Is Ignorance Bliss? (September 2010)

There is an old saying, “Ignorance is Bliss?” But is it really? I often see key managers in organizations operating with little or no knowledge of the company’s financial situation. While this may allow them to go about their duties without the burden of understanding the financial position of the company, it doesn’t allow them to help the business as much as they should.

While I’m not suggesting that everyone in the organization have a detailed understanding of financial performance, it is important for key managers to have a working knowledge of the financial facts so that they can make business decisions with that perspective in mind. Too often (particularly in poor performing organizations), I see companies where the CEO tries to shelter the rest of the organization from dealing with the facts.

On the flip side, successful organizations tend to share financial performance measures much more broadly than do poor performing organizations. I don’t think this is coincidence. Nor do I think it is because successful organizations are proud to share their results while poor performing are ashamed to do so (although that is likely true). I think there is a cause and effect relationship.

Organizations that find a way to share financial performance measures and, more importantly, reward employees for overall performance, get better results. Employees throughout the organization can work toward a common goal and have a financial perspective (if not a detailed understanding) for decision making. They better understand why management takes certain actions and can make decisions that are consistent with those of senior management.

If the “grass roots” of the organization has no appreciation for the financial performance of the firm, you often find them making decisions that are in direct opposition to those that more senior management is making. Nowhere is this more apparent than in struggling organizations where employees are “empowered” to make spending decisions but lack the proper context with which to make those decisions.

Imagine trying to row a boat with other people if there was no agreement on which direction you wanted the boat to go. How effective do you think you would be compared to a boat with people all rowing in the same direction at the same pace?

Think about your organization. Is ignorance really bliss?

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.

Are You Busy or Bored? (August 2010)

Are you busy or bored at work? It’s a question worth asking and the answer can probably give you insights into your company’s financial position even if you’ve never seen an income statement or balance sheet.

If you’re busy (and there never seems to be enough hours in the day), odds are that your company is staffed appropriately and is profitable. This is especially true if you look back several years and realize that you and those around you are doing more with less, have improved processes, and are more efficient than you were several years ago. Frankly, this is what it takes just to stay even with the competition in the marketplace.

If you’re bored . . . and you can tell that others around you are bored at work, chances are that your company is struggling financially. Regardless of your role, you’d better be busy enough that you’re adding value well beyond your salary. And I don’t mean 10% or 20% more . . . that’s not even enough to cover employment taxes and fringe benefits. I’m talking about adding value of 2x, 3x, 5x or even 10x your salary. Depending upon your industry, that’s what it takes to pay for corporate overhead, capital investment, and to earn a fair return for the shareholders who have invested in your company.

If you and those around you are bored, you’d better do something about it because either one of two things is going to happen. Either someone is going to realize it and single you out as a cost reduction opportunity or your company will not survive very much longer. It may take months, even years, but eventually the company will wither and die. Even if it doesn’t go out of business completely, it will be a lifeless shell where people are showing up but are just going through the motions. Sooner or later, however, chances are that you’ll end up unemployed.

I recently heard about a factory worker who was frustrated about his plant closing. At the same time, he admitted to being bored at work and “hardly working” for years. What’s amazing is that he really didn’t make the connection that it was the actions (or lack thereof) and those around him that brought about his state of unemployment. Sure, he held onto a job longer than he should have, but no company can survive a large percentage of unproductive employees indefinitely.

Whether you make twenty thousand, two hundred thousand, or two million dollars per year, you have to add more value to the business than you’re taking out in order for the company to survive.

So, as you go about your next work day, ask yourself if you are busy or bored? Regardless of the answer, ask yourself if there are ways you and your co-workers can add more value to the business? Adding value is the best way of assuring continued employment by working for a profitable company.

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

Are You Working On The Business? (July 2010)

There is a question that often gets asked, particularly of small business owners. That is: Are you working “on” the business or working “in” the business? While the distinction may sound small, it is critically important.

Too many small business owners find themselves working “in” the business. This means they are working on day to day operational issues. They are interacting with customers, employees and vendors. They are dealing with near term financial issues. They may actually be responsible for a major functional area of the business rather than having someone take care of it for them and only involve them in key decisions.

While resources are always tight in small businesses (they are also tight in well run large businesses), if a business is to rise to the next level, a substantial amount of time must be spent thinking and acting on the issues that will help the business get there. This is what is generally meant as working “on” the business.

Working on the business is about opening up new sales & distribution channels as opposed to chasing the next sale. It is working with your team to develop a long range strategic & financial plan. It is understanding the sustainable growth model of the business (see last month’s newsletter). It is having discussions with the Board about forming strategic alliances that could help the company in the long term. It is thinking about where the market is going and being ready for (or leading) marketplace shifts that you see occurring. It is about understanding what the customer needs, how they perceive your product or service against those needs, and how you can deliver better against any gap. It is about understanding the overall competitive landscape. And it is about understanding the enterprise value that you are creating.

Obviously, I could go on and site countless examples of activities that have more to do with working on the business than in the business. The key point, however, is that unless the CEO and top management team spend time and energy working on long term strategic business issues, they are likely to find themselves doing the same thing over and over year after year with about the same result. A good business doesn’t stand still. It is always striving to move forward.

When resources are tight and time is limited (both of which are usually the case) it is always difficult to find time for issues which are don’t impact the business today or tomorrow. But without the foresight to focus on the “the bigger picture”, it is unlikely that the business will move forward in any meaningful way.

Ask yourself: What you are doing today which will alter the course of your business over the next three to five years? If the answer is “nothing” then carve out the time to tackle some of the longer term issues that are important to the business. You’ll be glad that you did!

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

Sustainable Growth (June 2010)

Some time ago, I worked with a formula called the sustainable growth rate model. Generally, it takes a company’s profit margins, the amount it wishes to retain for growth (as opposed to pay out as compensation to management or dividends to investors) and compares this amount to the projected net assets required to support growth. It also factors in the company’s leverage ratio – how much it finances through debt versus equity.

For those of you who haven’t thought in mathematical equations since being tested on them at the end of the semester (myself included), let me try to put that in plain English. Generally, the after tax profit margin minus dividends paid out to shareholders leaves capital available for growth. Every dollar of growth requires so much capital to support it. Depending upon the life cycle of the company, this may be made up of funds for working capital (accounts receivable for example), or it may be capital expenditures for capacity expansion. Whatever the specific make up, the point is that there is a certain amount of growth a company can support based upon internally generated funds. Further, most companies operate with a certain ratio of debt and equity (as a company grows, it can generally support more debt). Growth beyond that must be supported by additional outside capital either by issuing new equity or increasing the leverage of the firm. Whether the company chooses to fund expansion with debt or equity will determine the amount of leverage and therefore financing risk that the business takes on.

Obviously, just because a formula determines a growth rate doesn’t mean a company can actually grow at that rate. Market and competitive factors as well as the company’s management team are critical factors. The formula is simply meant to suggest the maximum rate at which the company can grow given certain financial assumptions.

The rate at which a company grows and how it chooses to finance its growth, however, is an issue that every company must deal with one way or another. Either they choose to grow with internally generated capital, to issue new equity, to borrow to fund growth, or ultimately not to grow beyond their comfort zone. Some companies spend time thinking about these issues during their strategic planning process. Others may simply operate within their comfort zone which is an implicit decision about leverage, growth and risk tolerance guided by the ownership/management group.

If you believe you have growth opportunities ahead of you, it’s worth spending some time working through various growth assumptions and how those might be financed over both the short and long term.

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.

Differentiate (May 2010)

How do you differentiate your product or service? Even better, how do your customers perceive the differentiation between you and your competitors? These are important questions. And you should answer the first before you attempt to answer the second. It will give you a basis for determining whether you perceive your business in the same way as your customers. Don’t be surprised if your customers perceive your product or service differently than you.

And in case anyone reading this has forgotten: “The customer is always right”. I can think of a number of businesses who were arrogant enough to believe the customer “didn’t get it”. Frankly, they may have been right. But it doesn’t matter; the customer took their dollars elsewhere and those arrogant businesses exist no more.

Find out why customers use your product or service and how you can improve upon it. What keeps them coming back . . . and what will bring them back more frequently or cause them to recommend your business to someone else?

Differentiation is important in both good times and bad. In good times, it allows companies to enjoy higher volumes, profit margins, and expansion. In bad times, it can be the difference between life and death. Generally, players that are able to differentiate themselves from their competitors survive. Customers find a reason to go there (in good times and bad). Companies that deliver a “me-too” experience don’t build customer loyalty. In good times, customers might try someplace else in the hopes of having a better experience. In bad times, customers are all the more tempted to price shop or forgo their purchase altogether.

Think of some recent closures and ask yourself if they differentiated in the marketplace.

Linens-N-Things closed while Bed Bath & Beyond survived. Given the lack of differentiation between the stores, it’s not surprising that one of them was left behind. From a consumer perspective, I can’t think of a reason to favor one over the other.

I think the story is similar with Circuit City who closed and Best Buy who survived. Two big box retailers were fighting in a crowded space. From my home, I could get either one easily but I can’t think of a single compelling reason to have chosen one over the other.

Does anyone remember Hechinger’s of Builder’s Square? They were two of the earlier big box home improvement centers who were beaten by competitors (Lowe’s and Home Depot) who, as far as I can tell, simply built bigger boxes.

A few of these examples continue to exist as on line retailers, but they are mere shadows of their former selves. In any space, businesses need to earn consumers dollars and therefore the right to exist. Without a strong differentiation from competitors, a business is much more vulnerable and therefore more likely to suffer from pricing pressures, loss of market share, and eventual failure.

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.

Set The Agenda (April 2010)

If you don’t set the agenda, one will be set for you. Guaranteed.

Even if you do take the initiative and set an agenda, there is some chance that the boss will overrule you on some or even all of it, but at least you have taken a shot. Whether you’re in finance or any other discipline it’s important to walk in (to a meeting, your Monday morning, whatever) with a plan. To do otherwise is to let the thoughts of others or the events of the day control you. Not a good idea.

Instead, take a few moments or as long as is necessary to set the agenda. Before you start your day or walk into a meeting, put paper to pencil and make a plan. It will both show initiative and forethought. Ultimately, those are qualities that people are looking for in leaders.

Think about how a meeting might turn out differently under these two scenarios.

Scenario 1: You walk into a meeting to discuss your plan for the week, month, year, project, etc. Only you have no plan. The next thing you know the boss is throwing ideas your way. Some good -- some not so good. Or worse, some good, some really bad. At this point, you’re stuck. You either accept those ideas or you end up arguing or negotiating about them. In either event, you’ve lost the opportunity to influence control over your work and your time.

Scenario 2: You walk into the same meeting with your own agenda. You have a plan and the boss sees that you took the time to think about business needs and priorities. Whether the boss agrees with all of your ideas or not, you’re likely to walk out with 80% of your plan in place. In fact, if the boss is busy, he or she might leave it alone if they disagree with small parts of it. They’ll move on to things are higher priorities for them and you’ll end up with your plan accepted in its entirety. And even if they disagree with most of it and make substantial changes, they’ll likely respect the fact that you cared enough to present your thoughts.

Always come forward with your agenda. In the best case, it gives you a chance to exercise greater control and take action based upon what you think is in the best interest of the company. In the worst case, it lets those above you and around you know that you are acting like a leader. Think about it, what do you want from your employees? Someone to come into your office and say: “Boss, what should I do?” or “Here’s my plan.” The answer is obvious.

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.

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.