Featured Article – 2008 February
Want to Keep Your Business Out of Trouble? Here’s How
by Tom Beane
Three sentences I wrote in our first newsletter have served as our guide for everything we’ve done since then, and they bear repeating here: “Even the best of companies sometimes hit bumps in the road. But one way to avoid them is for the owners and management team to make a thorough and honest assessment of their financial and operational practices — at least on a yearly basis. It is far better to identify potential trouble spots before problems get out of hand than to deal with the prospect of restructuring, bankruptcy or liquidation because the early warning signs were ignored.”
Perhaps that’s why the article drew this immediate response, emailed by one CEO: “After reading the article, I need help! See you in a few days.”
Equally significant was our choice of the image to illustrate that first article — the iceberg — because it serves to warn all of us that the most significant problems facing our businesses are often the ones that we cannot see.
The classic example of trouble going undetected is occupational fraud, the topic of our second newsletter. According to the Association of Certified Fraud Examiners (www.acfe.com), U.S. organizations lose 5 percent of their annual revenues to fraud. Based on the 2006 U.S. GDP, that adds up to about $638 billion in losses, despite increased emphasis on anti-fraud controls and recent legislation to combat fraud.
As we noted then, in most cases, a company’s problems don’t start with insider fraud. Rather, fraud tends to occur when a manager or employee sees financial troubles developing and takes steps to try to cover it up.
Two of our suggestions for minimizing the risk of fraud losses: establish strong ethics policies and improve internal controls.
Later in the year, we shifted our focus to strategies that not only help companies stay out of trouble but also can help them improve their bottom lines.
In our third newsletter, we discussed the use of advisory boards as a tool to provide CEO’s with big-picture suggestions to improve a company’s operations.
In an interview, Jim Lucas, a group leader with Vistage, the world’s largest membership organization for CEO’s, touted the value of advisory boards. He said: “Smart CEOs and owners realize they have ’black spots’ — holes in their own skills.One of the things a top-performing leader recognizes is how to fill those black spots. If a leader is weak on finance, then you might really want an accountant on your advisory board because they can give first-hand advice on a strategic level, say, on what’s the impact on cash flow if you decide to add another store. If leaders recognize their ’black spots,’ they can fill them in with an advisory board.”
Ultimately, the success of any business depends upon its product. The idea is to make more, do more, sell more — and in the most efficient manner possible. When we take on an assignment with a troubled business, one of the most important aspects of our review of its operations is to promote the concept of “lean thinking,” the manufacturing technique to vaulted Toyota to the top of the auto-manufacturing ladder.
All sorts of businesses — and even government agencies — are learning that lean techniques can help them eliminate waste and save time and money.
In our May newsletter, Mill Brown, managing director of our Atlanta office, summarized it this way:
“Virtually every set of procedures can be streamlined. Lean thinking is all about getting rid of unnecessary steps and motions, getting rid of any piece of the process that does not add value to the final product. It’s about making what you need, when you need it, rather than stockpiling huge inventories that take up valuable space and might not ever be sold.”
Following the advice outlined in our first four newsletters can certainly help businesses — but not every CEO is going to do that. So, last August, we offered advice on how to choose a turnaround consultant, and followed that up with an explanation of how the consultant assembles a management team to put a business back on track. Key points to note: When a company is in trouble, don’t waste time figuring out who to blame; get to work on fixing the problem. And, perhaps most important of all, teamwork is the ultimate competitive advantage.
Indeed, teamwork is what Beane Associates is all about. If you’re in trouble, we’re ready to help you out. If we can help keep your business out of trouble, that’s even better.