable response to any CFO.

Afterwards, the requestor can usually be heard saying something like “Finance didn’t approve the request”. I guess that is factually accurate, but requests like the ones above don’t merit approval. So when the requestor says that they are “waiting for finance approval” the truth is that finance is waiting for the requestor to perform reasonable due diligence and come forward with thoughtful recommendation. In other words, present a business case for the expenditure.

Do you want a fast response to your request? Try walking into any CFO’s office with a request like this (preferably in writing). “I’m requesting an expenditure of $5,000. I believe this is necessary because it will reduce the number of calls coming into customer service by 10%. While we can’t eliminate any hard costs, it will give us more time to tackle other projects, specifically, improved reporting on trouble tickets. I’ve looked at other options and there are competing products that start at $4,000. While my recommendation isn’t the cheapest, it is the industry leader and our research indicates it is superior to any of its competitors. I think the company is better served by spending a bit more than going with the lowest cost solution.”

Let me assure you, this kind of request (depending on the actual dollar amount, budget, etc.) will get attention and be quickly approved. It tells “finance” that the person asking for the funds has both thought about the request performed reasonable due diligence. They are making a recommendation, not asking for permission! That’s a very important distinction. It’s so important, that I’m going to repeat it! Don’t ask for permission; make a recommendation!

When you seek to spend money, everyone knows that you want the answer to be “yes” so rather than make it difficult for someone to approve the request, why not make it easy? Not only that, if you are responsible for spending, it’s part of your job!

If you need help with your business, financial plans, or goal setting, please give me a call at (314) 863-6637 or send an email to And, remember . . .
your cash is flowing. know where.

Copyright @ 2008 Homza Consulting, Inc.

Don't Go Too Big! (February 2008)

There was a saying during the .com boom, “Go Big or Go Home”. It meant that anything worth doing was worth doing in a big way. Hence, many of the start-up companies of the day had world domination on the mind and were spending huge amounts of cash to invest in growth.

Ironically, that very philosophy was part of the reason that many of these companies failed. While it’s smart to plan for growth, there is a huge difference between planning for potential upside and acting as if it that upside is a certainty. In the first case, the thought process is “How will we respond if volume doubles or triples during the next 12 months? How will we staff, obtain additional office space, meet customer demand, etc?” Generally, that’s a smart way to think (and should be accompanied by some downside thinking as well).

On the other hand, when one assumes that growth is a certainty, then the attitude tends to be “let’s just buy it now as we’re going to need it someday anyway”. The spending associated with that thinking can (and has) crashed companies. While this phenomenon was typical of the .com days, it can still be seen today when companies are exclusively focused on growth to the exclusion of day-to-day operations and current positive cash flow.

There is a cost associated with planning for growth that doesn’t occur. The costs show as over inflated rents due to too much space and excessive build-out costs, software systems that can support substantial growth but are excessive for current operations, employee benefits packages that are not “market” for the company’s size, uncontrolled spending of “future” profits, and a myriad of other costs.

While planning for growth is an important step for any business, “assuming” growth and needlessly committing to costs substantially in excess of those required to support near term business can be devastating for companies. It can starve the company of resources required for current day operations. The company is then forced to either “do without” or face the option of taking on additional debt or equity (dilutive of current shareholders) in order to fund those costs.

The best way to avoid this trap is to plan spending based upon milestones or accomplishments. Linking spending to milestones which measure success (particularly marketplace success) is an approach that will assure you (and investors) that there is a reason to be optimistic about the future. Putting these milestones in writing will force one to measure actual results against expectations and therefore force a realistic assessment of the business compared to those expectations.

While I recognize that this approach is less exciting than the approach which assumes big growth and therefore big spending, it’s far more likely to keep you and your company in the game much longer.

As most of the .com companies learned, when they went big (too big) and the result was that they indeed “went home”. Remember, if you go too big, you will likely go home.

If you need help with your business, financial plans, or goal setting, please give me a call at (314) 863-6637 or send an email to And, remember . . .
your cash is flowing. know where.

Copyright @ 2008 Homza Consulting, Inc.

Watch For Red Flags! (January 2008)

Some years ago, I was offered an opportunity to join a well funded start-up company. As part of my due diligence I read the business plan and shared it with a trusted advisor to help me evaluate the company. We talked about some specific concerns. As we talked, it was clear that I was weighing my personal desires (move to a new city, a much needed change from big corporate environments to a smaller company, etc.) more heavily than the business plan. I won’t forget his words to me on one of our calls. He said, “There are red flags. You can choose to ignore them by calling them pink or magenta, but we both know that they are red flags.”

If you’re in St. Louis and you read the St. Louis Business Journal, you’ve probably seen the stories about the “fig” (a St. Louis based company) bankruptcy. Most recently, it accounted the tales of numerous creditors and the amount of their claims in the bankruptcy filing. While I empathize with anyone who is forced to recover through the bankruptcy process, it’s probably fair to suggest that at least some of these suppliers chose to ignore the red flags that were in front of them (or as I had done, chose to believe that the flags weren’t actually red, but rather pink, magenta, or some other color that suggested less severe warnings).

When reading the articles, it is clear that many of the creditors extended fig many months of credit. I think an interesting question is how many of these vendors consciously evaluated the risks of extending further credit in light of slow payment for past goods or services versus how many simply chose to ignore the warning signs that were in front of them? It’s likely that in most cases, vendors chose to believe the best case scenario of increased business and profits to follow (well, at least as soon as they got paid). Knowingly or unknowingly, those extending significant credit were acting as mini venture capital firms and deserved to earn returns appropriate for the risks they were incurring.

When a customer isn’t making timely payments they are effectively asking you (the vendor) to act as a lender. In the case of fig, suppliers weren’t just supplying short-term, low risk financing; they were effectively supplying high-risk venture funding. If they didn’t realize the risks that they were taking, they certainly couldn’t ask for an appropriate return for that risk.

Choosing to accept the risks of extending significant financing to customers is a business decision that deserves careful consideration. Every situation is different and no one answer can address every situation. Extending credit to a growing customer could serve to secure a long term relationship and could prove very profitable. However, simply choosing to ignore the red flags is clearly a bad path. Even if things turn out well in the end, it will be due to luck rather than good business judgment.

In my case, I ignored the red flags. I quelled my inner voice and told myself other people who read the business plan were smarter or understood it better. Every time that I have done this, I’ve regretted it, even when things turn out well in the end.

Never ignore red flags. Heed their warning. Understand, evaluate, and then make a thoughtful decision.

If you need help with your business, financial plans, or goal setting, please give me a call at (314) 863-6637 or send an email to And, remember . . .
your cash is flowing. know where.

Copyright @ 2008 Homza Consulting, Inc.

Update for 2008! (December 2007)

As we come to the end of 2007 and enter 2008, there is no better time than now to think about doing things differently in the New Year. While I am not a big fan of New Year’s Resolutions (any day is a great day to start a new habit), it is a perfect time to update financial reporting. Finish 2007 with current reporting so you have complete year of trends on the same basis. But consider beginning January with a new look to your financial reporting. It is the perfect time to decide what is working and what is not.

When developing financial reporting (aka accounting reports), strive to make sure that they provide meaningful information and can be easily understood by all of the users. Specifically,

1. Use meaningful accounts with intuitive descriptions (update them as needed to reflect the current business, not what it was ten years ago!).
2. Make sure cost centers reflect the organization chart and tree to the person who is responsible for spending. Hold them accountable to monthly results.
3. Allocate costs only where meaningful. Avoid trivial allocations to people who have no control over the spending.
4. Utilize month-to-month reporting so that people can see trends as they follow the columns across the page (generally six months works well).
5. Answer questions about the business (gross margin by product line or customer, or fixed versus variable costs analysis, for example) through meaningful analysis.
6. Integrate any important analysis into regular reporting where appropriate.
7. Make reporting transparent . . . it should be easy to understand how decision making and actions result in profit and loss.
8. Simplify the process of producing the reports by eliminating unnecessary steps and automating those that remain (recurring journal entries are a good example). Make your accounting system work for you.
9. Distribute your reports to those with spending authority and key management.
10. Seek input from the users as to what is meaningful to them and what will help them do their job better.
11. Ask for, or provide, (depending on your role) written explanations of changes from prior periods (either last month or same month year ago) and to budget or plan.
12. Get the entire organization focused on a few key numbers so that everyone has an appreciation for the results of the organization.

Financial reporting is meant to be a tool that helps you drive your business forward through better understanding of revenue, margin, costs and important financial ratios. Your reporting should provide information in a meaningful way to help drive the business to increased levels of profitability and cash flow.

In business, change is a constant. Your financial reporting should reflect those changes!

Happy New Year with Best Wishes for a Prosperous 2008 with Positive Cash Flow!

If you need help with your business, financial plans, or goal setting, please give me a call at (314) 863-6637 or send an email to And, remember . . .
your cash is flowing. know where.

Copyright @ 2007 Homza Consulting, Inc.

Spend It Like It's Your Own! (November 2007)

Last month, I challenged people to think about not just their actions in the work place, but more importantly, the result of what they (or their employees) were doing! This month continues on a similar theme (accountability) and suggests that everyone should spend company money like it’s their own! I constantly come across situations where employees are spending company money very much unlike it was their own.

While there are some people who treat company funds as if they were their own (you should value these employees), there are also those who don’t give much of a thought to how they spend the company’s money. The general attitude can often be described as “it’s not my money”. This is so common that there is a well recognized term for it in corporate circles. It’s called “OPM” which stands for “Other People’s Money”.

While the extreme example of this attitude is Dennis Kozlowski of Tyco International who spent company money lavishly (remember the $6,000 shower curtain) on himself and those close to him, most companies have small examples of spending that could be better managed.

More common place examples of this are:
• Company meals that are more frequent or more expensive than necessary,
• Travel accommodations that don’t consider reasonable or cost effective alternatives,
• Cell phones or internet plans that could be cheaper if only someone asked,
• Expense requests without reasonable alternatives or multiple bids,
• Company credit cards which go unchecked.

Now many are probably thinking that it’s at this point that I’d suggest a myriad of controls to prevent over-spending. Quite the contrary! Those who know me know that I really don’t like policies and procedures.

Years ago, a company for which I worked issued a new travel policy. It was so complicated, many (myself included) didn’t bother to read or understand it. When my boss asked me to explain it to him, I told him that the word within the company was that it was so hard to understand virtually no one had read it. He said to me, “But you just took a trip, how did you book your tickets?” My reply, “I booked the tickets that I would have booked if I was paying for the trip myself.” He thought for a moment and said, “Thanks, that’s what I’ll do!”

Rather than policies and procedures, I’d like to convince everyone that the best and simplest approach is for employees to act as if they are spending their own money. Because, in effect, they are! Face it, there is only so much money to go around, and money that is wasted in one area isn’t available to grow the business, provide employee raises, or make necessary capital improvements. Obviously, getting employees to understand this is easier said than done, but it is not impossible.

Do your employees spend company money like it’s their own?

If you need help with your business, financial plans, or goal setting, please give me a call at (314) 863-6637 or send an email to ken@homza.com And, remember . . .
your cash is flowing. know where.

Last month, I challenged people to think about not just their actions in the work place, but more importantly, the result of what they (or their employees) were doing! This month continues on a similar theme (accountability) and suggests that everyone should spend company money like it’s their own! I constantly come across situations where employees are spending company money very much unlike it was their own.

While there are some people who treat company funds as if they were their own (you should value these employees), there are also those who don’t give much of a thought to how they spend the company’s money. The general attitude can often be described as “it’s not my money”. This is so common that there is a well recognized term for it in corporate circles. It’s called “OPM” which stands for “Other People’s Money”.

While the extreme example of this attitude is Dennis Kozlowski of Tyco International who spent company money lavishly (remember the $6,000 shower curtain) on himself and those close to him, most companies have small examples of spending that could be better managed.

More common place examples of this are:
• Company meals that are more frequent or more expensive than necessary,
• Travel accommodations that don’t consider reasonable or cost effective alternatives,
• Cell phones or internet plans that could be cheaper if only someone asked,
• Expense requests without reasonable alternatives or multiple bids,
• Company credit cards which go unchecked.

Now many are probably thinking that it’s at this point that I’d suggest a myriad of controls to prevent over-spending. Quite the contrary! Those who know me know that I really don’t like policies and procedures.

Years ago, a company for which I worked issued a new travel policy. It was so complicated, many (myself included) didn’t bother to read or understand it. When my boss asked me to explain it to him, I told him that the word within the company was that it was so hard to understand virtually no one had read it. He said to me, “But you just took a trip, how did you book your tickets?” My reply, “I booked the tickets that I would have booked if I was paying for the trip myself.” He thought for a moment and said, “Thanks, that’s what I’ll do!”

Rather than policies and procedures, I’d like to convince everyone that the best and simplest approach is for employees to act as if they are spending their own money. Because, in effect, they are! Face it, there is only so much money to go around, and money that is wasted in one area isn’t available to grow the business, provide employee raises, or make necessary capital improvements. Obviously, getting employees to understand this is easier said than done, but it is not impossible.

Do your employees spend company money like it’s their own?

If you need help with your business, financial plans, or goal setting, please give me a call at (314) 863-6637 or send an email to ken@homza.com And, remember . . .
your cash is flowing. know where. Last month, I challenged people to think about not just their actions in the work place, but more importantly, the result of what they (or their employees) were doing! This month continues on a similar theme (accountability) and suggests that everyone should spend company money like it’s their own! I constantly come across situations where employees are spending company money very much unlike it was their own.

While there are some people who treat company funds as if they were their own (you should value these employees), there are also those who don’t give much of a thought to how they spend the company’s money. The general attitude can often be described as “it’s not my money”. This is so common that there is a well recognized term for it in corporate circles. It’s called “OPM” which stands for “Other People’s Money”.

While the extreme example of this attitude is Dennis Kozlowski of Tyco International who spent company money lavishly (remember the $6,000 shower curtain) on himself and those close to him, most companies have small examples of spending that could be better managed.

More common place examples of this are:
• Company meals that are more frequent or more expensive than necessary,
• Travel accommodations that don’t consider reasonable or cost effective alternatives,
• Cell phones or internet plans that could be cheaper if only someone asked,
• Expense requests without reasonable alternatives or multiple bids,
• Company credit cards which go unchecked.

Now many are probably thinking that it’s at this point that I’d suggest a myriad of controls to prevent over-spending. Quite the contrary! Those who know me know that I really don’t like policies and procedures.

Years ago, a company for which I worked issued a new travel policy. It was so complicated, many (myself included) didn’t bother to read or understand it. When my boss asked me to explain it to him, I told him that the word within the company was that it was so hard to understand virtually no one had read it. He said to me, “But you just took a trip, how did you book your tickets?” My reply, “I booked the tickets that I would have booked if I was paying for the trip myself.” He thought for a moment and said, “Thanks, that’s what I’ll do!”

Rather than policies and procedures, I’d like to convince everyone that the best and simplest approach is for employees to act as if they are spending their own money. Because, in effect, they are! Face it, there is only so much money to go around, and money that is wasted in one area isn’t available to grow the business, provide employee raises, or make necessary capital improvements. Obviously, getting employees to understand this is easier said than done, but it is not impossible.

Do your employees spend company money like it’s their own?

If you need help with your business, financial plans, or goal setting, please give me a call at (314) 863-6637 or send an email to And, remember . . .
your cash is flowing. know where.

Copyright @ 2007 Homza Consulting, Inc.